Property Investment

Finance
Everything You Must Know...

Amber Khanna
Lead Developer | Founder
LeadDeveloper.io
The Ultimate Guide To
Property Investment Finance

Property
Investment
Finance

Amber Khanna | Founder

Lead Developer

0
The ultimate guide to property investment finance: everything you need to know
about financing your next investment property 6

Looking to invest in property but don't know where to start? 7

Finance, Finance, Finance 8

Is property a good investment? Should I buy an investment property? 9

Here are some pros and cons of property investment 10

Pros of property investment 10

Cons Of Property Investment 11

How does equity work when buying an investment property? 12

Equity example 1 12

How to leverage the equity in an investment property? 16

Buying an investment property for the first time 17

Buying your second investment property 18

How to buy an investment property? 20

Before you buy an investment property 20

Can I afford an investment property? 20

How to increase home loan borrowing capacity? 22

Understand asset allocation strategies 25

After you have bought an investment property 26

Home and content insurance 26

Excess liability insurance 26

Income-protection insurance 26

Types of lenders 28

Banks 28

Non-bank lenders 28

Private investors 29

Peer-to-peer lenders 29

Building societies and credit unions 29

Non-conforming lenders 29

Are mortgage brokers worth it? 31

Types of loans & mortgages 33

Standard variable rate loan 33

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 Fixed-rate loan 33

Split loan 33

Line of credit 34

100% offset account 34

Partial offset account 35

How does an investment loan help real estate investors? 36

How does a construction loan help real estate investors? 37

How to refinance an investment property? 38

How can I get a 100 percent loan for an investment property? 39

What is a guarantor loan? 39

Guarantor 39

Co-borrower 40

Principal and interest vs interest-only loans 41

What is an interest-only loan? 41

Disadvantages of interest-only loans 42

What is a principal and interest loan? 43

Disadvantages of principal and interest loans 43

What is bridging finance? 45

How does a bridging home loan work? 46

Repayments 46

Interest 46

Security 47

Costs involved in buying a property 48

Stamp duty 48

Legal and conveyancing fees 48

Bank fees 48

Other costs 49

Acceptable income types 50

Tenure 51

What is the comparison rate? 52

Valuations 53

Home loan requirements and applying for a home loan 54

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 Home loan application requirements 54

Process of applying for a home loan 55

What is negative gearing? 57

Negative gearing example 57

What are the benefits of negative gearing? 58

What are the risks of negative gearing? 58

What is positive gearing? 59

What are the benefits of positive gearing? 59

What are the risks of positive gearing? 59

What is capital gains tax on real estate? 61

When do I have to pay CGT? 61

How Is Capital Gains Tax Calculated? 62

What are the main exemptions and concessions? 63

The 6-year rule in Australia 63

Do I have to pay CGT if I’m not a resident for tax purposes? 64

What is equity release for investment properties? 65

Un-controlled equity release/ cash out 65

Controlled Equity Release/Cash Out 65

What are self-employed loans? 67

Low doc self-employed loan for property finance 68

Full doc self-employed loan for property finance 69

What is a deposit bond when buying a house? 70

How to get private funding for real estate investing? 71

What is the off-the-plan purchase? 72

Benefits of buying off-plan property 72

Risks of buying off-plan property 73

Self-managed super fund (SMSF) loans 74

Security restrictions for SMSF loans 74

Debt service/borrowing capacity for SMSF loans 75

Net surplus ratio (NSR) 75

Debt service ratio (DSR) 76

Share of household disposable income 77

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 Who can lend to SMSF? 78

What are family pledge loans? 80

Pros of family pledge loans 80

Cons of family pledge loans 80

What is a split contract? 81

5 c's of credit - credit assessment for investment property loans 82

Capacity 82

Collateral 83

Conditions 83

Capital 83

Does a property investor need to register for GST? 84

What is arrears payment? 85

Commercial finance in real estate financing 86

Loans for different properties and structures 87

Owner builder loans 87

Kit and transportable homes 88

Acreage, farms, and rural zoned properties 88

Display homes 89

Multiple dwellings on one title 89

Serviced apartments and student accommodation 90

Consideration 1: 90

Consideration 2: 90

Serviced apartments 91

Student accommodation 92

Vacant land 92

Non-conforming/credit impaired 92

Discharges bankruptcy, part 9 and 10 95

What is discharge bankruptcy part 9? 95

What is discharge bankruptcy part 10? 95

How do I get a discharge bankruptcy part 9 or 10? 96

Tax debts 97

Finance strategies to invest in properties for first-time homebuyers 98

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Finance strategies for buying multiple investment properties 100

Putting together lending structure and finance strategy 101

Conclusion 102

FAQs 103

How to buy an investment property? 103

What are the different types of property investment finance? 103

5
The ultimate guide to
property investment finance:
everything you need to know
about financing your next
investment property

Are you looking to purchase property but don't know where to

start when it comes to property investment finance? You're not
alone. This comprehensive guide will teach you everything you
need to know about the different types of funding available to
real estate investors.

We'll discuss everything from mortgages and lines of credit to

private lending and answer various frequently asked questions,
like how to increase my borrowing capacity?

By the time you finish reading this guide, you'll be ready to

finance your very own property investment!

6
Looking to invest in property
but don't know where to
start?
You're not alone. Property investment can seem like a daunting
task, but it doesn't have to be. With the right advice and
information, you can make sound decisions that will lead to
long-term success.

This guide will teach you everything you need to know about
property investment finance so that you can feel confident in
making the right choices for yourself. You'll learn about the
different types of finance available, how to get started, and what
to watch out for. With this information, you'll be able to invest in
property with ease and confidence.

Download your free copy of our Property Development &

Investment Finance Bundle Today!

7
Finance, Finance, Finance
Like Location, Location, Location is true when buying an
investment; Finance, Finance, Finance becomes the key factor
in moving ahead.

