Buy An Investment Property

Thinking About Purchasing an Investment Property?  

Investing in property can be one of the most effective ways to build wealth, generate passive income, and secure your families financial future.  

At Sanford Finance, we help you navigate the complexities of purchasing an investment property, whether you’re looking to invest in residential, commercial, or even through your SMSF, we’ve got the expertise to guide you every step of the way.  

Associated Costs of Purchasing an Investment Property 

When buying an investment property, it’s crucial to plan for additional costs beyond the purchase price: 

• Stamp Duty: Varies by state but is typically one of the most significant upfront costs. 
• Lenders Mortgage Insurance (LMI): If borrowing more than 80% of the property’s value. 
• Legal and Conveyancing Fees: Generally between $1,500 to $3,000. 
• Building and Pest Inspections: Essential for identifying issues, ranging from $400 to $800. 
• Ongoing Costs: Property management fees, council rates, insurance, and maintenance.

Finance Options: No Deposit Equity Loan 

Want to invest in property but don’t have a cash deposit?  

You can leverage the equity in your existing home to secure an investment property through a No Deposit Equity Loan. This option allows you to use the equity built up in your current property as the deposit for your investment, without the need for upfront cash. 

• Leverage your existing property: Use up to 80% of your current home’s equity to invest with a No Deposit Equity Loan, Family Guarantee Loan  or  Gifted Deposit  
• No deposit required: Avoid the need for cash savings and start building your investment portfolio sooner.

 

Boost Your Cash Flow as a Property Investor with Interest-Only Loans 

Are you looking to enhance your cash flow as a property investor? Interest-only loans can be an effective strategy for maximising your returns while managing your financial commitments. At Sanford Finance, we’re here to help you explore how this loan structure can work for your property investment goals. 

What is an Interest-Only Loan? 

An interest-only loan allows you to pay only the interest portion of your mortgage for a set period—typically 1 to 5 years. During this time, your repayments are significantly lower than if you were paying both interest and principal, freeing up your cash flow for other investment opportunities or expenses.  

Benefits of Interest-Only Loans for Property Investors 

• Improved Cash Flow: With lower monthly repayments, you can reduce the financial strain and free up funds for other expenses, property improvements, or additional investments. 
• Maximised Investment Opportunities: The extra cash flow allows you to invest in other assets or properties, helping you build a larger investment portfolio and grow your wealth over time. 
• Tax Efficiency: As a property investor, the interest on your loan may be tax-deductible. With interest-only repayments, you can maximise your deductions, reducing your taxable income and increasing your savings. 
• Flexibility in Loan Repayments: Interest-only loans provide flexibility in managing your repayments. You can use the savings to invest in property renovations or boost your overall investment strategy, preparing for future growth.

 

How an Interest-Only Loan Can Improve Your Cash Flow 

• Lower Monthly Repayments: By paying only the interest on your loan, you’ll have lower monthly repayments, giving you more breathing room to manage property expenses or invest elsewhere. 
• Opportunity to Reinvest: With the additional cash flow, you can reinvest in high-yielding opportunities, such as purchasing more properties, paying off high-interest debts, or upgrading your current properties to increase rental yields.
• Hold Properties for Long-Term Growth: Interest-only loans make it easier to hold onto properties for a longer period, allowing you to benefit from capital appreciation without the pressure of high monthly repayments. 

Considerations to Keep in Mind 

• Principal Not Reduced: While your cash flow improves in the short term, the principal amount of your loan remains unchanged during the interest-only period. After the interest-only period ends, your repayments will increase as both principal and interest need to be repaid. 
• Long-Term Financial Planning: An interest-only loan should be part of a well-thought-out investment strategy. It’s important to plan for the end of the interest-only term and assess how it aligns with your long-term financial goals.

Ready to Improve Your Cash Flow? 

Take control of your cash flow and maximise your property investments with the right loan structure. 

Call Sanford Finance today at 02 9095 6888 or Book a free consultation with one of our experienced brokers to explore how an interest-only loan can benefit your investment strategy. 

Tax Benefits of Property Investment 

Property investment not only offers the potential for capital growth and rental income, but it also comes with significant tax advantages that can enhance your overall returns. By making the most of these tax benefits, you can improve your cash flow, reduce your taxable income, and increase your long-term wealth. 

Negative Gearing

One of the most well-known tax benefits of property investment in Australia is negative gearing. If the cost of owning your investment property (including interest on the loan, property management fees, and other expenses) exceeds the income you earn from rent, the property is considered negatively geared. 

