Purchasing an established investment property can be a strategic way to build wealth through real estate investment. For property investors in Frankston, understanding the various investment loan options and application requirements is crucial for making informed decisions about your property investment strategy.
Understanding Investment Property Loans
When buying an investment property, you'll typically need a rental property loan that differs from standard home loans. Investment loans generally require:
• Higher deposit requirements, usually 20% or more
• Different loan to value ratio (LVR) calculations
• Specific documentation for rental income projections
• Assessment of your borrowing capacity including existing debts
The loan amount you can access depends on several factors including your income, existing debts, and the property's potential rental yield. Lenders will assess whether you're purchasing a town house, apartment, or stand alone dwelling, as each property type presents different risk profiles.
Investment Loan Interest Rate Options
Investment loan interest rates are typically higher than owner-occupier rates. You can choose between:
Variable Interest Rate: Fluctuates with market conditions and Reserve Bank decisions. This option provides flexibility to make additional repayments without penalties.
Fixed Interest Rate: Locked in for a specific period, providing certainty for calculating investment loan repayments and budgeting purposes.
Many lenders offer interest rate discounts based on your loan amount, LVR, and relationship with the institution. These discounts can significantly impact your investment returns over time.
The Application Process
Applying for an investment loan requires thorough preparation. The streamlined application process typically involves:
- Property Research: Analyse the property market in your target area and research property values
- Financial Documentation: Gather bank statements, tax returns, and employment verification
- Investment Strategy Review: Demonstrate your property investment strategy to lenders
- Property Valuation: Lenders will conduct their own assessment of the investment property
Key Costs and Considerations
When buying a rental property, factor in these additional costs:
Stamp Duty: Varies by state and property value, with investor rates typically higher than owner-occupier rates
Lenders Mortgage Insurance (LMI): Required when borrowing more than 80% of the property value. LMI protects the lender if you default on repayments.
Ongoing Costs: Property management, maintenance, insurance, and potential vacancy periods
Investment Loan Features to Consider
Modern investment property loans offer various features that can benefit your investment strategy:
• Offset accounts to reduce interest charges
• Redraw facilities for accessing additional repayments
• Interest-only payment options to maximise cash flow
• Professional package discounts for investment property portfolios
Maximising Your Investment Strategy
Successful property investment often involves understanding concepts like:
Rental Yield: Calculate both gross and net rental yields to assess property performance
Negative Gearing: When property expenses exceed rental income, potentially providing tax benefits
Portfolio Building: Many investors start with their first investment property and gradually build an investment property portfolio
Working with Mortgage Brokers
Mortgage brokers can access investment loan options from banks and lenders across Australia, potentially finding solutions that align with your specific circumstances. They understand the nuances of investment lending criteria and can assist with comparing loan features and rates.
At Abundance Home Loans, we work with Frankston clients to understand their property investment goals and find suitable loan solutions. Whether you're purchasing your first investment property or expanding an existing portfolio, professional guidance can help you make informed decisions.
Invest in real estate requires careful planning and the right financial structure. Understanding your options and working with experienced professionals can help you build a successful property investment strategy that aligns with your long-term financial goals.
Call one of our team or book an appointment at a time that works for you to discuss your investment property loan requirements and explore the options available for your situation.
