Investment Units: The Ins and Outs of Purchase Loans

Buying an Investment Property: Why Units Make Sense

Thinking about purchasing an investment unit? You're looking at one of the more accessible entry points into property investment. Units typically require a smaller investment loan amount compared to houses, making them attractive for first-time property investors or those looking to expand their portfolio growth.

When you're buying an investment property, particularly a unit, you'll need to understand how investment loans differ from standard home loans. The lenders assess these differently, focusing on factors like rental income potential, vacancy rate, and your overall borrowing capacity.

Understanding Investment Loan Products and Features

Investment loan products come with specific investment loan features designed for property investors. Here's what you should know:

Interest Rate Options:

• Variable interest rate - fluctuates with market conditions but often comes with offset accounts and redraw facilities
• Fixed interest rate - locked in for a set period, providing repayment certainty
• Split loans - combining both variable rate and fixed rate portions

Repayment Structures:

• Interest only investment - you pay only the interest for a set period (typically 1-5 years), which can maximise tax deductions
• Principal and interest - you pay down the loan amount while covering interest charges

Many property investors opt for interest only repayments to improve cash flow and maximise the negative gearing benefits available through the Australian tax system.

Investment Loan Application Requirements

When applying for a property investment loan, lenders will assess several factors:

1. Your investor deposit - typically requiring at least 10-20% of the purchase price
2. Your investor borrowing capacity based on income and existing debts
3. The expected rental income from the property
4. Your loan to value ratio (LVR) - the percentage of the property's value you're borrowing

If your LVR exceeds 80%, you'll likely need to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default on the loan. While this adds to your upfront costs, it allows you to enter the market sooner with a smaller deposit.

Investment Property Finance: The Unit Advantage

Units offer several advantages for building wealth property:

Lower Entry Cost: The investment loan amount required is typically lower than for houses, making them more accessible for portfolio growth.

Body Corporate Management: While you'll pay body corporate fees (which are claimable expenses), these cover building maintenance, reducing your personal maintenance obligations.

Rental Demand: Units in well-located areas often attract strong rental demand, providing consistent passive income and lower vacancy rates.

Depreciation Benefits: Investment units often have higher depreciation allowances on fixtures and fittings, creating additional tax benefits.

Calculating Investment Loan Repayments and Costs

When calculating investment loan repayments, you'll need to factor in:

• The loan amount and interest rate
• Whether you choose interest only or principal and interest repayments
• Ongoing costs like body corporate fees, council rates, and insurance
• Stamp duty (payable at purchase - varies by state)
• Property management fees if using a rental agent
• Maintenance and repair costs

The need rental income to cover these expenses varies depending on your property investment strategy. Some investors accept negative gearing (where costs exceed rental income) to build wealth through capital growth and claim tax deductions. Others prefer positively geared properties where rental income exceeds all costs.

Tax Benefits and Deductions

One of the key investment loan benefits is the ability to maximise tax deductions:

• Interest charges on your property investor loan are fully tax-deductible
• Body corporate fees, council rates, and insurance are claimable expenses
• Property management fees and maintenance costs can be claimed
• Depreciation on the building and fixtures provides non-cash deductions
• Stamp duty can be claimed over several years

These negative gearing benefits can significantly reduce your taxable income, making property investment more affordable than the upfront costs might suggest.

Investment Loan Options and Interest Rates

At Panache Financial, we access investment loan options from banks and lenders across Australia, helping you find suitable investment property rates for your situation. Investor interest rates are typically slightly higher than owner-occupier rates, but the tax deductibility often offsets this difference.

You might also secure interest rate discounts by:

• Making a larger investor deposit to achieve a lower LVR
• Holding multiple products with the same lender
• Having a strong credit history and stable employment

Leveraging Equity for Your Investment Unit Purchase

If you already own property, you might use equity release strategies to fund your investor deposit. This means you can leverage equity from your existing home to purchase an investment unit without needing to save a large cash deposit. However, this increases your overall investor borrowing and requires careful consideration of your borrowing capacity.

Investment Loan Refinance Opportunities

As your circumstances change or when your fixed rate expires, you might consider an investment loan refinance. This could help you:

• Secure lower investment property rates
• Access equity for additional purchases
• Switch between interest only and principal and interest repayments
• Consolidate debts to improve cash flow

Moving Towards Financial Freedom

Purchasing an investment unit is often the first step towards financial freedom through property. The combination of rental income, capital growth potential, and tax benefits makes units an attractive option for building wealth.

Whether you're looking at your first investment property finance arrangement or expanding an existing portfolio, understanding your investment loan features, the various investment loan products available, and how to structure your investor borrowing is crucial.

At Panache Financial, we work with clients nation-wide to secure appropriate property investment loans tailored to your financial situation and investment goals. We'll help you understand the different investment loan options, compare investor interest rates, and structure your property investment strategy for long-term success.

Ready to explore your investment unit purchase options? Call one of our team or book an appointment at a time that works for you. Let's discuss how we can help you access the right investment loan to start building your property portfolio.