Owning an investment property can be the cornerstone to building long-term wealth. Not only does real estate increase in value, but you can also build equity in your property at the same time. You can even receive a number of key tax breaks along the way, which can lead to significant wealth creation opportunities.
Whether you are a first time investor or a seasoned campaigner, you can use the equity in your existing home as a deposit or in some cases, pay ‘interest only’ to improve your tax position with a Variable Investment Loan.
Use the equity in your home to increase your buying power with a Line of Credit Loan, without having to save for a deposit. This works like a credit card, but with a lower interest rate. Because you can access the equity in your home, it’s more secure. You can even deposit your income directly into your loan, which operates like an overdraft – once it is paid back, you can re-use it again and again. There’s also an ‘interest only’ option, which allows for greater tax savings.
The interest you pay on your investment loan may be tax-deductible and, depending on your situation, you may be able to claim a range of other deductions. For example, when the rental income is less than the outgoings, the property is classified as negatively geared. Under the right circumstances, the Tax Office will allow the ‘loss’ on the investment to be declared as a tax deduction. Negative gearing can be complex, and as with any investment, you certainly need to do your homework. Be sure to seek professional advice from an accountant or financial planner.
Your investment property loan can be tailored to your needs with competitive interest rates and favourable lending criteria.
The benefit of interest-only loans for investors is the reduced payments allow for lower loan repayments so the rental income will cover off the monthly mortgage payment.
However, there has been a shift away from interest-only loans in recent times, with the Australian Prudential Regulation Authority (APRA) tightening the standards for interest-only loans since 2014. APRA has done this in an attempt to cool the hot property market in Sydney and Melbourne. For banks and other institutions, interest-only loans have been restricted to 30 per cent of new residential mortgage loans. From July 2017, APRA has implemented stricter controls on interest-only loans with deposits smaller than 20 per cent.
If you fall into any of the below categories, you may well be affected by some of the changes.