How it works: 

• The loss you incur can be offset against your other income (e.g., salary or business income), reducing your overall taxable income. 
• This means that while the property might not be making a profit initially, you can still benefit from the tax deduction, making the investment more affordable in the short term. 

Example:

If your annual rental income is $25,000, but your annual property expenses (including loan interest) are $30,000, you have a loss of $5,000. You can deduct this $5,000 loss from your total taxable income, potentially reducing your overall tax liability.

Depreciation Deductions

Property investors can claim depreciation as a tax deduction, which allows you to account for the wear and tear of the building and its assets over time. Depreciation deductions are available for both new and old properties, but newer properties tend to offer higher deductions. 

Two main types of depreciation: 

• Capital Works Depreciation: This refers to the structural components of the building, such as walls, floors, and roofing. Investors can typically claim 2.5% of the construction cost per year for 40 years from the date the property was built. 
• Plant and Equipment Depreciation: This covers items like appliances, carpets, and fixtures within the property. These assets can be depreciated over their effective life, and the deductions can be significant, especially for new properties. 

By claiming depreciation, you can reduce your taxable income without impacting your cash flow, as it’s a non-cash deduction.

 

Interest Deductions

Interest on the loan used to purchase your investment property is tax-deductible. This includes any interest paid on funds borrowed to maintain or improve the property. 

Key benefits: 

• You can claim a deduction on the interest portion of your mortgage repayments, making property ownership more affordable, especially during the early years when interest payments are higher. 
• If you refinance the property for investment purposes (e.g., using the equity to purchase another investment property), the interest on the additional borrowed amount can also be tax-deductible.
  

Deductions for Property Expenses

As a property investor, you can claim deductions for various expenses related to owning and managing your property. These deductions can significantly reduce your taxable income and improve your cash flow. 

Benefits: 

• Consistent Rental Income: Residential properties typically offer more consistent rental income, as there is a constant demand for housing. Residential tenants usually sign 6- to 12-month leases, providing stability. 
• Easier to Finance: Lenders often view residential property as a safer investment, so it may be easier to secure a mortgage with a lower interest rate for a residential property. 
• Capital Growth Potential: Over time, residential property values tend to appreciate, providing an opportunity for long-term capital growth. 
• Tax Benefits: You can claim tax deductions on a range of property expenses, including interest on your loan, property management fees, maintenance costs, and depreciation. 

Challenges: 

• Higher Maintenance Costs: Residential properties may require frequent repairs and maintenance to keep tenants happy and the property in good condition. 
• Tenant Turnover: There can be periods of vacancy between tenants, which may temporarily affect your cash flow. 
• Lower Rental Yields: While residential properties generally provide stable income, their rental yields are often lower than commercial properties. 

Benefits: 

• Higher Rental Yields: Commercial properties generally offer higher rental returns compared to residential properties. Businesses typically sign longer leases (3 to 5 years or more), which can provide reliable income.
• Fewer Maintenance Responsibilities: In many commercial leases, tenants are responsible for property maintenance, repairs, and outgoings like council rates and insurance. This can reduce your property management burden.
• Longer Lease Terms: Longer-term leases provide greater income stability, reducing the risk of vacancy and frequent tenant turnover. 

Challenges: 

• Higher Risk of Vacancy: While lease terms are longer, finding a new tenant can take time, especially if the commercial property is in a niche market. Extended vacancy periods can significantly impact your cash flow.
• Higher Initial Costs: Commercial properties typically have higher purchase prices, and the associated taxes and fees, such as GST, can add to the overall cost. 
• More Complex Financing: Lenders often require a higher deposit (up to 30% or more) and charge higher interest rates for commercial property loans due to the higher risk involved. 

Who Should Invest in Commercial Property? :

• Experienced investors seeking higher returns and who can handle periods of vacancy. 
• Investors with a higher risk tolerance and the financial capacity to manage the higher initial costs.
• Those looking for long-term, stable rental income from businesses. 

SMSF Property Investment

SMSF property investment allows you to use your Self-Managed Super Fund to purchase residential or commercial property. This investment strategy can be a powerful way to grow your retirement savings, but it involves strict regulations and compliance requirements. 

