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Obtaining a loan for an investment property

Investing in real estate is a popular strategy that many Australians choose to build wealth. Securing financing from a lender is a crucial first step for anyone looking to enter the investment property market.

In this article, we will discuss what an investment property loan is, why people invest in property, how investment property loans work, and how to choose the right lender. If you are looking to obtain a loan for an investment property, this blog is for you.

What is an investment property loan?

If you wish to invest in the real estate market, you may take out a mortgage known as an investment property loan. Investment property loans are like owner-occupied home loans as they both involve lenders providing funds to purchase a property. However, they differ as investment properties are occupied by tenants, that offer the opportunity to generate rental income.

Why invest in property?

Now we understand what an investment property loan is, let’s look into some of the reasons many Australians choose to invest in the property market. Here are four common reasons why people invest in property:

  1. Capital gains: You may commonly hear that property always goes up over time. Whether or not that is the case, investing comes with risk. Many people buy investment properties for their capital gain potential.
  2. Rental income: Investment properties can be a good source of passive earnings as they can generate a healthy amount of rental income.
  3. Tax benefits: Unlike owner-occupied homes, the expenses you incur on your investment property are tax deductible. That means you can reduce your tax liability.
  4. Diversification: Putting your money into an investment property means you are diversifying your money into a different asset class. This can help mitigate risk as you are not “keeping your eggs in one basket”.

How do investment property loans work?

Investment loans are like residential home loans as you borrow money and repay the loan with interest over time. However, investment properties are often a lot riskier as they rely on having tenants and may require regular maintenance which can become costly if problems occur.

When you are looking for an investment home loan, you can choose from a variety of options that suit your circumstances. Some options include the following:  

Interest only or principal and interest loan

An interest-only loan means you are only paying the interest portion of your loan and the principal that you borrow is not being paid down. Investors may choose this option if they believe the value of the house will increase and they expect to make a profit when they sell the house.

A principal and interest loan means you are paying down the principal you borrowed and the interest that is applied to the loan.

Fixed or variable interest rate

Fixed interest rates mean the interest rate you pay stays the same for a period. Variable interest rates mean the rate of interest you pay on your investment property loan can increase or decrease over time.

The options that you choose for your investment property loan will depend on your own circumstances. You can speak with a mortgage broker or a lender to ensure you are making the right decision for your property.

How to choose the right mortgage lender for you

There are a few things you need to consider before selecting a mortgage lender. Choosing the right lender depends on your situation, here are some key points you should consider:

  • Loan products available: Does your lender have a range of products that align with your investment goals and strategy?
  • Interest rates: The interest rate of your lender should be competitive. This can save you thousands of dollars over the time of your loan.
  • Loan terms: Loan terms such as the length of your loan and repayment options should match your investment timeline and cash flow.
  • Flexibility: Choosing a lender that provides flexibility such as extra payments or redraw facilities can help you execute your investment property strategy.
  • Reputation: The lender you select should be reliable. Research your potential lender and ensure they have a track record that can be trusted.

A good mortgage broker can assist you in selectin the right lender.

One Click Life can help you find a mortgage lender

One Click Life can save you money by helping you find a mortgage lender that meets your investment property needs. We have an expert team of mortgage brokers that can guide you through the process. One Click Life can also look after your Health Insurance, Will, and Taxes so you can focus on more important things in life.