Whether you're a first-time homebuyer or an experienced

investor, whether you're thinking about plain simple buying,
renovating, downsizing, upsizing, looking for a better deal, or
consolidating, your ability to move ahead depends on the
amount of loan or debt you can get, i.e. your borrowing capacity.

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Is property a good
investment? Should I buy an
investment property?
Buying an investment property is the best investment you will
ever make.

Why?

Because in most cases, when bought after careful research &

due diligence, real estate is the only thing that makes you
money while you sleep, especially over a medium to long term.
Most investors use property investment as a long-term
wealth-generation strategy. Property Investment gives a solid
overall return (which includes both continuous cash-flow
income and the capital appreciation of property).

Solid Overall Return = Cashflow + Capital Gains

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Here are some pros and cons
of property investment
Property investment can be a great way to secure your financial
future, but it's important to understand the pros and cons
before you invest.

Let's take a look at the pros and cons and some key concepts of
real estate investment, so you can make an informed decision,
keeping in mind your borrowing power to turbocharge your
investment portfolio.

Pros of property investment

● Property values usually increase over time. If you purchase

an investment property and hold onto it for several years,
you will likely see a good return on your investment.

● Property is a stable and secure investment. Property prices

are not as volatile as stocks and shares and are less likely to
plummet overnight.

● Property investment is a great way to build wealth over

time. With the right strategy, you can see healthy returns
on your investment that can compound over time.

● Property investment is a low-risk investment. Although

there are always risks associated with any investment, the
property is generally considered a low-risk investment.

● Property investment can provide a regular income stream.

If you rent out your investment property, it can provide a
steady income each month.

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Cons Of Property Investment

● Property investment can be expensive. To purchase an

investment property, you will likely need a larger down
payment than you would for a primary residence.

● Property investment can be time-consuming. If you decide

to self-manage your investment property, you will need to
be available to show it to potential tenants and deal with
any problems that may arise.

● Property investment may not be suitable for everyone.

Before investing in property, you should consider your
financial situation and your ability to take on additional
risks.

● There are no guarantees with property investment. While

there are many positive aspects to property investment,
there are also no guarantees. Prices can go up or down,
and you may not see a return on your investment.

● Property investment can be stressful. Handling tenants,

repairs, and other issues can be stressful and
time-consuming. If you are not ready to deal with these
challenges, property investment may not be right for you.

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How does equity work when
buying an investment
property?
When buying an investment property, equity is the amount of
cash that the purchaser needs to put forth to cover the gap
between the total appraised value of the property and the loan
funding, i.e. total amount borrowed to close the purchase.

Post-purchase, any uplift in the property's value over time is also

accounted for as equity.

Equity example 1

Total appraised property Value = $750,000

Loan To Value Ratio (LVR) = 70%

Total Loan Funding = $525,000

Equity = Total appraised value of the property x LVR %

Equity = $750,000 - $525,000 = $225,000

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IMPORTANT: Notice that I did not put Total Property Cost,
instead I used Total Appraised Property Value. That's because
you might have signed the purchase contract for $850,000, but
if the bank's valuation says that the property is worth only
$750,000, the bank will only borrow you a percentage of what
the bank valuation determines as the value of the property.

In this case, you will need to add another $100,000 as equity to

close the purchase.

Let's assume the property market boomed for 5 years, and the
property's appraised value is now $950,000.

You can calculate the total equity in your investment property

as...

Total equity = Total Appraised Value - (Total Debt - home loan

repayments of principal amount)

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5 Years Later...

Appraised property value = $950,000

Total Borrowed Amount = $525,000

Interest Rate = 5% / Annum

Time Period (In Months) = 60

Principal Loan Repayments = $42,910

Interest Payments = $126,211

Total Debt Remaining = $482,090

Total Equity In Property = $467,910

What is LVR in home loans?

LVR stands for loan-to-value ratio aka Loan To Cost (LTC) - A

percentage % of the total appraised value of the property that
the lender is willing to borrow you to complete the purchase. In
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other words, it is the ratio of the amount you are borrowing to
the property's appraised value.

In the example above...

● You will need to borrow 70% of $750,000, and your deposit

will be 20%, i.e. $225,000

● The higher the LVR, the higher the risk for the lender. It is
because there is a greater chance that you will not be able
to repay the loan if the value of your property falls.

● Lenders usually charge a higher interest rate for loans

with a high LVR.

● Lenders may also require you to take out lenders'

mortgage insurance (LMI) if your LVR is above 80%.

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How to leverage the equity in
an investment property?
As property investors, our main goal is to control as much
property as possible with as little money of our own by
leveraging our equity to borrow to continue to acquire more
property responsibly.

Based on the above example,

Your initial equity was $325,000. Due to a booming property

market, your property value (capital gain) soared to $100,000,
giving a return on equity of 30.77%, which amounts to an
annualised return on equity of 6.15%.

Note: To keep the calculations simple, I have left out the

principal & interest payments made over 5 years and have not
accounted for any operating income generated by the
investment property and tax deductions claims.

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Buying an investment property for
the first time

Based on an LVR/LTC of 70%, you can borrow $665,000 against

your property. However, your remaining loan balance is only
$482,090, which frees up $182,910 of extra equity. As explained
earlier, the total home equity in your first investment property is
$467,910.

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Buying your second investment
property

Continuing with 70% as your LVR (loan to value ratio) and your
total available equity, you can borrow $1,559,700, using your
existing property as collateral.

You already own a property worth $950,000, which leaves

$609,700 as the maximum amount you can borrow for your
second investment property without injecting any more equity
or money to purchase your second investment property.

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19
How to buy an investment
property?
If you're looking to invest in property, there are a few things you
need to do to give yourself the best chance of success:

Before you buy an investment

property

● Figure out if property investment is right for you.

○ Are you disciplined?

