These days, lots of people are interested in understanding how taking out a loan for an investment property might help set up their long-term financial future. So here's a bit of an overview.
How investment loans work
Loans for investors work a bit differently to a home loan for a property you intend to live in. Part of the reason is of course that an investment in property can generate income for you, so that income can be factored into your ability to service the loan.
You do need to keep in mind all the additional costs associated with buying a property when planning for your investment, such as stamp duty, strata fees and land tax.
Know the risks before you start
Any form of investing has a level of risk, and borrowing to fund an investment property has an added level of risk to it. So that means you need to be prepared to really do your homework to make sure your investment is a good one.
Also, make sure you can repay any investment property loan you take out, even if that investment underperforms. For example, if there were a time when you had no tenants because you needed to do repairs. It's a good idea to check out the government’s MoneySmart website for more information on the pros and cons of borrowing to invest.
Negative gearing occurs when the income from an investment property is less than the costs of owning the property, such as mortgage repayments and maintenance costs. Negative gearing can have tax consequences so we definitely recommend you speak to your accountant or tax adviser to get more information and understand whether it is an appropriate strategy that suits your particular financial situation, objectives and needs.
Self-Managed Super Funds (SMSF)
A SMSF is a ‘do-it-yourself’ superannuation fund (DIY fund), which can have up to four members, all of whom are generally the trustees of the SMSF. SMSFs can be used to invest in a range of assets, including property, and are regulated by the ATO. The rules for setting up and investing via an SMSF are complex and subject to change; and the benefits which can result from setting up an SMSF will be particular to your circumstances, so again, speak to your accountant or tax adviser to get good information and work out whether this strategy can suit your needs.
What about a loan if I don't meet the banks criteria?
With Pepper Money, you may still be eligible for an investment loan. it is a good idea to talk to us and find out what we can do for you. We help all sorts of people from those with irregular income - like the self employed, through to people who have previous credit issues. We have a good variety of options we can look at with you, provided that we can be satisfied that your application otherwise complies with its normal credit assessment and the loan suits your needs.
If you are interested in finding out about Pepper’s home loans for investors speak to one of our Lending Specialists on 13 73 77 or try our home loan borrowing power tool to find out how much you could borrow.
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This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77.