Property is one of the most popular forms of investment available. It is seen to be secure, tangible and potentially less risky than stocks. If you are planning to buy an investment property, there are many considerations to take into account, from the type of property you choose to purchase, to the way you structure your financing to best advantage and all things in between.
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Beyond Home Loans we offer you guidance and expertise to help you navigate your way through all facets of the process.
Often you can use the equity you may have in property to assist in the purchase of non-property investments, such as shares. The advantages of using property as security over other investment financing options such as margin loans generally include a lower interest rate, and minimal risk of margin calls if the value of your investments drop. It is important to structure this type of loan carefully to preserve any
tax benefits and allow you the flexibility you need.
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The first step you need to take when contemplating investing is to assess how you will be able to finance your new purchase. As with buying a home to live in, you cannot commit to a purchase without knowing what is within your means. It is much harder to work this out when investing than when buying your own home though, since a few extra factors need to be considered. These include the likely rental return (or dividends) you will receive from your investment, the
tax deductions you may be eligible for, the equity you have available in any current assets and whether or not they need restructuring, and what entity you should make your purchase through.
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contact us to discuss your options.
There are a few basic principles to keep in mind when considering borrowing to invest:
It is best to keep debt for an investment purpose separate from personal debt (such as that owing on your home loan). This can usually be achieved by borrowing investment debt in a separate loan account from your home loan, even if it is secured by the same personal property. The predominant reason for this is to protect the tax-deductibility of your investment debt.
See here for more information on tax deductions and negative gearing.
- Don't cross-collateralise
Cross-collateralisation occurs when two or more properties are listed as the security for a loan (or loans). This ties your properties together in a way that opens them up to greater risk if things don't turn out as planned, and creates extra hassle if changes need to be made to one of the loans or one of the properties because the other properties must get involved as well.
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There is generally less need for extra features and add-ons with debt for investment properties. Usually if you have other personal debts you would prefer to pay them off as quickly as possible, and simply pay the bare minimum on an investment loan. As a result, look for products that are as cost effective and simple as possible (while still in keeping with your situation, of course). We can help you with that.
Frequently asked questions