Understanding Investment Property Loans
For Australian Defence Force members, building wealth through property investment can be a smart financial move. Whether you're looking to purchase your first investment property or expand your investment property portfolio, understanding the fundamentals is crucial.
An investment loan differs from a standard home loan. When buying an investment property, lenders assess your borrowing capacity differently, considering rental income potential alongside your regular Defence Force salary. Finance & mortgage brokers can help you access investment loan options from banks and lenders across Australia, ensuring you find suitable terms for your situation.
Types of Investment Properties to Consider
When you invest in real estate, you'll need to choose between different property types:
• Apartments - Often more affordable entry points with potentially lower maintenance costs
• Townhouses - Balance between affordability and space, appealing to families
• Stand alone dwellings - Typically offer stronger capital growth potential but require higher loan amounts
Each property type affects your rental property loan requirements and rental yield calculations differently.
Key Financial Considerations
Loan to Value Ratio (LVR)
Most lenders require a maximum 80% LVR for investment properties. This means you'll need at least a 20% deposit to avoid lenders mortgage insurance (LMI). However, some lenders may accept higher LVRs with LMI, which could help Defence members enter the property market sooner.
Interest Rate Options
You'll choose between:
• Variable interest rate - fluctuates with market conditions
• Fixed interest rate - locked rate for a set period
• Split loans - combining both options
Many lenders offer interest rate discounts for Defence Force members, so it's worth exploring these benefits when applying for an investment loan.
Additional Costs
Beyond the property purchase price, budget for:
• Stamp duty (varies by state)
• Legal fees
• Building and pest inspections
• Ongoing property management costs
The Investment Loan Application Process
When applying for an investment loan, lenders will review:
- Bank statements - typically 3-6 months
- Income verification - pay slips and tax returns
- Property research - rental appraisals and market analysis
- Existing debts and expenses
The application process can involve multiple stages, but working with experienced brokers familiar with Defence Force circumstances can help streamline your investment loan application.
Calculating Investment Loan Repayments
Understanding your repayment obligations is vital. Your investment loan interest rate, loan amount, and loan term all affect monthly payments. Consider both:
• Principal and interest repayments
• Interest-only options (typically available for initial years)
Many Defence members find interest-only periods helpful when establishing their rental property business.
Property Investment Strategy Basics
Negative Gearing
This occurs when your rental property's expenses (including loan repayments) exceed rental income. The loss can be offset against your Defence Force salary for tax purposes, potentially reducing your overall tax liability.
Rental Yield Calculations
Calculate annual rental income as a percentage of the property's purchase price. While high rental yields provide better cash flow, consider both rental returns and capital growth potential when developing your property investment strategy.
Research Property Markets
Successful property investment requires thorough market research. Consider:
• Local employment opportunities
• Infrastructure development
• Population growth trends
• Proximity to schools, transport, and amenities
Investment Loan Features to Consider
When comparing investment loan options, look for features that suit your Defence lifestyle:
• Redraw facilities for accessing extra payments
• Offset accounts to reduce interest charges
• Portability options for Defence postings
• Professional package discounts
Building Your Investment Property Portfolio
Starting with your first investment property is often the hardest step. As you build equity and demonstrate successful property management, expanding your portfolio becomes more achievable. Many Defence members find their stable employment and disciplined approach to finances work in their favour when buying a rental property.
Successful property investors often start small and reinvest profits into additional properties over time. Your Defence career provides the stable income foundation that many lenders prefer when assessing investment loan applications.
Property investment isn't just about buying a rental property - it's about creating long-term wealth. With proper planning, the right property investment loan features, and professional guidance, Defence Force members can build substantial assets for their future.
Call one of our team or book an appointment at a time that works for you to discuss your investment property goals and explore the investment loan options available to Defence Force members.