○ Do you have time for research?

○ Does property excite you?

● Get rid of any unnecessary debt & limit any wasteful

expenses. If you don't know where to start, simply buy a
book on "personal financial advice" and learn to manage
your expenses and reduce your debt.

● See your accountant & get financial advice on the right

structure for purchasing the investment property.

Can I afford an investment property?

Instead of asking yourself how much deposit do I need for an

investment property, it is better to determine the total cost of

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the property that you can afford. Here's how you can calculate
the maximum price of the investment property you can afford.

● Step 1. Determine how much money you have available as

a deposit (cash + equity)?

○ Let's say you have $200,000 as free equity and cash.

● Step 2. Call a home lending specialist to determine what

percentage lenders borrow against an investment
property? Usually, banks can borrow 70%-80% for direct
residential investment and sometimes even more with a
lender's mortgage insurance.

○ Let's say you can get a home loan for 80% of the
property value.

● Step 3. Now take your deposit money i.e. $200,000 & divide
that by 20% (100%-80% LVR)

Voila, the maximum price of the property you can afford is

$1,000,000.

This also means that with $200,000 as a deposit, the maximum

amount you can borrow is $800,000

● Once you know how much you can borrow, you need to
find the right type of loan for your needs. There are many
different types of loans available, so make sure to do your
research before choosing one.

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 ● Once you've found the right loan, you need to negotiate
the best interest rate possible. You can do this by shopping
around and comparing rates from different lenders.

When comparing investment property mortgage rates, there

are a few things you need to consider.

1. Interest rate - You want to find a loan with the lowest

interest rate possible. Make sure you check the comparison
rate for each type of loan side by side.

2. Term of the loan - You want to find a loan that has a term
that suits your needs.

3. The repayment schedule - You want to find a loan that you

can afford to repay without putting too much strain on
your finances.

● Finally, once you have the loan in place, you need to keep
up with your repayments. Missing a repayment can
negatively impact your credit score, so staying on top of
things is essential.

How to increase home loan

borrowing capacity?

Here are the top 9 ways to increase your borrowing capacity

1. Improve your credit score & keep an eye on it. It will

increase your chances of obtaining a loan. Keeping an eye
on your credit score will ensure that you keep your credit
history clean.

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 2. Earn more, get a second job, do property development on
the side. This will free up funds for a loan and generate the
equity you need to use as a deposit.

3. Reduce your other miscellaneous debts, like car loans,

bridging loans, etc., and reduce your credit card limit. This
will allow you to borrow more money.

4. Apply with a lender that offers investor-friendly financing

conditions. For example, amortise the loan over 30 years
rather than 25 years. The longer the amortisation period,
the lower your monthly repayments.

5. Split debt by applying for loans with your spouse so that

you can use your combined income to service the loan.

6. Purchase investment properties that are cash-flow positive.

7. Reduce your cash outflow, i.e. your monthly expenses.

These days, lenders even check your total number of
subscriptions for streaming services like Netflix, Disney+,
etc. Each monthly subscription shaves off your borrowing
capacity.

8. Avoid family pledges or being a guarantor.

9. Apply for a loan when you've been at your employment for

more than six months

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) is insurance that's paid by

the borrower but covers the lender in case the borrower
defaults on their payments and the property (collateral) is sold
for less than the total debt on the property.

Lenders' Mortgage Insurance (LMI) is required if you're

borrowing more than 80% of the property's value. LMI protects

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the lender if you default on your mortgage repayments and
they need to sell the property.

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Understand asset allocation
strategies
You should have a strategy in place before making long-term
financial commitments. Advisers talk about asset allocation or
diversification while discussing financial planning. Anything
you've put in various types of investments, such as stocks and
real estate (growth assets), or lending vehicles like bonds, cash,
or term deposits (safety assets), is reflected in this allocation
(income assets).

The asset allocation formula considers your age (but not your
capacity to handle risk).

Subtract your age from 100. If you are 40 years old, you need to
invest 60% of your assets in growth assets, i.e. property & shares.
If you wish to be more aggressive, you can add any percentage
to 60% and increase that percentage so that your investment
portfolio is weighted >60% towards growth investments and not
other investments.

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After you have bought an
investment property
Safeguard yourself and your assets with insurance

If you're planning real estate investment for building wealth,

you'll need to be sure that you've got adequate insurance in
place for yourself and your most valuable assets, including the
following:

Home and content insurance

Don't worry about this insurance because your lender will

ensure you have one. It safeguards you against financial loss in
the event of a fire or other disaster that damages your house
and covers your legal obligations in the event of damage.

Excess liability insurance

For your house, investment property, and automobile at a

comparatively low cost, and it provides additional liability
protection in the event of a large-claims lawsuit.

Income-protection insurance

The capacity to make a living in the future is the most valuable

asset for most individuals in the workforce. If you're unable to

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work for a long period due to incapacitating sickness or injury,
income-protection insurance pays a portion of your wages.

Life insurance offers a lump-sum payment in the event of death,

can help replace your income if you pass away.

27
Types of lenders
There are a few primary sources of finance when it comes to
property investments.

Banks

Banks are deposit-taking institutions; they offer different types

of loans to customers, including home loans, business loans, and
personal loans. They also give credit products like credit cards
and lines of credit.

Banks typically offer lower interest rates for investment property

finance than other lenders because they perceive the risks to be
lower due to the property's security and the fact that it is an
established market.

Non-bank lenders

These institutions don't take deposits but rather borrow money

from investors to lend it out. Non-bank lenders typically have
higher interest rates than banks, offering more flexibility with
their products. It includes features like interest-only repayments
and no early repayment penalties.

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Private investors

Another source of finance for property investments is through

private investors. These investors can be family and friends, or it
can be through a crowdfunding platform.

Crowdfunding platforms are online platforms that connect

borrowers with many small lenders. It can be a great option if
you have trouble qualifying for a loan from a bank.