Benefits: 

• Tax Advantages: SMSFs benefit from favorable tax treatment, including a reduced tax rate of 15% on rental income and 10% on capital gains (if held for more than 12 months). If the property is sold during the pension phase, no capital gains tax is payable. 
• Control Over Investments: With an SMSF, you have direct control over your investment choices, including the type of property you purchase and how it is managed. 
• Leverage for Higher Growth: SMSFs can borrow funds to purchase property through a Limited Recourse Borrowing Arrangement (LRBA), enabling you to leverage your super to invest in larger assets and potentially increase returns. 

Challenges: 

• Strict Regulations and Compliance: SMSF property investments are subject to stringent rules set by the Australian Taxation Office (ATO). Non-compliance can result in heavy penalties. 
• Limited Liquidity: Property is a relatively illiquid asset, meaning it can be challenging to sell quickly if your SMSF requires cash to meet other obligations. 
• Complex Financing: Borrowing through an SMSF involves more complexity and higher interest rates compared to traditional home loans. SMSF loans are usually capped at a lower loan-to-value ratio (LVR), requiring a larger deposit. 
• Costs of Managing an SMSF: There are costs involved in setting up and managing an SMSF, including administration, audit, and legal fees. 

Who Should Invest in SMSF Property? 

• Individuals with substantial superannuation balances looking to diversify their retirement portfolio. 
• Investors comfortable with managing their own super fund and complying with the associated regulations.
• Those seeking to benefit from the tax advantages of property investment within an SMSF structure. 

Which Option is Right for You? 

Choosing between residential, commercial, or SMSF property investment depends on your financial goals, risk tolerance, and long-term strategy. Here’s a quick guide: 

• Residential Property Investment is ideal for those seeking stability and capital growth with moderate risk. 
• Commercial Property Investment suits investors looking for higher yields and who can handle higher vacancy risks and initial costs. 
• SMSF Property Investment offers tax benefits and control over your super, but requires careful management and adherence to strict regulations. 

How Sanford Finance Can Help 

At Sanford Finance, we’re here to guide you through the property investment process, whether you’re investing in residential, commercial, or SMSF property. Our expert brokers will assess your financial situation, provide tailored advice, and help you secure the right loan structure for your investment needs. 

Ready to explore your investment options? Contact us today at 02 9095 6888 or Book a free consultation  to get started. 

More Investment Options:

Rent-Vesting: A Smart Investment Strategy 

Not ready to buy your dream home but still want to invest in property? Rent-vesting allows you to rent where you live and invest in property elsewhere. This strategy enables you to: 

• Live in your preferred location while investing in areas with higher capital growth or rental yield. 
• Use rental income from the investment property to cover your own rent, building wealth while maintaining lifestyle flexibility. 

Advantages and Disadvantages of Property Investment 

Advantages: 

• Passive Income: Generate rental income that can help cover mortgage repayments and other expenses. 
• Capital Growth: Property often appreciates over time, increasing your equity. 
• Leverage: Use borrowed money to purchase an asset and potentially amplify returns. 
• Tax Benefits: Take advantage of deductions and tax breaks. 

Disadvantages: 

• Liquidity: Property is a long-term investment, and it can take time to sell if you need quick access to cash. 
• Costs: Upfront and ongoing costs can add up, especially if the property is vacant for an extended period.
• Market Risk: Property values fluctuate, and poor market conditions can impact your return on investment. 

Using a Buyer’s Agent to Find an Investment Property 

A Buyer’s Agent specializes in finding investment properties that align with your financial goals. They can help: 

• Identify high-growth areas: Based on detailed market analysis. 
• Negotiate better prices: They handle negotiations on your behalf to secure a favourable deal. 
• Save you time: By filtering out unsuitable properties and only presenting viable options. 

Purchasing Interstate to Maximise ROI and Rental Yields 

Purchasing property in interstate markets can offer opportunities to maximize both return on investment (ROI) and rental yields: 

• Higher Yields: Regional or less competitive areas may offer higher rental yields compared to major cities.
• Lower Property Prices: Certain interstate markets may have more affordable properties with better long-term capital growth potential. 
• Diversification: Investing in interstate markets diversifies your portfolio and mitigates risk tied to one location. 

How Sanford Finance Can Help 

At Sanford Finance, we specialise in finding the right financial solution for property investors. Whether you’re looking for a no deposit equity loan, need advice on tax benefits, or want to explore different investment strategies, our team of expert mortgage brokers is here to guide you through the entire process. 

Ready to Start Building Wealth Through Property Investment? 

Whether you’re a seasoned investor or just getting started, Sanford Finance has the expertise to help you make informed decisions and maximize your investment potential. 

Call us at 02 9095 6888 or Book a consultation  today to explore your options and start your investment journey.