How To Find The Best Investment Loan
When it comes to real estate, property investment is quite a different prospect from buying a home.
How To Fund Your Investment Purchase
The best finance structure for an investment property can vary depending on various factors such as your financial situation, investment goals, risk tolerance, and market conditions.Â
Buying Off the Plan:Â Buying off the plan means purchasing a property before it has been built. Here are some key points to consider:
- Potential for Capital Growth: If the property market rises during the construction period, the value of your property may increase before it’s even completed.
- Stamp Duty Savings: In some regions, you may be eligible for stamp duty concessions or exemptions if you buy off the plan.
- Customisation: You may have the opportunity to customise aspects of the property, such as fittings, fixtures, and layouts.
As you search for an investment property, your focus will likely be on factors like rental yield and capital growth rather than proximity to work or amenities like a swimming pool. Similarly, loans for property investment are structured differently from home loans. When seeking funding for an investment property, it’s crucial to choose a loan type that aligns with your investment goals.
Understanding the features and repayment options available for investment property loans can help you identify the best fit for your needs and maximise your investment.
By thoroughly understanding the finance process and potential risks, you can make an informed decision when buying an investment property and benefiting from capital growth and other advantages.
Here are some common finance structures that investors often consider for investment properties:
Traditional Investment Loan/Mortgage:Â This is the most common finance structure for investment properties. It involves obtaining a mortgage loan from a bank or lender to finance the purchase of the property. Investors typically make a down payment (usually 20% or more) and repay the loan over a fixed term with interest. Traditional mortgages offer competitive interest rates and terms, making them an attractive option for many investors.
Interest-Only Loan: With an interest-only loan, borrowers only pay the interest on the loan for a specified period (usually 5-10 years), after which they begin paying both principal and interest. This structure can help investors maximize cash flow in the short term by reducing monthly payments, but it may result in higher payments later on.
Variable-Rate Mortgage: This type of loan offers a fixed interest rate for an initial period (typically 5, 7, or 10 years), after which the rate adjusts annually based on market conditions. They often have lower initial interest rates than fixed-rate mortgages, making them attractive to investors who plan to sell or refinance the property before the rate adjusts.
Cash Purchase: Some investors choose to purchase investment properties outright with cash instead of obtaining financing. This eliminates the need to pay interest on a loan and may provide greater flexibility and negotiating power when purchasing properties. However, it requires a significant upfront investment and ties up capital that could be used for other investments.
Offset Accounts: An offset account is linked to your home loan and reduces the amount of interest you’re charged by offsetting the account balance against the home loan balance. You can still access the money in the offset account as needed.
Offset facilities aren’t available on all home loans but typically come in the form of a linked transaction or savings account.
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Get guidance from start to finish on your property investment journey with support from one of our expert lenders at InvestorPort Mortgage Team.