Choosing the right investment property loan structure for your individual needs means considering a few different factors first.

Loan Structure For Investment Property

Deposit or equity?

If you have enough equity in your owner occupied home, it might be possible to use this as security to purchase an investment property. Essentially, if you use the equity in your home, you won’t need to come up with the deposit required.

In some cases, banks may allow you to borrow the entire amount of the purchase price, plus any fees associated with the purchase for your investment property based solely on the amount of equity you have available in your owner occupied property.

Alternatively, you might prefer to borrow the deposit amount against your house and put those funds towards your investment purchase instead. Either way, your home is still used as security for the bank’s purposes.

In order to determine the amount of equity you have available, you first need to assess the market value of your property.  For an accurate assessment a valuation can be ordered upfront by a licensed valuer.

You also need to know what the outstanding loan balance is on your home loan. Deduct the loan amount from the property value to determine how much equity you have in your home.

Lender’s Mortgage Insurance

If you have plenty of equity, you should comfortably be able to use it as security for either a deposit or as security on your investment property. However, if the amount of equity available is relatively low, you might need to pay Lender’s Mortgage Insurance (LMI) to complete the purchase of your investment property.

If the combined loan-to-value (LVR) of your owner occupied property and investment property is over 80% it would be best to avoid cross-securitising, as the lender’s mortgage insurance on the total of the two loans can be quite costly.

Also if you intend to buy another property in future, it is easier if your existing properties are not all cross-securitised, as each time you will need new property valuations for each property.

To use the equity in your home to raise sufficient deposit for an investment property purchase, you would need to either see if your current lender is able to increase your existing mortgage, or a good mortgage broker can combine a loan refinance/equity release with the investment loan.

Most lenders will allow you to borrow up to a maximum of 90% of the property value in a refinance, and up to 90% for an investment loan. The equity release portion of the loan may look as though it’s on your owner occupied property. However, as it’s being used for the investment property and set up as a separate loan, the interest on that portion will also be deductible as an expense on the investment property.

Tax deductibility

If you decide you want to put some money into the purchase, the best advice would be to pay this money off your owner occupied loan. Owing the full amount of the purchase price on the investment property works well, as all the interest charges on the investment loan are a tax deductible expense on the property.

Any expenses incurred from the loan application process, such as Lender’s Mortgage Insurance, establishment fees, or mortgage registration fees can be claimed as an expense on the investment property also.

Your owner occupied loan does is not tax deductible, so it is in your best interest to pay any spare cash you have off your own home mortgage first.

Investment property payment types

Many successful property investors prefer to keep their investment loan set to Interest Only repayments. The tax department only take into account the interest charged on your investment mortgage, but they won’t allow you to deduct any payments you make off the principle balance.

You’ll also find that paying only the interest component of the mortgage means you are paying the minimum payment amount, which can help with cash flow.  In most cases the rental income you receive from your investment property should cover most of your repayments.

By comparison, it’s advised to keep your family home set to principal and interest repayments. One component of your repayment covers the interest charge, while the remaining amount pays down your home loan balance each month. Sticking to principal and interest repayments can help to reduce your home loan as quickly as possible.

Any extra funds gained by tax savings on your investment property can also be used to reduce your owner occupied loan.

The post Guide To The Best Loan Structure For Investment Property appeared first on Nieuvision.

We need to determine why we are investing? How does money assist in our process of being happy? Is knowing our “why” based around retiring earlier? Or is it to protect our family? Going on holidays more often? Being super rich?

Everyone has a different “why” reason! Not everyone wants all of the above, some even don’t want the above and have different reasons. However, knowing your “why” will give you a financial purpose and a greater goal to achieving success.

MORE INFO:
Rick Nieuwenhoven
CEO
e: rick@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Knowing the “Why” to Your Investing Will Make Your Money Choices Simpler appeared first on Nieuvision.

What you may not realise is that not only is Landlords Insurance quite specific to property investors, but also that not all policies offer the same benefits because the cover options are so broad.

When you own a rental property, there are a range of things that can impact your ability to keep generating rental income. If you rely on that continued rental income to cover your costs and expenses, it’s critical that you have the right type of coverage to protect your interests.

What to look for in a Landlords Insurance policy

While most tenants are generally respectful of rental properties, there are occasions when things don’t always go your way.

Before you choose a Landlords Insurance policy to protect your investment, take the time to ensure you have the right policy that gives you plenty of cover for a range of situations.

Some of the things to look for in a good Landlords Insurance policy include:

• Accidental loss or damage to contents caused by the tenant
• Malicious damage or theft caused by the tenant
• Loss of rent while the property is uninhabitable
• Damage caused by pets
• Legal liability to protect against the possibility of injury due to landlord’s negligence
• Tax audit
• Prevention of access to the property
• Default of rent.

Other considerations to explore and compare before signing up for a Landlords Insurance policy include:

• What are the excess charges?
• How many weeks’ rent are covered if your tenant defaults or absconds?
• Does the policy cover any legal expenses?
• Have you compared the premiums as well as the summary of benefits?

Landlord’s contents coverage

Always check your policy to ensure any contents that belong to the property are covered adequately. Most landlords automatically assume they don’t need to cover contents, as any furniture within the property belongs to the tenant.

In reality, your property contents also include items such as:

• Carpets
• Curtains
• Internal blinds or window coverings
• Light fittings
• Fixed appliances (such as dishwashers).

Be sure your Landlords Insurance policy covers you for damage or loss of your contents too.

Extras coverage

Damage to the property caused by pets or legal liability cover might be listed as extras, but they’re both valid areas of coverage to include in any Landlords Insurance policy.

Protect your investment

Whether you are reviewing your existing Landlords Insurance policy or taking out cover for the first time, it’s worth shopping around and comparing the premiums and summary of benefits for several policies to find the one that’s right for you.  When it comes to protecting your investment property, doing your due diligence before signing up can save you time, money and heartache down the track.

MORE INFO:
Rosanna Russo
Property Manager
e: rrusso@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Importance of Having Good Landlords Insurance appeared first on Nieuvision.