95% Investment property loan required - You have 5% savings, and you require a loan for an investment property for 95% of the purchase price
We have access to lenders who will lend up to 95% + will add the mortgage insurance premium to the loan. Some of these lenders will also allow you to borrow 95% with up to 10 years interest only repayments. Normal bank credit criteria apply.
You have no savings but you own another property with significant equity in it - You have no cash savings but you own your own home that has a significant amount of equity in it
A common misconception that many people have is that you need to have cash to purchase an investment property. This is often not the case. Do you own an unencumbered property or you own a property that has a lot of equity in it (i.e. the loan balance is 80% or less of the property value)? If your answer is YES then you may be able to purchase an investment property with zero cash savings. You can achieve this by simply borrowing against the equity in your current property.
You have no genuine savings but have a relative with significant equity in a property and is willing to act as a guarantor
There are a number of lenders on our panel who offer family equity type home loans. Some of these lenders do not require you to have any genuine savings and will even lend you extra funds to pay for the purchase costs, such as stamp duty. The interest rates on these products are very competitive. All you need is a relative who owns a property with equity in it and is willing to act as a guarantor. It is also possible to limit the guarantee so your relative is not a guarantor for your entire home loan, but for only a small portion of it. Once you build up enough equity in your property the guarantor can then apply to have their guarantee removed.
Mortgage Insurance
What is Mortgage Insurance?
Lenders Mortgage Insurance (LMI) protects the Lender or financial institution.
Unfortunately the type of mortgage insurance that you may be faced with paying, is Lenders Mortgage Insurance. It is required to be taken out against your loan once the loan amount exceeds 80% of the value of your property. (This percentage can be lower in certain circumstances e.g. Low Doc Loans)
LMI protects the lender in case you default on your on your loan, and the sale price of your home is not enough to cover the debt against your home.
The lender will submit your application to the Lenders Mortgage Insurer for approval before they themselves will offer formal or unconditional approval on your loan application. The rate and amount of insurance that you pay directly relates to the size of the loan, and the size of your deposit.
Property Investment - What you should consider
Take the emotion out
When buying an investment property you should treat it as a business decision and not be emotional. A common mistake is that people buy a house they would want to live in, your tastes may not be the same as your tenants, at the end of the day you want a property that generates a cashflow and appreciates in value.
What is your strategy?
Not all properties have good rental return or capital growth. Determine what your strategy is. Is it negative gearing, positive cashflow or/and capital growth that you are after, make sure you know before you start.
Research
Research the area you are keen to invest in. Check out the future development plans with the local council; investigate the capital growth over the last 12 months, 5 years, ten years, demographics, predicted growth rates and the potential rental income.
Terms
When negotiating with the owners the terms of the contract, remember you can negotiate anything, longer settlement, access before settlement for renovation, a smaller deposit or even that they leave equity in the property, you do not know until you ask.
Obtain professional property management services
Professional property management frees you from dealing with tenant issues and helps you keep your distance. Your property manager will be up-to-date with changes to the Residential Tenancies Act, can negotiate on your behalf and is in a position to obtain credit checks on potential tenants.
Tax Implications
Any income generated by the property will be assessed for tax. Any interest you pay on your loan, depreciation, or maintenance can usually be offset against the income and therefore lower the amount of tax being paid. If the property is not your primary residence at the time of sale you will be assessed on any capital gain. Capital gain is the difference between the 'cost base' and sale price. (The cost base is the price you paid for the property along with any expenses when buying and capital improvements made during ownership.)
Suburb
Homes close to CBD have historically experienced the greatest rate of capital appreciation. However, this growth can vary dramatically from suburb to suburb. Areas become trendy or have greater accessibility to better public transport and highways. Major infrastructure can open up an entire 'new' area and it can experience a major growth spurt.
Location
Buy the worse house in the best street. Certain areas are propular and trendy and usually always will be, however there is no guarantees. Do your research and understand what motivates the market and what is influencing the area you are looking in.
Aspect
The best aspect is a north east facing block that will receive the north sun in winter. Access Level blocks generally bring a higher price as occupants have little or no difficulties getting up stairs etc. Building costs are usually higher with awkward blocks.
Occupancy
Some suburbs have different occupancy rates to others and some blocks of units will also have different rates to others. Call agents in the area as if you were looking to rent and see the availability and cost of renting in the area, if there are a large number of vacancies it might be better to chose another location.
Tenants
Good tenants can be hard to find. Good tenants on a long lease will help your cashfllow. If the property you are considering has an unstable tenancy record find out why.
