One question that tends to come up over and over again is should a person or couple take out a loan for an investment property.
Everyone’s situation is different, but for some people investment properties offer a stable investment over a longer term. It is good to get some financial advice so you are buying an investment for the right reasons.
For example, from a tax point of view, it makes sense for some people to negative gear, particularly if they have no dependents and are high income earners. However come sale time borrowers may incur capital gains tax (at the marginal rate). Remember that you don’t pay tax unless you’ve made money, and investors can time their sale to low income years to reduce their tax burden.
People who own their homes outright might also be interested in an investment property. They may feel the share market is too volatile and term deposits don’t have the yield they’re after. Without the expense of their own home mortgage payments, an investment property loan might be more manageable than when they were paying off their primary residence.
The other factor for the potential investment property owner to consider is whether they can afford the associated costs of the property purchase. This includes the deposit, lenders mortgage insurance, government duties and taxes, legal fees and upfront loan costs. Others include the costs associated with the property itself like rates, body corporate if it’s strata title, annual loan fees and local council rates.
Buying a property is a long term purchase, no matter how you look at it. Once you make the decision to get into the investment property, it could be costly to get out of it again should your circumstances change. Being very sure about the investment is essential to avoiding an expensive mistake which could have a serious impact on other assets you currently have.
At the end of the day, investing in property is a long term investment. It’s a good idea to ensure the loan you take out has the features and flexibility you may need.