A Guide To buying Investment Property

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by: Wilson Jack
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Date: Wed, 27 Apr 2011 Time: 5:32 AM

Hi, I’m Jack Wilson from Safe Property Investing. The most salient questions that come up when you are considering property investing are those that are about money: “How much can my investment property make?” “How much will it cost?” and perhaps most importantly, “How will I finance my investment property?”

To finance something means to provide funding for a project, business venture, or enterprise. Here at Safe Property Investing, we recommend investing in property in Australia as a fantastic way to build your real estate portfolio. The reason for this is that there are many possibilities for investments in rapidly developing areas as well as tax incentives and stamp duty deductions on your investments. But I’ll save the litany of benefits to Australian property investing for another time. Right now I want to help you answer the question: how will you finance your Australian investment property?

Because investment properties are properties you purchase with the intention of renting or leasing to other people, the fundamental goal of property investing is to collect more than you pay out on your property. For example, the rent tenants pay you to lease your property should, in principle, exceed your mortgage payment on the property in the long term. In order to get to the point where you are making money on your investment property, you will first need to secure an investment loan. You might benefit from talking with a financial broker, so that he or she can understand your particular needs and help you to find the best possible mortgage lender. Keep in mind that mortgage brokers will exact a commission for connecting you, the investor, to the bank or mortgage lender.

Generally, mortgage lenders require a 10% down payment for the investment loan or, alternatively, equity on another property that you own. If you own the majority of your own home, for example, the equity generated by this property can contribute toward the lenders’ requirement. There are many options for the types of loans available for your property investment, including fixed rate and variable rate mortgages. No matter which you decide to borrow, it is important to research whether the lender will allow you to pay beyond your predetermined monthly payments. In other words, will it be possible for you to make lump sum payments on your principle at any given time? Being able to do so may allow to you to significantly reduce the cost of your overall investment.

Property investors may choose to set up “offset” accounts, which function similarly to savings accounts. Offset accounts work in the following way: you have your income (or a percentage of your income) deposited directly into the offset account and then this money goes directly toward your home loan payment. Most importantly, this occurs before tax is calculated. The financial benefit to an offset account, therefore, is that it provides you with tax savings. Potential downsides to the offset account are that they have more stipulations (i.e., annual fees and minimum balance requirements) than regular bank accounts, so be sure to do your research ahead of time and choose the offset account that works best for you.

Remember that doing work on the front end—researching mortgage options and talking with a number of finance brokers and mortgage lenders—will lead you to ultimate financial freedom and flexibility through your Australian property investment. Jack Wilson from Safe Property Investing is an expert in Australian investment property.

About the Author

Jack Wilson is the author of this article on Safe Property Investing. Find more information on Investment Property here.

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