Why should you invest in property in Australia?
Buying an investment property should provide you with a passive income stream on a weekly, fortnightly or monthly basis depending on your rent collection frequency. There are tax benefits when you are an investor in Australia such as depreciation allowances, capital gains tax and tax deductions.
Investing in property is a relatively straightforward type of investment. It’s less volatile than investing in the share market and there will always be an ongoing demand for properties. You can even develop the property or renovate to increase the value or the rent. Plus, investing in a property can pay for itself just as long you have a tenant.
What is positive gearing and negative gearing?
There are two main types of investment strategy. The first is positive gearing. This is where the rental income is greater than the expenses i.e. loan repayments, management fees, property maintenance, repairs etc. Essentially, you are earning extra cash-flow which you can take home.
On the other hand, negative gearing happens when the property investment's expenses are greater than the rental income. This strategy benefits the investor because it reduces your taxable income and you may be eligible for a tax refund. Also, these type of investments are usually undertaken when capital growth is expected to offset the running loss in the long term.
What kind of features should I look for in an investment property?
When choosing an investment property, look for properties that are in a good location and have useful amenities like nearby restaurants, shops, schools, or hospitals. This way you can expect a low vacancy rate. You can also opt for properties that have good capital growth, or a balance between capital growth and rental return.
Can I use my equity to invest in a property?
Getting finance for a property investment is easier when you have earned a significant amount of equity in your current home. As an example, if your home is valued at $450,000 and you still have $250,000 remaining on your loan, your equity amount will be $200,000. You can access some of this equity and use it as a deposit for your investment property while your current home is used as a security on the new loan.
What are the other costs to consider?
Take note that buying a property in Australia doesn’t only involve repaying the loan. You will also need to pay for the stamp duty, Lender’s Mortgage Insurance (if you paid less than 20% for the deposit), a property valuation report and, of course, conveyancing fees.
There may also be other fees involved such as establishment fees, settlement fees, early exit fees etc. The range of fees will depend on your lender.
What kind of documents do I need for a property investment loan?
When applying for any loan, you will need to submit the necessary documents to the lender to support your application. This will also depend on your lender, but here are the documents you need to submit if you get a loan with loans.com.au:
- PAYG taxpayers – last two payslips
- Self-employed - last 2 year’s tax returns with an ATO Notice of Assessment
- Three month’s bank statements
- Estimate of rental income
- Evidence to show you have sufficient funds to complete your new property purchase.
- Signed Contract of Sale for the property you are buying