How to Finance an Established Investment Property Purchase

Understanding Investment Property Finance

Purchasing an established investment property represents a significant opportunity for building wealth and creating passive income. For Ellenbrook residents looking to expand their property portfolio, understanding investment loans and the various investment loan products available is essential to making informed financial decisions.

An investment loan differs from a standard home loan in several key ways. These property investor loans are specifically designed for purchasing properties that you intend to rent out rather than live in. The structure, interest rates, and tax implications all differ from owner-occupied mortgages, making it vital to understand these distinctions before proceeding with your investment property finance application.

Investment Loan Options and Features

When exploring investment loan options, you'll need to consider several key investment loan features that can significantly impact your returns and cash flow:

Interest Rate Structures:

• Variable interest rate: Fluctuates with market conditions, offering flexibility and the potential for rate discounts
• Fixed interest rate: Locked in for a set period, providing certainty in your repayment amounts
• Many investors choose a split loan combining both variable rate and fixed rate components

Repayment Types:

• Interest only investment: Pay only the interest component for a specified period (typically 1-5 years), maximising tax deductions and improving cash flow
• Principal and interest: Standard repayments that gradually reduce the loan amount over time

Interest only options are particularly popular among property investors as they help maximise tax deductions while keeping the investment loan repayments lower during the initial investment phase. However, calculating investment loan repayments carefully is crucial to ensure the rental income covers your expenses and the property remains financially viable.

Investment Loan Benefits and Tax Advantages

One of the primary investment loan benefits relates to the substantial tax benefits available to property investors. When buying an investment property, several expenses become tax-deductible:

• Investment property loan interest payments
• Property management fees and body corporate costs
• Maintenance and repairs
• Insurance premiums
• Depreciation on building and fixtures
• Stamp duty (in certain circumstances)

These claimable expenses can significantly reduce your taxable income. Negative gearing benefits occur when your rental property expenses exceed the rental income, creating a tax-deductible loss that offsets other income. While this might seem counterintuitive, many investors use this property investment strategy to build wealth through capital growth while receiving tax relief in the short term.

Understanding Investor Deposit and LVR Requirements

The investor deposit requirements typically differ from owner-occupied properties. Most lenders require a minimum 20% deposit to avoid Lenders Mortgage Insurance (LMI), though some investment loan products allow lower deposits with LMI included in the loan amount.

The loan to value ratio (LVR) is calculated by dividing your loan amount by the property's value. A lower LVR generally results in more favourable investor interest rates. For example, with an 80% LVR, you would borrow $400,000 against a $500,000 property.

Many established property investors use equity release strategies to fund their investor deposit. If you already own property, you can leverage equity from your existing home to access funds for your next investment without needing to save additional cash. This approach accelerates portfolio growth and is a common strategy for building financial freedom through property investment.

Accessing Investment Loan Products Across Australia

As mortgage brokers, Solve It Finance can access investment loan options from banks and lenders across Australia. This breadth of choice is crucial because:

• Different lenders offer varying investor interest rates and rate discount structures
• Some lenders specialise in certain property types or investment strategies
• Policy differences affect investor borrowing capacity calculations
• Not all lenders offer the same investment loan features

Working with a mortgage broker in Ellenbrook who understands the local property market and has access to multiple lenders ensures you're matched with appropriate rental property loan products that align with your property investment strategy.

Key Considerations for Established Investment Properties

When purchasing an established investment property, several factors influence your investment property finance application:

Rental Income Assessment:
Lenders typically assess rental income at 80% of the market rent to account for vacancy rate and periods between tenants. This means if the property generates $500 per week, lenders will calculate your income as $400 per week. You'll need rental income documentation to support your application.

Property Type and Condition:
Established properties must meet lender serviceability requirements. Properties requiring significant repairs or unusual property types may face restrictions with certain lenders.

Your Borrowing Capacity:
Lenders assess your borrowing capacity differently for investment properties, considering your existing debts, living expenses, and the net rental income from the investment. Understanding these calculations helps determine the appropriate investment loan amount.

The Investment Loan Application Process

The investment loan application process involves several stages:

1. Pre-approval: Obtain conditional approval based on your financial position
2. Property selection: Find an established investment property that meets lending criteria
3. Formal application: Submit detailed documentation including rental appraisals
4. Valuation: The lender arranges a professional property valuation
5. Final approval: Receive unconditional approval to proceed to settlement
6. Settlement: Complete the purchase and begin your investment journey

Having all documentation prepared in advance streamlines the process and improves your chances of securing favourable investment property rates.

Investment Loan Refinance Opportunities

As your circumstances change or your property portfolio grows, an investment loan refinance can provide opportunities to:

• Secure lower interest rate discounts as your equity position improves
• Access additional features not available on your current loan
• Release equity for further portfolio growth
• Consolidate multiple investment loans for easier management

Regular loan health checks ensure your investment loan products remain aligned with your evolving property investment strategy and financial goals.

Building Your Property Investment Strategy

Successful property investment requires more than just securing finance. A well-considered property investment strategy considers:

• Your timeline for achieving financial freedom
• Risk tolerance and ability to service debt during vacancy periods
• Capital growth versus cash flow priorities
• Tax position and how to maximise tax deductions
• Long-term portfolio growth objectives

Ellenbrook's growing community and established property market offer various opportunities for local investors looking to build wealth property portfolios within their familiar neighbourhood or expand to other areas.

Whether you're purchasing your first investment property or expanding an existing portfolio, understanding the nuances of property investor loans, accessing appropriate investment loan products, and structuring your finance correctly sets the foundation for successful property investment.

Call one of our team or book an appointment at a time that works for you to discuss how we can help structure your investment property finance to achieve your wealth-building goals.