Learn how to invest in property without owning a home or cash deposit, plus tips on loan qualifications and potential risks.
In this article, we'll break down the essential factors to help you understand how to get started with property investment, even if you're not yet a homeowner.
Do You Need to Own a Home to Buy Investment Property?
No, owning a home is not a prerequisite for investing in property. Many individuals buy an investment property before purchasing their first home. This strategy can be advantageous, offering benefits such as:
Passive Income: Rental income from tenants can help cover mortgage repayments.
Mortgage Access: Investment properties can allow you to access mortgage rates typically lower than personal loan rates.
Tax Advantages: Certain expenses, like interest on your loan, may be tax-deductible.
Equity Growth: As property values rise, so does your equity, which can be leveraged for future investments.
Do You Need a Cash Deposit to Invest in Property?
Not necessarily. If you already own a property or have a mortgage, you can potentially release equity from your existing property to use as a deposit.
Equity is the difference between your property’s value and the outstanding loan balance. Lenders may allow you to borrow against this equity to fund the purchase of an investment property.
This strategy can be an effective way to invest in real estate without needing to save for a large cash deposit.
Are Mortgage Rates Higher for Investment Properties?
Yes, mortgage rates for investment properties are typically 0.50% to 0.75% higher compared to owner-occupied home loans. This is because lenders perceive investment loans as riskier. However, this can be offset by several factors:
Tax Deductions: Expenses such as interest repayments, property management fees, and maintenance costs are often tax-deductible.
Interest-Only Repayments: Many investors opt for interest-only loans to lower monthly repayments and improve cash flow.
Claimable Deductions: You may also be able to claim depreciation on fixtures and fittings in your investment property.
Can You Use Projected Rental Income to Qualify for a Loan?
Yes, lenders generally allow you to include projected rental income in your loan application. This can help increase your borrowing capacity. However, lenders will typically only take a percentage of the rental income (often around 75% to 80%) into account to account for potential vacancies and maintenance costs.
What Are the Risks of Investment Property Loans?
Investing in property comes with risks, which you should carefully consider before taking on a loan:
Market Risk: Property values can fluctuate, which might affect your investment’s profitability.
Vacancy Risk: If you struggle to find tenants, your rental income might not cover loan repayments.
Liquidity Risk: Selling a property can take time, making it harder to access your money quickly.
Interest Rate Risk: Rising interest rates can increase your mortgage repayments.
Property Management Costs: Ongoing expenses, including maintenance, property management fees, and insurance, can reduce your net returns.
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Ready to Invest in Property?
Talk with one of our business finance experts who can guide you through the process and help find the best solution tailored to your needs.
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