Peer-to-peer lenders

Peer-to-peer (P2P) lending is a form of financing where

investors loan money to businesses or individuals through an
online platform. P2P lenders typically have higher interest rates
than both banks and non-bank lenders.

Building societies and credit unions

These are similar to banks, but they are mutual organisations

owned by their members. They offer a range of products,
including home loans, personal loans, and credit cards. Building
societies and credit unions tend to have lower interest rates
than banks because they don't need to profit.

Non-conforming lenders

Non-conforming lenders are banks or other institutions that

don't conform to the rules set out by APRA (the Australian
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Prudential Regulation Authority). This means they can offer
other forms of loans not available at mainstream lenders. One
example of this is a portfolio loan, an investment loan designed
for borrowers with two or more investment properties.

"Tip - As far as possible, choose mainstream lenders. Other

lenders include solicitors' funds, payday lenders, and private
individuals, but their interest rates make profitable property
investing difficult."

Learn More

● Property Development Finance - Easily Finance Your

Project

30
Are mortgage brokers worth
it?
Investing in property requires building a team around you, and
mortgage brokers for home loans can be a great resource when
you're looking for home loans. They have access to various
lenders and know about the products available. The broker can
compare the borrowing capacity using home loan calculators of
various lenders and their rules while calculating acceptable
income.

For example, Some of the following sources of income are not

acceptable to every lender, or the lender may decide to use only
a percentage of the applicable income to make the deal work:

● commissions

● shift work

● casual income

● second job

● part-time work

● short-term contract

● overtime

● salary sacrifice - It's either added back to income for

servicing reasons or inserted in tax-free add-backs.

● salary packaging

● bonuses

● rental income

● negative gearing (if any)

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 ● maternity leave

● pensions (like carers' pension, disability pension)

● Centrelink (support like Family Tax Benefit Part A and B)

● child maintenance payments

● fringe benefits (like a car allowance & taxed car allowance)

● franked dividends

● deductible interest

● self-employed add-backs (including depreciation)

● TAC

● work cover

● study allowance

● trust distributions

● annuity

The broker can aid the borrower by selling the proposal to the
lender and persuading them to lend the borrower money. Some
debtors require extra aid.

Giving the lender a lot of statements and expecting a loan isn't

enough. Good brokers work hard behind the scenes to outline
the loan's strengths and construct a picture for the lender. They
pursue the deal and have the proper contacts. A lousy broker
does none of the above.

When choosing a mortgage broker for a home loan, choose an

accredited broker with a good reputation. You should also make
to check the comparison rate before choosing one.

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Types of loans & mortgages
Investing in the property must be aligned with your financial
goals. Before choosing a loan, seek expert advice on the best
package for you. There are different types of loans for investors;
first, home buyers and a home lending specialist can help you
understand different products for various investment properties.

Remember that your needs may change over time. Below are
different types of property loans that you should know -

Standard variable rate loan

The interest rate on this loan will go up or down, depending on

the market. This can make budgeting difficult as your
repayments may increase.

Fixed-rate loan

The interest rate on this loan is fixed for some time, usually
between one and five years. It can make budgeting more
accessible as you know what your repayments will be during
that time.

Split loan

It is when the loan is split into two or more loans. Each part can
be on a fixed or variable rate. Some lenders will let different

33
applicants be on each loan split without putting the other
borrower's loan split at risk. It can help you to manage your
repayments if the interest rates rise.

Line of credit

A line of credit is essentially a loan with a variable interest rate.

Because it is secured against a property, it usually has a greater
limit than a credit card. If monies are parked in the LOC, there is
no need to make repayments on that amount. Only the amount
of the lending facility that has been utilised (drawn down) would
be subject to interest. It can be helpful if you want several
properties investment over time.

100% offset account

An offset account is a second standalone account connected to

the loan account. The primary objective is to reduce loan
interest repayments and allow fast access to any accrued
savings.

It offsets the loan balance by the amount in the account at any

given moment. Interest is computed on the loan's principal
amount, less any funds parked in the offset account, known as
the loan's balance.

It is a powerful instrument that many borrowers overlook;

depending on the amount in the account and the size of the
loan, it may save hundreds or thousands of dollars every year.

34
Partial offset account

This account is also mortgage-linked, but only part of the

money offsets your loan's interest. It can be helpful if you don't
have enough money saved to cover your entire mortgage
repayment.

Other types of loans include investment loans, construction

loans, and refinancing.

● Investment loans are for people who want to purchase an

investment property.

● Construction loans are for people who are building a

property.

● Refinancing is when you get a new loan to pay off an

existing loan, usually from a different lender.

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How does an investment loan
help real estate investors?
An investment loan is a specialised mortgage type designed for
real estate investors. These loans offer several benefits, including:

● Low-interest rates – Investment loans typically have lower

interest rates than traditional mortgages. It can help you
save money on your overall investment.

● Flexible terms – Investment loans are often more flexible

than traditional mortgages regarding terms and
conditions. It can give you the ability to tailor your loan to
your specific needs and goals.

● Tax benefits – The interest you pay on an investment loan

may be tax-deductible. It can help you claim tax
deductions and save money on your yearly taxes.

Investment loans can be a great way to finance your real estate

investment goals. If you are thinking about taking out an
investment loan, shop around and compare offers from multiple
lenders. It will help you get the best deal possible.

36
How does a construction loan
help real estate investors?
A construction loan helps investors build or renovate a property.
You can also use a construction loan to purchase an investment
property already under construction.

● This type of loan allows you to draw down the money you
need when you need it, rather than borrowing the entire
amount upfront.

● Construction loans are typically interest-only loans, which

means you only need to pay interest on the amount you've
drawn down. It can help keep your monthly repayments
low.

● The interest rate on a construction loan is also usually

variable. It can make budgeting difficult, allowing you to
save money if interest rates fall.

