We have several posts explaining the benefits for first-time home buyers and how to find the perfect house to settle in with your family, but what if your goal is not to live in that house? What happens when you have plans to buy an investment property?
This is what we will clarify in this post. We have listed the six most important things to consider when buying an investment property in Australia.
First things first: what is an investment property?
An investment property is one purchased with the intention not to live in but to make money from rental income, capital growth (when the property increases in value), or leveraging equity for investment portfolio growth.
Crucial things to consider when buying an investment property in Australia
1 – You might not be eligible for Government grants
All government grants and concessions, such as Stamp duty and First Home Owner Grant, only apply for owner-occupied properties. This means that if you are buying a property not to live in, as mentioned above, but to rent for someone else, you will need to be financially prepared for that.
2 – There will be some tax deduction benefits
Although property investors are not eligible for most grants, they in fact are for some tax deduction, such as building depreciation, maintenance and repairs, council rates and strata fees, advertising the property for tenants, among others.
3 – The minimum deposit required will increase
As we have already explained in other blog posts, first-time home buyers can work with only 5% deposit. However, when buying an investment property, the minimum deposit required will be at least 10% of the total amount.
4 – Always consider the extra costs involved
Besides the deposit, it is also important to consider the other costs involved in buying an investment property, such as stamp duty, registration of title, legal and conveyancing fees, building and pest inspections, insurance, etc.
5 – Rent to be received can be used for repayment when you are buying an investment property
The rent to be received from your investment property can be used to pay your mortgage. However, it is important to mention that the Bank you have borrowed money from will also consider that you have extra costs. In addition, when calculating your serviceability, the lenders will consider about 50% to 80% of the rental income to be received. Although you can use your rent to pay future repayments, this will slightly affect your borrowing power.
6 -Your borrowing capacity calculation can be affected
Your current rent payment or mortgage (if you have already bought your own house) will also be considered for the borrowing capacity calculation as an expenditure, which might affect the total amount you will be able to borrow.
Whether you are planning to invest in your first property or growing a wealth portfolio, we can assist you with the right investment loan. Let the technical part with us and avoid paying more than you need. Get in contact with us today, and we will be happy to guide you on this journey.
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