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Property Investment Loans?

What You Need to Know About Investment Loans?

 

Investing in property? There are a range of residential investment loans to meet the varying needs of property investors. In fact, property investment loans are not too different from any other type of home loan.

Property Investment Loans for when deciding on the right investment loan most people only consider the interest rate.

Property investment loans include many other considerations like (hidden) fees you pay which can include:

  • Application/establishment fees, range from $0 to $1,000 and more depending on lender and the type of loan you need
  • Ongoing fees can range between nil to $550 per annum
  • Early exit fees/penalties from $0 to thousands
  • Fixed rate loan and economic costs
  • Discharge fees in order to get your title back you need to discharge any mortgage held over it, lenders charge differing fees
  • Mortgage insurance fee depending on lender/insurer, which is calculated using a percentage of loan amount (LVR)
  • Additional lending costs, charged to access any additional funds you have paid on your loan (redraw)
  • Fees charged for changing the security over loan and switching loan products also vary between lenders
  • Valuation costs and legal fees should also be considered…

Property Investment Loans, it’s important to tailor the correct product to suit your investment needs.

property investment loans
Property investment loans

 

Property investment loans example…let’s say you want to maximise the most suitable finance structure by using the best tax structure discussing the options with your tax professional.

Property Investment Loan Types: Property investment loans are no different to home loans. Interest rates, fees and lending policy are very similar:

  • Variable rates
  • Fixed rate loans
  • Line of credit
  • Construction loan
  • Low doc loan

All these types of loans are available for investment property loans.

It does not really matter what type of loan you choose just as long it fits your investment strategy using an interest rate which is competitive and fees (as discussed above) are not excessive.

Property investment loans considerations: professional packaged loans that allow you to put multiple loans under the one package which can help to save on establishment costs and ongoing fees.

Line of credit loans can be used to access equity from an existing home, used as a deposit or to purchase an investment property. If you already own a property, a line of credit is a good way for you to tap into any equity you’ve built up in property which can be used as a deposit for buying investment property.

A line of credit loan allows you to draw from a fixed amount at any time to pay for whatever you want. It’s kind of like a credit card with a big limit but the equity in your home acts as security for the loan.

Interest only loans and principal and interest facilities may be better utilized depending on your personal circumstances and investing objectives. Interest only loan the principal remains the same.

You only pay the original amount you borrowed when you finally sell investment property as this type of loan is useful for investors because your monthly repayments are less than they would be if you were paying off principal as well.

Fixed or variable rate loans also depend on borrowers risk profile and property investment strategy.

Long term property investors with a long term views prefer fixed rates so they know exactly what their repayments are.

Interest Only or Principle and Interest: Interest only loans allow you to only repay interest on the loan without reducing the principle loan amount.

This can assist in allowing a borrower to reduce non-deductible debt or bad debt more quickly. Principal and interest repayments allow debt to be reduced and more equity to be established.

Most property investors prefer interest only loans for the following reasons:

  • Investment interest repayments are tax deductible
  • Principle payments are not tax deductible
  • Principle payments are better utilised via personal non tax deductible debt which reduces amount paid each month freeing up cash flow…

Property investment loans like other loans means you can choose fixed, variable or split interest rates with flexible features like redraws, etc…

Property Investment Loans

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Renovating for Profit?

How to finance property renovations to increase the market value of your property?

 

Renovating for profit is all about home improvements which continue to be popular among Australia’s property owners. Renovations are a great way to add value to an investment, especially houses which are purchased under market value or cheaply.

What are your renovating for profits goals? You want to understand the strength one focused strategy offers you:

  • Buy under market value
  • Research ways to add value
  • Diversify strategy when profitable
  • Take advantage of capital growth

What’s the best or most effective way to achieve your goal? What if you buy in an area predicted for strong capital growth and buy property where you can value add?

Renovating for profit, there are three main strategies which can be achieved:

  1. Demolish and rebuild
  2. Renovate and extend
  3. Refurbish and redecorate

Renovating is also a smart way to increase the standard of living for a property you are living in because simple cosmetic improvements can add value quickly and could add ten per cent to value of the house.

Renovating for profit if you’re taking the first option of demolish and rebuild because this depends on land value and location as property is underpinned by value of land. The further away from public transport the less the value of the land.

When building a new home, neighbours are an important consideration, its important the design fits in with the existing streetscape.

Renovate and extend, family rooms leading to outdoor entertaining areas are popular extensions these days, however the reality is major extensions and structural renovations can be as expensive as building a new house.

The third option refurbish and redecorate involves working within existing walls for example remodeling or replacing kitchens and bathrooms so its relatively simple as there are no major extensions or renovations in the plan.

renovating for profit
Renovating for profit…what is your paint by numbers success formula?

Financing your renovation…let’s start with home equity loan which is a common way to borrow money for renovations. Bank lends money against the value of your home. If your property is worth more than amount still owing, that amount is the equity in that home.

Banks are usually willing to lend up to eighty per cent of loan to value ratio (LVR).

So if your property is worth $530,000 on the market: amount owing is still $330,000, bank can lend you around $160,000 which is eighty per cent of the $200,000 equity held in that home.

What if the cost of your renovations is going to be more than the amount of equity currently in your home? You might be able to take out construction loan against predicted value of your home once the new constructions are completed.

In previous example, if you wanted to renovate to the tune of $200,000 the bank would be willing to lend in a home equity loan would fall short. What if value of the home once renovations are completed is estimated at $820,000 instead of pre-renovation $530,000?

You could apply for a construction loan at around eighty per cent of the amount, of the $420,000 of equity in the home. This would give you access to $336,000 construction loan.

To cover risks in a construction loan, most financial institutions or companies don’t pay out entire loan upfront because its done in phases as needed in construction ensuring money is going towards making the property more valuable, instead of something else.

If you’ve only just purchased your property and it holds no equity, you can take out a personal loan to fund the renovations. Personal loan would generally be for smaller scale renovations typically around $30,000 or less. The drawback is higher interest rates…

An emergency option for a minor renovation could be a credit card. Credit card finance is comparably easy to get, however it comes with the risk or temptation might be to spent on something else or minimum payments are not kept on track.

Bear in mind interest rates on credit cards are higher than other options.

There is no time limit so payments can be made to suit the credit card holder. Keeping payments low and stretching time it takes to pay back credit card however costs much more in the long run because of escalating interest payments.

Renovate or not renovate? If you want to borrow for renovations for your property, you need to work out two factors:

  • Do renovations definitely increase value of property to the level you expect?
  • Can you afford the repayments?
  • Renovating for profit, a property which is worth more is more expensive if you can’t pay back loan…

If the answer to these three questions is yes, you want to plan the renovating for profit strategy, which matches the best finance option for your home improvement…does that make sense?

Renovating for Profit