Investment Property Finance​
It is unusual to invest in property using existing available funds for the entire purchase price and transaction costs. Even for those with sufficient available funds to complete a purchase and subsequent improvements without finance, there are significant tax benefits which arise from financing part of the purchase/development costs.
There are a range of options available to finance an invesment property purchase including
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Equity
The difference between your property’s market value and the outstanding balance of all loans on the property. Recycling equity is the term often used to describe the process where investors leverage/borrow against the equity in each existing property they own to help to fund the next.
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Family
Using money gifted, borrowed or pledged from family members as guarantors as a source of finance or your deposit for your next real estate investment.
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Superannuation funds
Under certain circumstances, SMSFs can purchase real estate for investment. Legislation changes made in 2008 mitigated the risk to an individual's investment portfolio by making property investment possible.
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Mortgage brokers and non-bank lenders
Will either belong exclusively to a particular financial institution, or work for a mortgage lending company who can apply for loans on behalf of their clients across various financiers.
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Vendor finance
Where the seller (also known as the vendor), instead of demanding 100% of the sale proceeds at settlement, accepts terms that allow the borrower to pay an initial amount at settlement e.g. 80% and then repay the balance of the property’s sale price over a fixed term e.g. 20% over 2 years at an agreed interest rate.
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Private lenders
While the cost of borrowing from private lenders can be higher, they often have more relaxed standards and borrowing criteria and can be a good option for short term (6-24 months) loans.
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Types of loans
Interest only
The borrower only pays the cost of annual interest on the loan each year and does not have to repay the principal until a later date.
Principal and interest
Paying a principal and interest loan means you are paying the current monthly interest due and progressively reducing the outstanding balance on the mortgage by also making principal repayments, so that you are progressively paying off the mortgage.
Revolving line of credit
A line of credit enables you to use generally up to 80% of your equity as collateral for further credit to make future purchases. It is an option chosen by real estate investors who want the flexibility to top-up their mortgage to a pre-agreed level without having to take out a separate mortgage each time
Non-recourse financing
The borrower, in the event of failing to fulfill the terms of the loan, has their liability limited to the property the mortgage is secured against only and does not offer other asset security or personal guarantees.
Full doc loans
Requires the documentation of all income, assets and liabilities and is the most common type of mortgage loan used
Lo doc loans
Have less need for stringent income information than full doc loans, but still rely on a good deal of documentation to get approved.
Low start loans
Offers borrowers low establishment costs, a very low variable rate for the first 6 to 12 months and no monthly fees.
Refinancing
The process of re-financing, topping up or consolidating existing and/or new debt with the same or new lender/s.
Deposit bonds
An alternative to a cash deposit for borrowers who have existing equity in property and want to use a bond/guarantee rather than a cash deposit. This is common when buying off the plan with a 12-24 month settlement as it avoids paying a (borrowed) cash deposit and then paying the interest on the money while it sits in trust awaiting project completion and settlement
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Financing renovation for existing assets
Many homes are capable of acheiving a significantly higher selling price if they undergo some form of renovation prior to going to market. This applies almost universally to older homes in prestige areas and even more contemporary homes which have been designed to the owners individual tastes can sometimes require small adjustments to extend the homes appeal to a wider market.
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Not everyone whose home is suitable for a pre-sale renovation has the financial resources or knowledge to udertake the project in a timely manner and unlock the hidden value in their home. This can be execerbated by personal circumstances such as the need to sell a property as the result of a relationship ending, or becuase the asset must be liquidated and the proceeds split between a group of beneficiaries (like siblings under a will) in a timely manner. We renovate strategically to increase the value of your home.
We have a range of options available to assist you to finance a renovation of your house before you sell in order to elevate the value of your asset.
If you have a higher tolerance for risk and want to receive higher returns we can provide advice on different ways to finance yoiur project, from private finance to sophistaceted investors to advice on how to approach your existing lender to finance the project using existing products like negative equity loans, there are a range of options available to qualifying customers.
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If you don't like risk and are happy for a lower return, partner with us. We renovate strategically to increase the value of your home investing our own money. We take the risk so you don’t have to, and we don’t make money if you don’t.
Either way we take care of everything for you, so you can walk away with more money and less stress.
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Please note that we are not a finance broker and do not hold a Financial Services Licence, our role is to help you develop a strategy for financing your aquisition and/or reneovation and assist you with the selection of independent licenced advisors to facilitate its execution.
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Want to learn more?
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