Your guide to Landlord home loans for property investors
Looking for an investment home loan is quite different to looking for an owner–occupier home loan.
Here’s what you need to look at when you’re on your favourite comparison site.
Your interest rates
Investment home loan rates have a huge impact on your product choice because you’re not buying somewhere to live, you’re hoping to make a profit from the rental. Check out the other features of the loans on offer, including additional fees and any perks you might get.
You need to look for loans that fit in with your overall investment strategy. Not all landlord loans are available for all sorts of buildings. You may need to look at loans specific to commercial properties, for example. Other loans have limits on the size of the property and others aren’t available for inner–city properties like small apartments.
As you’re taking out what’s essentially a business loan, you should look for a mortgage that helps you to maximise your profits and tax benefits. These options include interest–only loans and 100 per cent offset accounts.
Your additional fees
Don’t recoil in horror from seemingly high fees without first checking out whether they’ll reduce the overall cost of the loan. You’ll be paying that loan for a while, so an annual fee that allows you to make flexible payments or use a redraw facility may be worth it. You also need to look at your application fees, as well as valuation and conveyancing fees.
If you think you’ll be able to make overpayments once in a while (or regularly), then make sure your loan lets you do this without any penalties. If you plan to improve the place every few years, then a redraw facility will come in handy.
How are investor loans different from owner–occupier home loans?
Investment mortgages are often considered riskier than owner–occupier loans, so if you’re investing in a property rather than living in it you’ll find there’s generally higher interest rates, stricter lending requirements and lower borrowing limits.
To invest in a residential property you may face a lower Loan to Valuation Ratio and a larger deposit than for a owner-occupied mortgage.
How to increase your chances of securing an investor mortgage
You need to show your lender that you can repay the loan without any problems. A hefty deposit is obviously useful and make sure your credit score is healthy. Providing proof of your income is also essential, so line all your ducks up in a row before applying.
Another important factor in getting enough finance, or getting any at all, is the type of property you’re looking at. Some properties are deemed risky, such as smaller apartments in areas already saturated with similar rentals. You can sometimes overcome reluctance with a bigger deposit but sometimes you’ll have to find another provider.
How can I maximise my profits?
Smart investors can use various strategies to get the most out of their rental property.
This comes in handy in the first few years of the investment when the expenses often outweigh the rental earnings. If you’re making a loss, you can use the deficit as a tax deduction, helping you to minimise or even recoup your early losses.
Buy and hold
This is as near to a set and forget strategy as property investing has. You buy a property in an up–and–coming area and hope its value goes up, regardless of how much rental profit you’re making. Alongside negative gearing, this is a good way to recoup losses.
Do the place up
If you buy a tired (as realtors like to call it) property and bring it up to scratch then you’ll increase your rental income and profits. Of course, this does involve further investment – of time and money – but once it’s done, it’s done.
The advantages and disadvantages of investing in property
All types of investment carry risks, as well as advantages and disadvantages. Before you start looking for properties and mortgages, you need to weigh it all up.
This is the reason for doing it all! A rental property can mean a decent second income, with some well–appointed places generating up to a five per cent annual yield.
The capital gains
If you sell your rental property at a profit, then you’ll have made a capital gain.
The tax and depreciation benefits
Having a good accountant and quantity surveyor can help you to use your tax advantages to the fullest.
You have more control over a property that you own than you do with other asset classes. You can sell, raise the rent, try Air BnB or short term rentals.
Doing a property up is expensive; there’s also things like lenders mortgage insurance, stamp duty, fire safety inspections, pest inspections, legal fees. You also have to pay for ongoing repairs and maintenance.
It can take a while to sell
If you decide to sell, it can take several months to happen, which might not be a problem if it was part of a long–term plan. If you need your money quickly, however, it can be a frustrating business.
The void periods
Periods of no tenants can eat into your profits and affect your ability to pay the loan. It’s important that you have contingency funds and/or plans for voids.
Now you’ve got the picture…
You need to find out more about some of the great investment home loans out there.
The ANZ Simplicity Plus Investment home loan has a special offer for loans not more than 80 per cent of the property value. The comparison rates on this loan start at 3.42 per cent pa depending on LVR.
The NAB National Choice Package (P&I), fixed for five years, has a rate of 4.42 per cent (comparison) and comes with some handy perks, so check them out.
UBank’s Discount Offer for Investor Variable (P&I) loan has a current rate of 3.49 per cent pa (comparison) interest rate and allows for flexible repayments and an LVR of up to 80 per cent.
Compare landlord loans at InfoChoice.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.
Comparison rate is based on a secured loan of $150,000 over the term of 25 years.
WARNING: These comparison rates apply only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and costs savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan