Use equity in your properties to finance an investment property
95% finance is still available for investors. However a lot of investors do like to keep their leveraging down to 90% to allow a buffer on each investment property
A great place to start looking at your options is establishing how much equity you have to use in your current home or property portfolio
If you have owned your property for more than 2-3 years you may find you already have some equity to play with to start building an investment portfolio. You may have also decided to get in the property market by purchasing an investment rather than a property to live in.
We have helped many clients with this process as we understand how to use equity in your property to buy more property. The are specific lenders that cater better for property investors who make it easier to grow your portfolio.
We also find there can be differences in what each of the banks will use as an estimate for the value of your property
Generally when you are looking top up your home loan for an equity release to assist with a property purchase the bank will want a valuation to confirm what equity you have to play with. Some banks just do whats called a modeled estimate valuation which is basically just an electronic assessment taking into consideration properties recently sold with similar characteristics i.e number of bedrooms, bathrooms and size of the block.
What this doesn’t take into consideration is any improvements you have made to the property which can be a significant difference to the valuation.
For example if you have renovated the bathrooms and kitchen and added an in-ground pool a modeled assessment valuation would miss all of this. As your mortgage broker we would work with banks that would do a full valuation to ensure you can capitalise on the full equity on your property. This can also save you in mortgage insurance which could be a significant saving.
We can also look to do a few valuations through different banks which will give you more than one option to consider even before submitting an application to the bank.
Cash Flow Analysis
We can assist with working out your cash flow analysis on purchasing an investment property. We help set up a spreadsheet for the costs to purchase an investment property and an estimate of your outgoings including your mortgage and ongoing costs of owning an investment to work out your weekly contribution.
The great point to note at present with most properties working on a 5% yield, with interest rates around 4.2 – 4.7% for an investment mortgage the rental income comes close to covering the repayments depending on how much deposit you want to contribute.
Interest-Only vs. Principal & Interest Repayments
When you have a home loan and investment loan at the same time a lot of property investors look to do interest only the investment portion and principal and interest on the home loan portion.
The main reason for this is your home loan isn’t tax deductible debt but your investment loan is !
An investment property provides you with rental income which you do pay tax off. To offset the income you are able to claim ongoing costs of the property including rates, maintenance and mortgage interest. To maximise your tax benefit one strategy is to only pay back the interest for a period and any spare cash flow you have to go toward your home loan.
We always recommend you talk with your accountant with the best structure for you.
As a general guide most lenders now offering lower interest rates for Principal and Interest repayments for investment loans compared to interest only. However even though the interest rate maybe lower for Principal and Interest repayments, from a cash flow perspective the monthly repayment for interest only can be less even with a higher rate.
Most interest only loans are for 5 year and at the end of that period will revert to a principal and interest loan over 25 years.
Whether your looking to buy your first investment property or add to your portfolio we are here to help you. Simply complete the below form and we’ll get back to you…
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