After completing construction, you will need to switch to

another type of mortgage (usually a standard variable rate loan).
It might not be easy, so choosing the right lender and mortgage
product is essential.

Make sure you understand all the costs associated with a

construction loan. There may be early repayment penalties if
you pay off the loan before it's finished or administrative fees if
you switch to another type of mortgage.

For example, if you're building a duplex, you may need to take

out two construction loans, one for each property.

Construction loans can be a great way to finance an investment

property. Just make sure you understand all the costs and risks
involved before applying.

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How to refinance an
investment property?
When you refinance an investment property, you take out a new
loan to pay off your old loan. This new loan may have a different
interest rate and term than your old loan.

● You can use a refinance to access more money for

investing in other properties or reduce the interest you're
currently paying on your investment property.

● You can also use a refinance to consolidate your debt into

one loan, making it easier to manage your repayments.

● When you refinance an investment property, you must pay

stamp duty and other associated costs.

● Just make sure the loan meets your goals. Ensure the
lender offers you a better rate repayment figure and meets
your goals.

● Keep all papers well-organised to make refinancing or

obtaining finance accessible.

● Consider refinancing fees. Paying off a fixed-rate mortgage

early may result in penalties, whereas paying off a 'variable
rate' mortgage usually results in a few hundred dollars in
administrative expenses.

The main benefits of refinancing are saving you money on

interest payments, giving you access to more money for buying
an investment property, and making your repayments more
manageable.

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How can I get a 100 percent
loan for an investment
property?
The most common way to get a 100 percent loan for an
investment property is to use a combination of debt and equity
financing.

You can also get the investor guarantor loan to get approval for
a 100% investment property loan.

What is a guarantor loan?

A guarantor loan is an unsecured loan where a family member

or friend agrees to cover the repayments if you can't. It means
that even if you have a bad credit history, you may still be able to
get a loan.

Guarantor

If a creditor refuses to offer a loan to an individual, they may ask

for a guarantee. You are the 'guarantor' of a loan if you sign one
for a friend or family member.

You do not own the property or items bought with the loan. You
have no rights, but you are entirely liable.

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Co-borrower

A co-borrower is someone who signs a loan with someone else.

In most cases, both co-borrowers are personally accountable for
the whole loan.

If the co-borrower cannot pay their share of the loan, the other is
usually responsible for both.

One lender will assign a share of obligation to each borrower,

but this may not prevent repossession if one of the borrowers
defaults.

Considerations before Guaranteeing Anything

You should just agree to be a guarantor if:

● You're in a good financial position and can easily make

the repayments yourself if needed

● You trust the borrower to make the repayments on time

● You're comfortable with the risks involved

● You understand what you agree to.

Learn More

● 10 Big (Financial) Property Investing Mistakes Made By

Investors

40
Principal and interest vs
interest-only loans
When you take out a loan, you will need to decide whether to
repay the principal and interest (the actual amount you
borrowed) or just the interest.

If you choose to repay the principal and interest, your monthly

repayments will be higher, but you will own the property at the
end of the loan term.

If you choose to repay just the interest, your monthly

repayments will be lower, but you will still owe the principal at
the end of the loan term. You can also choose to roll over the
principal into a new loan, which means you'll continue to pay
just the interest on it.

What is an interest-only loan?

An interest-only loan is where you only pay the interest on the

amount you borrow each month. You can't repay the principal
(the amount you borrowed initially) until the end of the loan
term.

This type of loan can be helpful if you want to invest in property

but don't have enough money saved up to cover your entire
mortgage repayment.

● The borrower only pays the interest on the mortgage and

does not have to pay back any of the money borrowed.

41
 ● It can help first-time homebuyers manage their cash flow
by reducing their repayment commitment and reducing
the cost of furniture and moving.

● It may be easier for would-be investors to afford negatively

geared properties.

● I/O loans can be very useful in calculating the borrowing

capacity on serviceability calculators.

Disadvantages of interest-only loans

● The monthly repayments do not reduce the loan principal.

If property prices fall, the borrower may find it challenging
to sell the property or refinance the loan.

● If the borrower does not make regular extra repayments,

they may end up with a larger loan principal at the end of
the interest-only period than when they started.

● Interest-only loans can be very useful in calculating

someone's borrowing capacity on serviceability calculators.
The downside of Interest-only loans is that many borrowers
may be caught off guard if they have too many
interest-only loans. When their interest-only period runs
out, the monthly repayments for some borrowers could
jump up to two or three times the amount of their current
repayment.

Above all, pay off the mortgage and consider not having an
interest-only loan. If you have a home loan debt, consider
making an investment loan interest-only, but consider reducing
your investment debt if you paid your home loan debt.

42
What is a principal and interest loan?

A principal and interest loan is a loan in which you repay both

the principal (the amount you initially borrowed) and the
interest on that amount each month. Your monthly repayments
will be higher than if you choose an interest-only loan, but you
will own the property at the end of the loan term.

● You will need to repay less than 1% of the loan principal

each month, so these loans have higher repayments than
interest-only loans.

● There are no tax benefits if the borrower has a home loan

and the loan is not for investment purposes, so many
borrowers prefer to pay down their home loan first before
paying down debt for an investment property.

● The majority of repayment is an interest with some

principal. They charge interest not only on the loan amount
but also on the interest charged on the loan amount 'every
day until the repayment.

Disadvantages of principal and

interest loans

● The monthly repayments are higher than if you choose an

interest-only loan. It may take longer to save up for a
deposit on another property, or you may have less money
available each month to put money into other assets.

● Your loan balance will not go down during the interest-only

period, so you may owe more money at the end of the loan
term than when you started.

43
● If property prices fall, you may find it challenging to sell the
property or refinance the loan.

