Obtain An Investment Loan With No Deposit
Unfortunately, the days have long passed where any first-time buyer without existing assets could obtain a 100 percent home investment loan
. However, savvy investors are structuring 106 percent loans to cover all costs associated with an investment loan. It can be done, but it needs to be accomplished creatively. When done correctly, the investor can realise and maximise personal tax deductions through equity leveraging. One word of caution, however, always consult a tax professional concerning your legal choices for obtaining beneficial deductions through a home investment loan.
What is Equity Leveraging?
The basic concept is establishing a line of equity from an existing property for the purpose of investing in a new one. For example, you have a property worth $300,000 with the present loan balance at $150,000. You wish to invest in a new property valued at $250,000. So, to maximise your tax scenario you will need to obtain about 24 percent so the amount borrowed stay below the 80 percent current maximum preferred for a home investment loan (plus stamp fees, etc.). You would refinance your existing real estate for $210,000, netting $60,000 in equity for investment. Once securing an 80 percent mortgage of $200,000 using the line of credit established for the required 20 percent (including all other fees) you would have a tax-deductible borrowing amount of $260,000. This is 104 percent of the new property purchase price. Again, it is imperative to consult with finance professional to cover all bases pertaining to your personal situation.
Use of an Investment Calculator
Anyone who decides to use real estate as an investment vehicle should call upon use of a viable investment calculator to allow you to examine several possible results and returns based on the particulars of you investment. A good investment loan calculator will, first off, be located online. Here you will be able to insert a number of variables and with the click of a mouse, receive valuable information pertaining to your home investment loan when entering information for a number of different scenarios. You may wish to calculate what monthly rent is needed to meet your instalment debt plus setting aside a sum for periodic maintenance when looking for a long-term investment. An investment calculator can also help determine all the different numbers needed to input to determine how much monthly income or cash flow can be produced based on selection of a certain set of numbers. Such a calculator will provide you with a number of information categories such as:
Amount to borrow based on personal finances
Loan to value ratio
Down payment requirement based on purchase price
Various rental income scenarios (amount to meet payments, amount to produce income, etc.)
Monthly property expenses
Cash flow scenarios
After-tax return on investment
...plus much more.
Considerations for Borrowers
Whenever borrowing money from an owner occupied property as security for investment purposes the very first warning is NOT to use a redraw to access the equity. There are other serious results from using an offset account that you must discuss with a professional tax financial advisor. Plus, if you are an investor from outside Australia, there are an entire set of different factors affecting your tax advantages that need to be learned and understood before obtaining a home investment loan.
by: David Nalin
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