Home Buy Australian Property Investments How to Finance Your Investment Property in Australia

How to Finance Your Investment Property in Australia

by David Pascoe
How to Finance Your Investment Property in Australia

Being an investment property owner in Australia is an attractive prospect, thanks to its stable real estate market and substantial potential for capital growth. However, securing sufficient financing can be a daunting task, especially for those new to the field of property investment.
Here are several strategies for effectively financing your investment property in Australia.

  1. Understanding Investment Loans:

In Australia, there’s a wide range of investment loan options available to would-be property investors. These loans are typically interest-only, meaning for a period your repayments will only go towards the interest on the money borrowed. You can opt for a fixed rate to safeguard against rising interest rates or a variable rate to take advantage of possible decreases.

  1. Saving for a Down Payment:

The amount you’ll need for a down payment will depend on the cost of the property you’re interested in and the terms of your loan. Typically, you’ll be expected to put down at least 20% of the property’s value. Thorough financial planning and diligent saving are key steps in accruing your down payment.

  1. Leveraging Equity:

If you already own property, whether it’s your home or another investment, you may have built up equity that you can use toward an investment property. Equity refers to the difference between the property’s value and how much you still owe on it. However, beware that if the property’s value falls, you might end up owing more on it than it’s worth.

  1. Lender’s Mortgage Insurance (LMI):

If your down payment is less than 20% of the property’s value, you may have to pay Lender’s Mortgage Insurance. This protects the lender if you default on your mortgage. This could allow you to enter the property investment market sooner, albeit with added costs.

  1. Investment Partnerships:

This involves pooling resources with a partner to buy a property. This significantly reduces the burden of raising the down payment and servicing the property loan. However, it’s crucial that you draft a legally binding agreement to avoid any disputes in the future.

  1. Getting a ‘Depreciation Schedule’ Done:

A ‘Depreciation Schedule’ prepared by a quantity surveyor can help you claim tax deductions on your property investment. This refers to the lowering of value of your property’s assets over time and can be a significant saving.

  1. Research Government Assistance:

There are numerous government schemes and grants that could support you in securing your investment property. These vary by state and conditions, so thorough research is important.
Remember, property investment is not without risks and, as such, a tailored financial plan is essential. Consultation with a financial advisor can prove immensely beneficial in establishing the best means of financing based on your financial circumstances and long-term goals. Finally, keeping an eye on the Australian property market and wider economic conditions will also be key to your success as an investment property.

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