Let us help you find loans to suit your investment strategy…
At Loan Clinic we understand how to help you finance your investments to maximize your return. We’ll help you with tax deductible debt and loan structures that allow you the flexibility you may need for future investments or changes in your investment strategies.
A few topics of interest
- Protecting your cashflow from rising interest rates – managing your investment
- Using deposit bonds instead of cash deposits
- Getting the right team on your side
- Negatively geared property investments
- How lenders take rental income and tax breaks into account in determining how much an investor can borrow
- Occupancy rates and average returns for rental properties
- Commercial property investment
Protecting your cashflow from rising interest rates – managing your investment
Fixing your interest rate on an investment property loan can make a lot of sense as it allows you to manage your investment by keeping your investment cash flows predictable, particularly during times of increasing interest rates. It is important when fixing your loan to ensure that you don’t fix for a period longer than you intend holding the property or you could end up liable for break-costs to exit the loan.
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Using deposit bonds instead of cash deposits
Deposit bonds are a useful alternative to a cash deposit. They are effectively a guarantee to the seller and can be issued for all or part of a deposit at a cost of about 1.2% of the deposit. A deposit bond for $ 50 000 would cost around $ 600.
The advantages of deposit bonds include:
Your savings remain intact and continue to earn interest
They may be used at auctions
Purchasing off the plan where settlement traditionally takes longer need no impact on your savings or cashflow
Deposit bonds are available for anywhere up to four years.
They can usually be arranged within 24 hours with minimal paperwork
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Getting the right team on your side
Using the right professionals as part of your property investment team can make all the difference. Getting the right loan structure, for example making use of global limits and split facilities can help ensure that you use debt effectively in your portfolio to create wealth over time. With the right structure you will be able to pay off debt that is not tax deductible faster, building increasing tax breaks into your investment strategy over time.
Also important to consider is the use of a good property management agent who can help you keep your rentals increasing in sync with the market and a good accountant who understands property investment and all its tax implications.
The right finance professional on your team can help you make sound decisions and avoid parting with your hard earned profits to unnecessary expenses like break costs or exit fees.
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Negatively geared property investments
An investment property is said to be negatively geared if your expenses to own the property exceed the income it generates. Negative gearing can be an effective strategy for high income earners who have the cash flow to support it. The additional funds required each year to support the investment should be budgeted for to ensure that the investor is able to hold the investment long enough to realize capital gains and for the rental income to exceed the mortgage repayments as rentals rise.
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How lenders take rental income and tax breaks into account in determining how much an investor can borrow
Lenders will generally include between 70% and 100% of the rental income you receive on a property when assessing how much they are prepared to lend you. The shortfall from 100% takes into account expenses you will incur to maintain the property as well as periods of time when you may not have a tenant.
Depending on the structure in which you own the property, the lender may also factor in tax deductions for negatively geared investments, particularly the interest which would be deductible.
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Occupancy rates and average returns for rental properties
Most property management consultants will advise that you budget on occupancy of between 48 and 52 weeks to allow for vacancy between tenants and for any major maintenance required.
Houses and units currently offer average returns of around 3.5% to 5% with apartments obtaining a slightly higher yield of 6% to 6.5%. The higher yield on apartments is usually offset by a slower capital growth in the investment.
In most centres high occupancy and yields are being obtained as demand in the rental market is greater than supply, this is all however dependant on location, quality and market demand factors particular to your location.
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Commercial property investment
Commercial property investments will generally offer higher yields than residential investments in exchange for being a more specialized investment that appeals to a smaller market. Although commercial properties usually have longer tenancy contracts they do carry a higher vacancy risk.
Rentals are usually calculated in Dollars per square metre plus outgoings (electricity, rates etc).
Talk to your Loan Clinic Commercial broker about finance options for your commercial property investment.