As a public servant, you're in a unique position when it comes to buying an investment property. Your stable employment and regular income make you an attractive borrower to many lenders across Australia. However, thorough investment market research is crucial before diving into your first investment property or expanding your investment property portfolio.
Understanding Investment Loan Options
When you're looking to invest in real estate, you'll have access to investment loan options from banks and lenders across Australia. These rental property loans differ significantly from standard home loans, particularly when it comes to interest rates and loan features.
Investment loans typically carry higher interest rates compared to owner-occupier loans. This is because lenders view investment properties as higher risk. However, as a public servant, you may qualify for interest rate discounts due to your secure employment status.
The main types of investment loans include:
• Variable interest rate loans - rates can fluctuate with market conditions
• Fixed interest rate loans - locked rates for a set period
• Split loans - combining both variable and fixed portions
Researching Your Target Property Market
Before applying for an investment loan, thorough research of the property market is essential. This involves analysing different property types and locations to determine potential returns.
Consider these property options:
- Apartments - Often more affordable entry points, particularly in major cities
- Townhouses - Balance between affordability and potential growth
- Stand-alone dwellings - Typically higher entry cost but stronger long-term growth potential
When you research property options, focus on areas with strong rental demand, good infrastructure, and growth potential. Look at rental yield calculations - this shows the annual rental return as a percentage of the property's value.
Key Financial Considerations
Loan to Value Ratio (LVR)
Most lenders require a lower LVR for investment properties compared to home loans. Typically, you can borrow up to 80% of the property value without lenders mortgage insurance (LMI). If you borrow more than 80%, you'll need to pay LMI, which increases your costs.
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Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
Borrowing Capacity
Lenders assess your borrowing capacity differently for investment loans. They'll consider:
• Your current income and expenses
• Existing debts and commitments
• The potential rental income (usually calculated at 75-80% of market rent)
• Your deposit and genuine savings
As a public servant, your stable income works in your favour when calculating investment loan repayments and determining loan amounts.
The Investment Loan Application Process
The investment loan application involves several steps and requires comprehensive documentation. Here's what you'll need:
Documentation Requirements:
• Recent payslips and employment letter
• Bank statements (usually 3-6 months)
• Tax returns and notice of assessments
• Details of existing assets and liabilities
• Property purchase contract (once you've found a property)
Application Timeline
A streamlined application process typically takes 2-4 weeks, depending on the lender and complexity of your situation. Some lenders offer faster processing for public servants due to employment verification advantages.
Understanding Investment Property Costs
Beyond the loan amount, several costs affect your investment:
Upfront Costs:
• Stamp duty (varies by state)
• Legal and conveyancing fees
• Building and pest inspections
• Lenders mortgage insurance (if LVR exceeds 80%)
Ongoing Costs:
• Property management fees
• Council rates and insurance
• Maintenance and repairs
• Loan interest and fees
Tax Implications and Strategy
Negative Gearing
Many Australian property investors use negative gearing as part of their property investment strategy. This occurs when your property expenses exceed rental income, creating a tax-deductible loss.
Rental Income
All rental income must be declared, but you can claim deductions for:
• Interest on your rental property loan
• Property management costs
• Maintenance and repairs
• Insurance and rates
• Depreciation on fixtures and fittings
Investment Loan Features to Consider
Modern investment property loans offer various features that can benefit your property investment strategy:
• Offset accounts to reduce interest charges
• Redraw facilities for accessing extra payments
• Interest-only payment options
• Professional package discounts
• Multiple property consolidation
Making Your Investment Decision
Buying a rental property requires careful consideration of your financial position, investment goals, and risk tolerance. Whether you're purchasing your first investment property or adding to an existing portfolio, thorough research ensures you make informed decisions.
Consider working with professionals who understand the public service sector and can access a wide range of lenders and products suited to your circumstances.
Ready to explore your investment loan options? Our team specialises in helping public servants access investment property finance. Call one of our team or book an appointment at a time that works for you.
