• When it comes to investment properties, not all mortgages are the same. While there is a vast array of lenders in the market, choosing the right one for you takes a little time and patience.
  • Let’s have a look at some of the key concepts that you will encounter when you look for finance.
  • LMI –
    Lenders Mortgage Insurance is often applied to loans which gear above 80% of the property price. LMI can be quite expensive. If you are going into property investment with a small deposit, make sure that you understand the impact of LMI on your loan.
  • Intended timeline –
    Property investment is about time. When you are looking for finance, think about the timeline of your investment and your options for fixed interest facilities.
  • Paying down your loan –
    Looking into the foreseeable future, is it likely that you will be receiving a lump payment or major windfall with which you can pay down your loan?
  • Interest rate options –
    Think about whether it suits you to structure the loan as interest only or principle and interest.
  • Equity and offsetting –
    Consider whether you have more equity in your existing portfolio than you need. If so, is it worth offsetting your equity into a re-draw facility rather than simply borrowing less?
  • Tax position –
    It’s worth thinking about how a different tax position will impact your investment capacity in terms of cash flow.
    • Think very carefully about the location of your investment property. Take the time to consider the facts about where people want to rent. Remember, this is probably different from where you personally want to live, so keep that out of the equation. Look for a place that is well located to surrounding infrastructure. Aim for a property that has good access to:

• Public transport
• Schools
• Cafes, restaurants and entertainment venues
• Shopping centres
• Hospitals
• Parks and recreational areas
• A sought after geographic feature such as a beach

    • It’s important to buy your investment property either at or below current market value. In order to do this you can:

• Review independent valuations and reports that are accepted by lenders. These can usually be sourced from well-known valuation companies
• Consider historic growth reports from well-respected market commentators
• Investigate median house price reports for the area in which you are investing.

    • The importance of good infrastructure in the area should not be underestimated. Before you make your investment, investigate any existing and planned infrastructure. To do this you can:

• Visit Council or Government websites
• Look on a map to determine how close the property is to major arterial roads
• Check for any planned public transport improvements
• Check any intended Government or Council spending on the area
• Find out what other developments (of all types) are planned.

• Aim for a rental return of at least 4% – preferably more.
• Benchmark your rental return with a simple equation: “one dollar per thousand per week”. Put simply, if you have a $350,000 investment property, the rental income would ideally be at least $350 per week.
• Look for areas with historically low vacancy rates.
• Choose an area where rental demand comes from multiple employment sectors (so if one sector closes or moves off-shore, the demand for • your property will still be strong).
• Talk to local property managers and onsite managers.

    • Doing early checks on your intended property developer is definitely worthwhile. Take a look at their past projects, and find out if there are any risks that you need to be aware of. You might also like to:

• Investigate the architect and builder of the property
• Look at past projects to get a sense of architectural finishes
• Don’t be distracted by the glossy brochures and ‘incentive’ gifts such as free holidays
• Visit the site of a new development to inspect the location and surrounding areas
• Ask the builder and developer for testimonials from people who bought into their past projects.

    • Think about whether the design and finishes of the property will meet tenant demand in the area. To do this you will need to ask yourself the following questions:

• Is the property currently meeting tenant demand?
• Will it meed tenant demand in the future?
• Is the property more suited to an owner-occupier?
• Is there diversity within local property types?
• Will the property have a high depreciation rate?
• Is it affordable to maintain the property?

    • When it comes to investment properties, having the right legal structure in place is crucial. Getting this right at the beginning will make it much easier down the track when you come to make decisions around inbound costs, selling costs, and the departure of co-owners. Tax concessions, pension benefits and your personal income needs should also be considered. The most common legal structures for property investment are:

• Individual
• Company
• Company as trustee for a trust
• Joint tenancy or tenants in common
• Self-Managed Super Funds

  • It’s a good idea to get legal advice on your intended structure. Having the wrong structure may affect things like finance approval, tax planning and retirement benefits.