Whether it’s your first investment property or you are well on your way to building a property empire it’s a good idea to take a look at what home loan options are available to you. We can help you finance your investment property and structure your loan to meet your individual needs.
- Deposit Funding
- Fixed Rate or Interest Only
- Loan Structures
- Self-Managed Super Fund (SMSF) Loans
Investment Property Tax Deductions
When you purchase an investment property there a number of items that you may be able to claim as tax deductions.
From a loan perspective, you may be able to claim the interest you pay each month across the financial year. It is for this reason that interest only loans are popular for investors as repaying the principal component is not tax deductible.
Most investors will also have a depreciation report done on their investment property that will show what tax deductions can be made each year. If you were just watching The Block you would have seen they made a big point of this and used the depreciation schedule available (particularly from all the furnishings) as a selling point for the properties. Companies such as BMT can put these schedules together for you.
As an overall guide the following items may be claimed as tax deductions for an investment property:
- Interest on the investment loan
- Home and contents insurance and landlord insurance
- Real estate agent’s commission
- Maintenance costs
- Council rates
- Decline in value of depreciating items such as fixtures & fittings
- Travel expenses to the property to do an inspection, maintenance or repairs
You must chat with your accountant on the particular items relevant for your circumstance.
Typically investors will look at the following types of loans however as with all home loans, there are a number of options available to you. Please discuss with your broker the loan that will be suitable for your needs.
Interest Only Loan
As the name suggests, this type of loan is where you are only paying the interest on the principal balance each month. The principal balance of the loan remains unchanged. An investor typically uses this type of loan as it allows you to minimise your mortgage repayments in the short-term, and you can get a tax deduction on interest payments made but not principal repayments.
Fixed Rate Loan
A fixed rate loan is where the interest rate is locked in and does not change for the period of the loan term. Loan terms are typically for a period of 1-5 years. An investor may choose this loan type to ensure their repayments remain the same each month.
Line of Credit
A line of credit allows you to draw on funds as you need them up to an approved credit limit. Your minimum monthly payment is the interest charged on the outstanding balance each month. If you already have a line of credit on an existing property, it is possible to use any equity from that property as a deposit in your investment property.
If you have a self-managed super fund (SMSF) you may be able to buy an investment property through your fund. As these are quite complex loans it’s best to chat to your broker on the best approach for you.
Ask a Broker
As an investor you will be looking for different things from your loan to someone who is buying a house a live in. For instance you will no doubt be looking for the most tax effective solution!
Here are some questions to think about when you chat to a broker.
- Can I use the equity from my home as a deposit?
- Is a line of credit the best way to access this equity?
- Should I think about cross-collateralisation?
- What loan types are suitable?
- Should I get an interest only loan?
- What benefits are lenders offering to investors?
- Will my interest rate be higher than an owner-occupier loan?
- Should I look at a fixed rate?
- What fees are applicable on the loan?
- How can I set the loan up to minimise interest paid?
- Are there any loan restrictions on particular suburbs or apartment buildings I should be aware of?
- What LVR will a lender allow for an investment loan?
- Can I use an SMSF loan for my property purchase?
- What are the eligibility criteria for an investment loan?
It’s also important to ask yourself some questions so you are prepared. This will help your broker find the right investment loan structure for your needs.
- Are you looking to buy one property...or is this the start....or continuation of an investment portfolio?
- If you have more than one property do you want them all to be financed with the same lender?
- How long are you planning on keeping the property for?
- Do you need an offset account or the ability to redraw any additional repayments made?
- Are you looking to purchase your property through an SMSF?
- Have you already found an investment property?
- If interest rates increase do you have the capacity to make the loan repayments?
- Do you know the potential rental returns on your proposed investment property?
- Have you factored in strata costs or other expenses that may be incurred?
- If your investment property is untenanted for a length of time could you afford the repayments?
- Are you buying the property in your own name or using a company or trust structure?
Cross collateralisation – Cross collateralisation is the process whereby a loan or loans are secured by multiple properties you own rather than by a single property.
We look forward to discussing your home loan needs soon.
We look forward to updating you with home loan news.