44
What is bridging finance?
Bridging finance or a bridging loan is a short-term loan used to
'bridge' the gap between buying a new property and selling
your old one. Property investors can use a bridging loan for a
variety of purposes, including:

● To buy a new property before your old one has sold.

● To buy a property at auction.

● To release equity from your property to use as a deposit on

another property.

● To pay for renovation costs on a new property.

● To cover the cost of stamp duty and other purchase

expenses.

Bridging finance is usually a short-term loan (between 6 and 12

months) at a higher interest rate than a traditional home loan.

45
How does a bridging home
loan work?
A bridging home loan works similarly to a standard home loan;
however, the interest rate is usually higher, and the loan term is
shorter. You will make regular repayments on the loan, and at
the end of the term, you will need to either sell your property or
refinance to a longer-term loan.

Repayments

Repayments on a bridging loan are usually interest-only, which

means that you will not reduce the amount you owe during the
loan term.

It can be beneficial if you are trying to save for a deposit on

another property, as you will not have to make repayments on
the principal (the amount you borrowed).

Interest

Interest rates on bridging finance are usually higher than

standard home loan interest rates. The loan is for a shorter
period, and the lender takes on more risk.

46
Security

Bridging finance is usually secured against your property, which

means that the lender can sell your property to repay the loan if
you default on the repayments.

This makes it essential to make sure that you will sell your
property or refinance the loan at the end of the term.

47
Costs involved in buying a
property
When buying a property, you need to budget for various costs.

These costs can include:

Stamp duty

Stamp duty is a tax paid when purchasing property or land in

Australia.

The stamp duty depends on the property's value, state or

territory, and whether you're a first home buyer.

You can use a Stamp Duty Calculator to estimate how much

stamp duty you need to pay.

Legal and conveyancing fees

These are the fees your solicitor or conveyancer charges for their
services about your property purchase.

Bank fees

You might face charges of bank fees, such as a loan application

fee, an establishment fee, and ongoing fees.

48
Other costs

You need to consider maintenance costs, building and pest

inspection fees, removalist costs, and furniture and appliance
costs if you're buying an unfurnished property.

49
Acceptable income types
You can use a few types of income to qualify for property
investment finance. The most common income and how the
lender treats these are:

● Overtime - Some lenders will use a percentage of your

overtime income, while others will not consider it.

● Casual Income - 50%

● Rental Income - 75%

● Shift work - 25-50%

● Deductible Interest - Some lenders will consider that the

interest on your loan is tax-deductible. It can increase your
borrowing power by up to 30%.

● Salary Packaging - Use 50% of pre-tax

● Second Job - Use 50% of income

● Pension - 100%

If you have other types of income, such as income from a trust

or property investment, you will need to speak to your lender to
find out how they are treated.

50
Tenure
1. Full-time and Part-Time and Contract
Six months of full-time or permanent part-time work in the
same role with the same company is generally considered
appropriate.
One day at a new job is fine. A lender will even accept an
employment contract and its income before the person
starts the new work. Probation is appropriate up to 80%
LVR but should end at 80%.

2. Contract employment
Lenders accept unemployed people on a contract basis.
Depending on the lender, they will use either the contract
value or a percentage of the contract value. The minimum
contract length is usually 3 months.

3. Living expenses
Lenders will consider your living expenses when assessing
your application for property investment finance. It
includes things like your rent, food and utility bills. You will
need to provide proof of your living expenses to the lender.

51
What is the comparison rate?
A comparison rate is a tool that lenders use to compare the cost
of different loans. It includes the interest rate and other fees the
lender may charge you.

The comparison rate can help you compare different loans and
find the best deal for you.

52
Valuations
A property valuation is an opinion of the value of a property. The
valuer will consider the property's location, the condition of the
property, and recent sale prices of similar properties.

A property valuation is different from a market appraisal, which

estimates the value of a property based on the current market
conditions.

Before approving your loan, your property investment finance

lender may require a property valuation. The property valuation
assesses the property's value and ensures that the property is
worth the amount of money you are borrowing.

A property valuation can be useful for other reasons as well. For

example, if you want to sell your property, a property valuation
can help you set a price for your property.

A valuation can be free as well as comes with a fee. Some

property investment finance companies offer free property
valuations for their customers.

If the valuation is low, the buyer has six options:

1. Renegotiate the price with the seller

2. Cancel the contract and get their deposit back

3. Ask the seller to pay for the property to be revalued

4. Ask the bank to finance the difference to continue with the

purchase

5. Walk away from the deal

6. Buy the property at a lower valuation.

53
Home loan requirements and
applying for a home loan
A home loan is a loan taken out to finance the purchase of a
property.

Home loans are available from banks, building societies, and

credit unions.

Home loan application requirements

To qualify for a home loan, you will usually need to -

● Two to three forms of ID

● Two or three types of income evidence

● Self-employed full documentation loan, 1-2 full financial

years tax returns, and assessment notices for
company/trust.

● 6 months of repayments statements of any mortgage debt

(if refinancing)

● 3 months personal loan and car loan statements

● Credit card statements of 3 months.

● Notice of Council Rates for Refinances, sometimes required

to prove other properties.

● To complete a purchase, you will need the purchase

contract, land transfer, deposit receipt, and proof of funds.

● Rental statement/lease agreement or rent appraisal if

buying vacant property.

54
 ● Full 'stamped' trust deed, if one exists.

Process of applying for a home loan

When you're ready to buy a house, apply for a home loan to help
manage your property expenses.

● Firstly, collect all required paperwork. Tax returns, pay

stubs, and bank statements are some examples. You'll also
need to know your credit score. The better your credit
score, the better your loan interest rate.

● You can now start applying for home loans. There are
numerous lenders, so comparing rates and terms is critical.
Ask about origination fees and prepayment penalties.

● After selecting a lender, you must submit a loan

application. It usually involves completing a loan
application and providing basic personal information like
name, address, and Social Security number.

