A guide to investing in property

Investing in property is a significant financial decision that can offer both stability and growth, which is why it’s a popular form of investment here in WA. Whether you’re looking to diversify your existing portfolio or take your first steps into property investment, understanding the process, financial commitments, and important considerations is crucial.

We’re committed to helping you navigate your property journey with confidence, whoever you are. So, in this blog, we'll explore the key aspects of purchasing an investment property that anyone thinking about an investment property should know.

Understanding property investment

It's vital to define your investment goals and consider the potential risks – as well as the rewards – before venturing into the property market. This applies whether you’re purchasing your first home or are purchasing a second, third or even forth property.

Property investment involves purchasing real estate with the expectation of generating rental income or achieving capital appreciation. It’s a popular way to invest because property values often increase over time and the property market doesn’t fluctuate as dramatically as other investment types can.

Before purchasing an investment property, you should consider the costs and seek professional financial advice. There can be tax benefits associated with property investment, understanding concepts like negative and positive gearing is essential. You may find speaking to a professional helpful.

Deposits for investment properties

One of the first significant financial hurdles when it comes to property investment is the deposit. As with any property purchase, lenders may require a deposit of at least 20% of the property’s purchase price. However, some lenders do offer loans with lower deposit requirements, such as 10% - or up to 90% LVR (loan-to-value ratio).

Saving for a deposit can be challenging, but if you already own property and are thinking of investing you may be able to use equity to help fund your purchase. Regular mortgage repayments contribute to building equity over time, and as you make principal and interest payments, your ownership stake in the property increases. Additionally, if your property value increases it will also boost your equity.

Leveraging the equity in one property, could allow you to secure financing for additional investments. However, it's essential to carefully assess the risks and market conditions before going ahead.

Loans for investing in property

Just like owner-occupier loans, investors can choose a loan with a fixed or a variable interest rate. Depending on the lender you may also have the option of an investor loan with an offset or redraw facility and be permitted to make extra payments. Take a look at our investor loans to see what’s on offer.

When it comes to financing your investment property, it’s essential to understand the differences between an investment loan and an owner-occupier loan. Here's a breakdown of the key differences:

Purpose

Investment loans are for purchasing property primarily for rental income and capital growth, not as a primary residence. Owner-occupier loans are for when the borrower plans to reside in the property.

Interest rates

Investment loans typically have higher interest rates due to higher perceived risk. Owner-occupier loans generally offer lower interest rates.

Repayments

Investment loans often offer interest-only repayment options for an initial period (typically 1-5 years). Owner-occupier loans usually start with principal and interest repayments.

With a loan from P&N Bank, you can choose principal and interest repayments or interest-only, whether it’s an investor or owner-occupier loan you’re applying for.

Borrowing limits

Lenders may impose lower borrowing limits on investment loans compared to owner-occupier loans, reflecting the perceived higher risk.

Remember, LMI (Lender’s Mortgage Insurance) can be applicable to both loan types.

Tax implications

Interest payments and some expenses on investment loans are tax-deductible in Australia. Owner-occupier loans are not tax-deductible. However, owner-occupiers may benefit from exemptions on capital gains tax if the property is sold in the future. Seek help from a professional to learn more.

Tips for first-time property investors

Embarking on your first property investment journey can be daunting, but these tips can help you make informed decisions along the way:

1. Do your research: Understand the market trends, property values, and rental yields in the areas you’re considering. Look for locations with strong growth potential and demand for rentals.
   
   
2. Budget wisely: Factor in all costs associated with buying and maintaining an investment property, including stamp duty, legal fees, property management fees, maintenance and insurance.
   
   
3. Seek professional advice: Consider consulting with financial advisors, lenders or mortgage brokers, and real estate agents. Their expertise can provide valuable insights and help you make strategic decisions.
   
   
4. Focus on cash flow: Ensure that the rental income from the property will cover your mortgage repayments and other expenses. Positive cash flow properties can provide a steady income and reduce financial stress.
   
   
5. Consider your long-term goals: Property investment should align with your overall financial goals. Whether you’re aiming for capital growth or rental income, have a clear plan and be prepared to hold onto the property for several years to maximise the returns.
   
   
6. Stay informed: Keep up-to-date with changes in property laws, interest rates, and market conditions. This knowledge will help you adapt your strategy as needed.
   
   

Investing in property can be rewarding, offering both financial security and growth. If you’re interested in exploring it further, our team can help.  Contact us today to learn more about our investment property loan options and start your journey towards a successful property investment.