It definitely pays to do your homework on the property market before you dive in, and we’re thrilled to be on board to help you when it comes to financing your decision. Recent share market slides, tight rental markets in most capital cities and a whiff of increase in property prices are seeing many mum and dad investors retreat to bricks and mortar.
Generally, property in Australia is still considered to be a sound investment due to steady and consistent increases over time.
But it’s not a quick win. Property usually has a seven to ten year cycle, with highs, lows and steady stints in between.
Fortunately, an ongoing housing shortage in Australia and a tax system that allows negative gearing on property (where any investment losses can be claimed as tax deductions) continue to favour housing as a solid, long-term investment.
But credit has tightened in the wake of the Global Financial Crisis so lenders are more cautious about who borrows and for what. We are here to help find the right lender and loan for your circumstances in this new environment. We can also wade through the many investment loan options on offer, leaving you more time to find the ideal property.
Australians are among the most active property investors in the world, with an average of one in every three new mortgages each month arranged for investors. Most of these investors are ordinary people with ordinary jobs earning ordinary incomes. So, why is property investment so popular?
Capital growth. Capital growth is the increase in value of property over time and the long term average growth rate for Australian residential property is about 9% a year. Importantly, because property markets move in cycles, property values go through periods of stagnation as well as decline. This is why taking an investment view of at least 10 years is important. Note: if your investment property increases by 7.5% a year, over a 10 year period it will double in value.
Rental income. Rental income, also known as yield, is the rent an investment property generates. You can calculate this by dividing the annual rent by the price paid for the property and multiplying it by 100 to produce a percentage figure. As a general rule, more expensive properties generate lower yields than more moderately priced properties. There is also usually a direct, inverse relationship between capital growth and rental income. Those properties producing a lower rental yield will often deliver greater capital growth over the long term.
Tax benefits. The Federal Government allows you to offset against your taxable income any losses you incur from owning an investment property. For example, if the amount you receive in rent from tenants is $5,000 less than the cost of servicing the mortgage, and paying rates, water and other fees associated with the property, at the end of the year you can add that $5,000 to the amount of income on which you don’t have to pay tax. If you work as an employee, with income tax automatically deducted from your pay, this means you’ll receive a refund from the Australian Taxation Office (ATO) after the end of the financial year.
Low volatility. Property values generally fluctuate less than the stock market. Many investors say they experience greater peace of mind for this reason.
Leverage. Property enables far greater leverage than many other investments. For example, if you have $100,000 in savings, you could invest it in a portfolio of shares, or use it to buy a property worth $500,000 by taking out a mortgage for $400,000. If shares go up by 10% during the year, your share portfolio would be worth $110,000 and you would have gained $10,000. If property goes up by 10% during that same year, your property would be worth $550,000 and you would have gained $50,000.
You don’t need a big salary to invest. If you are buying to invest, lenders will take rental income as well as your own income into their assessment. If you already own your own home and have some equity in it, you may be able to use this as a deposit, meaning that you can buy an investment property without having to find any additional cash. If you don’t own your own home and feel you may never be able to afford one, buying an investment property may be a good stepping stone to one day being able to afford your own home.
We’re all unique when it comes to our finances and borrowing needs. Get an estimate on how much you could borrow with our Home Loan Quote in 30 seconds. Or contact us today, we can help with calculations based on your circumstances.
Our guides to loan types and features will help you learn about the main options available. There are hundreds of different home loans available, so talk to us today.
Usually between 5% – 10% of the value of a property, which you pay when signing a Contract of Sale. Speak with us to discuss your options for a deposit. You may be able to borrow against the equity in your existing home or an investment property.
Go to our Repayment Calculator for an estimate. Because there so many different loan products, some with lower introductory rates, talk to us today about the deals currently available, we’ll find the right loan set-up for you.
Most lenders offer flexible repayment options to suit your pay cycle. Aim for weekly or fortnightly repayments, instead of monthly, as you will make more payments in a year, which will shave dollars and time off your loan.
There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all of the usual costs:
Whatever your circumstances, we will find the deal that’s right for you, not the lender. Send through a quick enquiry and we will be in touch.