● The lender will then assess your loan eligibility. So the

lender will likely send an appraiser to value your home.
After the appraisal, the lender will make a loan offer.

● You can now accept or reject the loan offer. If you accept,
you'll need to sign paperwork and pay a deposit. If you
reject the offer, you can look for another loan.

Applying for a home loan does not have to be difficult or

stressful. With a little planning and knowledge, you can get the
best loan for property investment.

55
56
What is negative gearing?
Negative gearing is when your rental income doesn't cover the
cost of your mortgage repayments, and you have to make up
the difference from your own money.

The property is known to be negatively geared property if the

outgoings, such as mortgage repayment, rates, insurance,
agents, commission to manage the property, and any
body-corporate expense and maintenance, are larger than the
income.

Negative gearing example

If you earn $30,000 a year and your rental property costs you
$27,000 a year in expenses, your property is negatively geared
by $3000 a year.

The ATO will allow you to deduct this amount from your taxable
income, which means you'll only be taxed on $27,000 instead of
$30,000.

It can reduce your tax and may even bring you into a lower tax
bracket.

57
What are the benefits of negative
gearing?

The main negative gearing benefit is that it allows you to offset

some of your rental losses against other income, such as your
salary or wages.

It can reduce the amount of tax you pay.

It can also help you build up equity in your property more

quickly, as your rental income may not cover your mortgage
repayments, but the rent you're charged will usually be more
than the interest on your loan.

What are the risks of negative

gearing?

● The main risk of negative gearing is that you may lose

money if your rental property doesn't increase in value or if
rents go down.

● You could also end up with a property that is hard to sell, as

you may need to sell it for less than you paid for it.

It's important to remember that negative gearing is a long-term

strategy, and you should only put your money in the property if
you're comfortable with the risks.

If you're unsure whether a negative gearing investment

property is right for you, speaking to a financial advisor is good.

58
What is positive gearing?
Positive gearing is where your rental income covers your
mortgage repayments and other costs, such as maintenance
and insurance. You also receive a tax deduction for the interest
payments on your loan.

It can result in a cash flow positive situation, where you're

receiving more money than you're paying out each month.

What are the benefits of positive

gearing?

There are several benefits of positive gearing, including:

● The ability to generate a passive income stream

● A tax deduction for the interest payments on your loan

● The potential for capital growth on your property as the

value of your property increases

What are the risks of positive

gearing?

There are also several risks associated with positive gearing,

including:

● An increase in your tax liability if you make a profit on the

sale of your property

59
● The potential for negative cash flow if rental prices fall or
interest rates rise

● The possibility that you may have to sell your property if

you can't afford the repayments

60
What is capital gains tax on
real estate?
Capital gains tax (CGT) is a tax on your profit when you sell an
asset for more than you paid for it.

You're only liable for CGT if you make a profit, and you don't have
to pay CGT on any losses.

The main assets subject to CGT are shares, managed fund

investments, and real estate.

When do I have to pay CGT?

You only have to pay CGT when you sell an asset, and you
usually have to pay it within 30 days of the sale.

However, some exceptions, such as selling your home or being a

foreign resident.

61
How Is Capital Gains Tax
Calculated?
CGT is calculated on your profit from selling an asset, not on the
total sale price.

For calculating capital gains tax liability, you need to know the
following:

● Cost base of the asset (what you paid for it plus any costs
associated with buying or selling it)

● Capital gain (the difference between the cost base and the
sale price)

● Capital gains tax rate (currently 18% for most assets)

You then apply the CGT rate to your capital gain to calculate
your CGT liability.

For example, if you sell an asset in Australia for $100,000 and

your cost base is $80,000, your capital gain is $20,000.

If you're a resident for tax purposes, you will pay 18% on your
capital gain, which means your CGT liability would be $3600.

62
What are the main
exemptions and concessions?
The main exemption from the CGT tax rate is your home, as long
as it is your main residence.

You can also claim several concessions, such as the following:

● CGT discount (if you've owned an asset for 12 months or

more, you may be eligible for a 50% discount on your
capital gain)

● Main residence exemption (if you sell your home, you may
be able to exempt all or part of the capital gain from tax)

● Private use assets exemption (if you sell an asset that

you've used for personal use, such as a boat or a painting,
you may be able to exempt some or all of the capital gain
from tax)

The 6-year rule in Australia

You won't be eligible for the CGT discount if you sell an asset
you've owned for less than 12 months.

However, if you've owned the asset for more than 12 months,

you may be eligible for the discount if you meet certain
conditions.

One of these conditions is the "six-year rule", which states that

you must have owned the asset for at least six years before
claiming the discount.

63
The six-year rule encourages long-term investment in assets, as
it provides a greater incentive for people to hold onto their
assets for longer periods.

Do I have to pay CGT if I’m not a

resident for tax purposes?

If you're not a resident for tax purposes, you may still have to pay
CGT on any assets you own in Australia.

However, several exemptions and concessions may apply, such

as the following:

● Foreign resident CGT exemption (if you're not a resident for

tax purposes, you may be exempt from CGT if you sell your
main residence in Australia)

● Temporary residents concession (if you're a temporary

resident, you may be eligible for a concession on any
capital gains you make when you sell your assets before
you leave Australia)

If you're not sure whether you're liable for CGT, it's good to
speak to a tax advisor. Here are the top 10 effective finance
options for your next property development project.

64
What is equity release for
investment properties?
Equity release is a way to access the money tied up in your
home without moving out.

You can take out a loan against the value of your home or sell
part of your property in exchange for a cash lump sum or
regular payments.

Equity release is available to homeowners over the age of 55,

and you don't have to be retired to qualify.

There are two types of equity release -

Un-controlled equity release/ cash

out

With Uncontrolled Equity Release/Cash Out, you can take out as

much money as you want, whenever you want, but the amount
of money you can borrow decreases as you get older.

