Picking the right type of finance
There are many options when it comes to selecting the right finance product for your investment property. Getting sound advice on the correct way to structure your finances and the loan(s) that best suits your individual circumstances and investment strategy is paramount and will make a big difference to your financial future.
Shopping around between different banks and non-bank lenders can have an unintended consequence; i.e. multiple hits on your credit file which can work to your detriment. The best loan product for you may not be the one with the cheapest interest rate. Just as with any business the products and services we buy are the ones that best meet our needs, not the ones that cost the least.
MRD Finance has in-house mortgage brokers
Our brokers have access to over 300-plus finance products from over 30 of Australia’s leading banks and non-bank lenders. As investors ourselves with many years of professional experience you can have confidence in our ability to assist you to find the right loan product for your investment property purchase. And, if you are not in the market for your next investment property just now it is still a good idea to have us look at your existing loans and loan structure to determine if we can add value to your current arrangements.
The interest charged on money borrowed for property investment purposes is tax deductible. Understanding what is deductible and what’s non-deductible debt, and ensuring your loans are structured so as to legitimately minimise your tax liabilities is your responsibility as a property investor to get right.
The finance experts here at MRD can assist you to avoid confusing your investment property loans, or deductible debt, with your home loan and any other personal non-deductible borrowings. As a property investor you have a great opportunity to maximise your ongoing tax deductions, however, it needs to be done within the boundaries of property tax laws.
Consideration ought to also be given to fees and charges as well as the use of offset accounts, linked credit cards, access accounts and overdrafts. As it’s never a ‘one size fits all’ and too important to get wrong, speak with an MRD finance strategist today and give yourself the ‘sleep at night’ factor when it comes to your investment property finance.
To Fix or not to fix?
Choosing between a fixed rate loan, partially fixed loan or a variable rate loan can mean the difference of many thousands of dollars over the life of the loan. Don’t be lazy but seek out the right advice from the outset to ensure you have your property investment (business) finances structured correctly for the investment property you settle on, the market in which you buy and current economic conditions.
Over time it has been proven that variable rate loans have been cheaper than fixed rate loans in many more cases than not. Selecting a fixed rate loan or partially fixed rate loan at the right time has paid off for many investors. It could be argued that those that have ‘won’ by fixing interest rates have done so by ‘good luck’ rather than following an exact science, as in the majority of cases the banks tend to be the winners from such arrangements.
The path of least resistance may seem to be having your bank that you’ve used and trusted for years to arrange your property investment loans for you. Familiarity, large cash deposits and other financial products with that bank may make this option more appealing; but at what (opportunity) cost? Your bank is a commercial business, not a public service or charity, and the people who work there have strict sales targets and key performance indicators (KPI’s) to meet.
As an investment property (business) owner you owe it to yourself and your family (shareholders) to get sound professional advice and make decisions that are in the best interest of your business. Your bank may offer the most suitable loan product at this time, but unless a comparison is made with many, many lenders - and hundreds of loan products - how will you know? Again, it isn’t just about interest rates and saving money. While important considerations in themselves, there is a bigger picture to look at and the lender you ultimately set up your investment loan with should factor in a lot more than merely price.
Investment property loans
Loans for investment property are more often than not set up as Interest Only loans (i.e. rather than Principal and Interest). The main reasons for this are to free up cash flow that can be used to continue growing your investment property portfolio and to increase the tax effectiveness of your investment. If there is surplus funding available to pay down debt then astute property investors will first apply that to any non-deductible debt. Starting with debt that attracts the highest interest rate (e.g. credit card) followed by their principal place of residence (or family home). Of course if you have no non-deductible debt and the capacity to pay down deductible debt, that’s great, however whether paying down the principal or merely offsetting it is something you need to make a decision on - based on your goals, investment strategy and the professional guidance you receive.
Perhaps there are more options and choices available to you than you know. For example, an MRD mortgage broker can speak with you regarding an investment loan that allows you to pay interest in advance or has an Offset Account attached to it with a redraw facility. This may be very handy when your Investment Property begins to deliver you positive cash flow. By depositing those positive returns into an offset account you will reduce the interest payable on your loan and build up a ‘rainy day’ buffer that you can redraw at a time in the future, for example, to carry out repairs or renovations to your property or as a deposit to buy another investment property. Structured correctly from the outset, these options will be available to you without the need for you to apply for a fresh loan (i.e. you remain the financial controller of your investment property business).
Speak to a property specialist today on: 1300 883 854 or contact us