Investment Property

Yes, using equity from your current home is a common strategy for purchasing an investment property. Equity is the difference between your home’s current value and the amount you still owe on your mortgage. For example, if your home is worth $600,000 and you owe $400,000, you have $200,000 in equity. Lenders typically allow you to borrow against up to 80% of your home’s value minus the outstanding mortgage. In this example, you could access up to $80,000 (80% of $600,000 = $480,000, minus the $400,000 owed). This equity can be used as a deposit for an investment property. However, it’s essential to consider that using equity increases your overall debt and the risk associated with your investments. At Fundmaster, we can help you assess whether using equity is the right strategy for your situation and guide you through the process.

Banks use a comprehensive approach to assess your ability to repay an investment property loan. They consider several factors:

1. Income: This includes your regular salary and potential rental income from the investment property. Banks typically only count 75-80% of the expected rent to allow for vacancies and expenses.
2. Existing debts and expenses: The bank will examine your current mortgage payments, other loans, credit card debts, and living expenses.
3. Credit score: A higher credit score can improve your chances of approval and may help you secure better interest rates.
4. Asset position includes savings, investments, and other properties you own.
5. Serviceability: Banks use a higher assessment rate than the actual interest rate to ensure you can cope with potential rate increases.
6. The investment property’s location, condition, and potential for capital growth can influence the bank’s decision.

At Fundmaster, we can help you prepare a robust application that addresses all these factors.

Generally, interest rates for investment properties are often slightly higher than those for owner-occupied homes. This difference typically ranges from 0.2% to 0.5% but can vary depending on the lender and market conditions. Banks view investment properties as a higher risk for several reasons:

1. Investors may prioritise their own home’s mortgage if they face financial difficulties.
2. Rental income can be inconsistent due to vacancies or problem tenants.
3. Property investors may be more likely to sell quickly if the market turns, potentially at a loss.

However, the rate you’re offered will depend on various factors, including your credit score, deposit size, and overall financial position. Some lenders may offer the same rates for investments and owner-occupied properties, especially for high-quality borrowers. At Fundmaster, we can help you compare offers from multiple lenders to find the most competitive rates for your investment property loan.

Yes, you can claim tax deductions on expenses related to your investment property, but recent changes have limited some deductions. Here’s a breakdown:

1. Mortgage interest: As of October 1, 2021, the ability to claim interest as a tax deduction is being phased out for existing properties. New builds are exempt from this change.
2. Repairs and maintenance: Costs for keeping the property in good condition are deductible.
3. Property management fees: If you use a property manager, these fees are deductible.
4. Insurance: Premiums for your landlord insurance policy are deductible.
5. Rates and body corporate fees: These ongoing costs can be claimed.
6. Depreciation: You can claim depreciation on chattels and fit-out of the property.

It’s essential to keep accurate records of all expenses. The tax implications of property investment can be complex, so we recommend consulting with a tax professional. At Fundmaster, we can connect you with tax experts specialising in property investment to ensure you maximise your allowable deductions.