Investment Property Finance

Investment property finance

"...Our bread and butter. We like to think we can obtain investment property
finance with our eyes closed and one hand tied behind our back."

Some common questions...

Should I have an offset account on my investment loan?

Offset accounts are almost essential for any property owner. If you have a mortgage on the property you live in I’d say you definitely want an offset account linked to that property. If you already have an offset account linked to your home then there aren’t too many good reasons to have a second offset account linked to an investment property. Why leave cash in the investment offset account when that cash could be in the owner-occupied offset account offsetting the ‘bad debt'(non-tax deductible)? Don’t offset ‘good debt'(tax deductible) when you could be offsetting ‘bad debt’.

What is negative/positive gearing?

An investment can either make money or lose money. Negative gearing is when your investment costs more than it makes; positive gearing is when your investment makes more than it costs. The logic behind a negatively geared investment is “I’ll take a minimal loss year on year in hopes that the capital gains from selling the investment will exceed the total loss.” A loss can be used to reduce your taxable income which will reduce the amount of tax you pay. However, you are only reducing the tax you pay because the income from your investment isn’t covering your costs. Hence, you will still need to make up for the negative cash flow from other sources. Negatively geared properties aren’t “bad” but they should never be the aim. Why take a loss when you have the option to take a gain?

How much do I need for a deposit on an investment property?

Well, the short is answer 20% of the purchase price. Due to recent policy changes by most lending institutions, the maximum LVR for investment loans is 80%, although we know lenders that in some circumstances will only require a 5% deposit.  If a 20% deposit sounds ridiculous considering you’re in your early 20’s, saving $5/month, and watching the average Sydney property price soar over $1trillion, fear not; there are ways to borrow 100% of the purchase price. These ways include your parents going guarantor, using equity in an existing property, or receiving a ‘gift’ from a family member. Drop us a line to go over your options in further detail.

How does the bank decide how much I can borrow?

This is tough to have a short answer for but just know the banks take quite a conservative approach. Each bank has a borrowing capacity calculator that will add about 2.5-3% to the actual interest rate. So if the actual rate you’d get is 5%, the banks could be assessing your loan capacity by using an 8% rate. Obviously, they take into account all your income/expenses plus they also have built-in benchmarks for living expenses based on your age, number of dependents, etc. Then if you’re receiving rental income from a property the banks usually only 80% of the income. And on top of that each lenders calculator differs form the next so you’ll get different outcomes with each bank. Check out the Mortgage Workshop to get an idea of how much you can borrow. As finance brokers we practically study these bank calculators. Drop us a line and we’d enjoy doing the legwork for you to work out your best options.

Tip 1

Come talk to us. We're a team of engineers who've turned into expert mortgage brokers who know exactly how to set up your investment property finance. Imagine a world where you have a personal engineer working for you... that's enough to give anyone a peace of mind. With Financial Engineers you get the best rate, the best product, and the best structure - oh, and we're very efficient.

Tip 2

Purchasing an investment property is exciting and can often become more emotional than investments should be. Investing into property is like any other investment - It's a numbers game and emotions shouldn't interfere with it. Focus on things like rental yield, capital growth projections, vacancy rates, investment property finance structure, and focus less on colours and bedroom sizes. If it can get you the right rental income at the right purchase price in the right area then go for it - after all it's an investment not your dream home.

Tip 3

Securing the right investment property finance is just as important as choosing the right property. More important than rate is the structure of loan. We can make sure you're investment loan is structured for maximum tax effectiveness.  And trust me you definitely want to get it structured correctly the first go around; I've seen incorrect structures leave thousands of dollars on the table.

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We expected you'd have more questions. Check out our frequently asked questions page and you should find what you're looking for and if not, send us an email and we'll get back to you within the hour. That's right one hour. You'll soon find out efficiency is our forte.

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