"People like to invest in property in Melbourne because investing is tangible and can offer solid returns."
Coupled with rental income and potential tax concessions, it’s easy to see why an investment property can be such an attractive proposition when it comes to investing.
What should I know if I already own a property?
Releasing equity in your home to finance an investment property is a great way of getting your current home working for you.
There's a growing trend among young people in Melbourne in particular, to buy a home, pay off part of the loan and borrow against their equity to finance the deposit on an investment property. Banks can finance up to 110 per cent of an investment property, depending on your home’s value.
What else should I know?
- The rental income from your new investment adds to your existing income, which means you don't have to earn a huge salary to begin investing.
- You'll need to get yourself a property manager that will find a tenant, collect the rent and manage repairs. You can also choose to do it all yourself - but be prepared, as managing property in Melbourne can be very time consuming.
- Research the capital growth history of the area and the potential rental income of the property. Choose areas with recreational, shopping and transport facilities and over time the value of your investment will grow. If it has been rented before, check the tenant record. If the property has a high turnover, find out why.
- Negative gearing is used to reduce your income tax liability through the expense of running an investment property. It comes into play on the money borrowed for an investment when the expenses associated with the asset are greater than the income it generates.
- When selling an investment property, if the value on this property has increased, you will pay capital gains tax on the difference. This amount will then be added to your regular income and you'll be taxed at your marginal tax rate.
Many home loan options and features are available and the choice of home loan will ultimately depend on your particular investment strategy and the type of property. We are able to ensure that your loan structure is adequately set up to maximise your taxation benefits. Here are the four main choices.
1. Variable rate or a fixed rate home loan
A fixed rate provides certainty for an investor on limited income. However, the trade off is the capped amount allowed on making extra repayments without a penalty and no access to redraw facility. If you want to combine certainty and flexibility splitting it part fixed and part variable may be a good option. Finally, you will need to consider interest only versus principal and interest repayments.
2. Interest only home loan
The principle balance remains the same during the interest only period. This maximises the investors tax deductions whilst also freeing up cash flow for other investing opportunities.
3. Line of credit
If you already own or substantially own your home, you can borrow against the “equity" that you have accumulated. Equity is simply the difference between what your property is worth and what you owe. An equity home loan gives you a line of credit on your mortgage up to an approved amount. The available credit from this approved limit can be taken in full or in stages, making it particularly useful for property investing.
4. Interest in advance home loan
This loan feature lets you pay next year’s interest in the current financial year, thus creating a tax deduction now.
If you would like to know more about investing in property you can:
- Call us during business hours on (03) 9700 7033.
- Make an appointment or Submit an enquiry,
- Spare no more than ten minutes and fill in our Online assessment form. By completing this form it will enable us to better prepare ourselves when presenting your finance options at your future appointment. After you click on submit we will call you to arrange an appointment.