The interest rate is usually fixed, so you'll know exactly how

much your repayments will be each month.

Controlled Equity Release/Cash Out

With Controlled Equity Release, the amount of money you can

borrow doesn't decrease over time, but there are limits to how
much you can take out.

65
Equity release can be a great way to boost your retirement
income, but it's important to understand how it works before
making any decisions.

66
What are self-employed
loans?
Self-employed loans are a type of loan specifically designed for
self-employed people. People can use them for various
purposes, including starting or expanding a business, making
home improvements, and consolidating debt.

Self-employed loans typically have higher interest rates than

traditional loans. Still, they can be a good option for people who
have difficulty getting approved for a loan through a traditional
lender.

There are a variety of lenders that offer self-employed loans,

including banks, credit unions, and online lenders. Be sure to
compare interest rates and terms before you choose a lender.

67
Low doc self-employed loan
for property finance
● A low doc loan for self-employed is a home loan that does
not require you to provide evidence of your income.

● This can be beneficial if you are self-employed or have a

complex income situation.

● To apply for a low doc loan, you will need to provide proof
of your identity and assets and evidence of your ability to
repay the loan.

● It may include tax returns, bank statements, and asset

valuations.

● The interest rate on a low doc loan is usually higher than a

standard home loan, as the lender has more risk.

This loan type is also known as alt-doc, lo doc, low doc, and low
documentation.

68
Full doc self-employed loan
for property finance
● A full doc self-employed loan is a home loan that requires
you to provide evidence of your income.

● To apply for a full doc loan, you will need to provide

payslips, tax returns, and other documentation to prove
your income.

● The interest rate on a full doc loan is usually lower than a

low doc loan, as the lender has less risk.

● This loan type is also known as a standard home loan or a

conventional home loan.

69
What is a deposit bond when
buying a house?
Deposit bonds can be a practical option if you do not have the
cash for a deposit or if you want to keep your savings in an
interest-bearing account.

● A deposit bond is a type of insurance that can be used in

place of a cash deposit when buying a property.

● An insurance company and guarantees issue the deposit

bond to the seller.

● If the buyer does not pay the deposit, the insurer will pay
the seller.

● Real estate investors can use deposit bonds for both

residential and commercial properties.

● They are usually valid for up to 12 months, but this can vary
depending on the insurer.

70
How to get private funding
for real estate investing?
Private funding is an alternative to traditional lending in which a
group of private investors pool their funds and lend them to a
borrower for a limited period.

Most borrowers seek private funding since they don't qualify for
traditional loans. It includes a lack of security, a desire for speed,
or it's just too complicated or complex.

● They're 6-24 month terms with interest-only payments

required at 1% above market rates, up to 6% monthly.

● The minimum amount you can borrow is usually $50,000

with no maximum.

● Try contacting your local real estate investors' association

or searching online directories to find private lenders.

● Private funding LVRs are typically 60-75 per cent,

equivalent to commercial finance.

Learn More

● Property Investment Strategies

71
What is the off-the-plan
purchase?
Buying Off-the-plan properties can be a great way to get into
the property market, as you can often buy properties at a
discounted price.

● An off-the-plan purchase is when you buy a property that

has not yet been built.

● You usually deposit and then make payments during the

construction period.

● Once the construction is complete, you will need to pay the

purchase price balance and take possession of the
property.

However, more risk is involved, as the property's value may not

be as high as you expect it to be when completed.

Benefits of buying off-plan property

● You can often buy the property at a discounted price.

● There is no need to pay stamp duty on the purchase price.

● You may be able to get a better loan deal from the lender.

● They are mostly in the city or high-density developments in

good suburbs within 20 km of a CBD.

72
Risks of buying off-plan property

● The property's value may not increase as much as you

expect.

● There may be a delay in the construction of the property.

● You may not be able to get your deposit back if you change
your mind about the purchase.

● There would be no transparency between the building's

investor versus owner-occupier split, so proceed cautiously.

The off-the-plan market is booming in many Australian cities, so

do your research before taking the plunge.

If you're considering buying an off-the-plan property,

understand the risks and benefits involved.

Off-the-plan purchases are not for everyone, but they can be a

great way to get into the property market if you're prepared to
take on the risks.

73
Self-managed super fund
(SMSF) loans
If you're looking to finance a property using your SMSF, there are
a few things you need to know.

● You can only borrow for investment purposes, not for

personal use.

● The loan must be secured by an eligible asset, such as

commercial or residential property.

● The asset must be held in trust for the benefit of the SMSF.

● You can only borrow up to 80% of the property's value.

● You must pay the loan within a maximum term of 30 years.

● You will need to pay interest on the loan and fees.

SMSF loans are a great way to invest in property, but make sure
you understand the rules and regulations before taking out a
loan.

Security restrictions for SMSF loans

● Owner-occupied property, construction, second mortgage,

over 5 hectares, and vacant land are unacceptable
scenarios for lenders.

● Interest rates are high, roughly 1.6-2% above a standard

variable home loan rate.

74
Debt service/borrowing
capacity for SMSF loans
A key consideration when determining whether to use SMSF
borrowed funds to invest in property is the debt service
obligations and borrowing capacity of the SMSF.

Several factors will determine the capacity of the SMSF to

service the loan, including:

● The income and expenditure of the SMSF

● The interest rate on the loan

● The term of the loan

● The repayment structure of the loan (e.g. interest only or

principal and interest)

● Any other investments held by the SMSF

It is important to seek professional financial advice to determine

whether your SMSF can service a loan before proceeding with
any investment.

Lenders use two basic methods to assess a borrower's

borrowing ability.

Net surplus ratio (NSR)

The net surplus ratio (NSR) measures the SMSF's ability to

service the loan from its current income.

To calculate the NSR, the lender will take into account:

75
 ● The projected after-tax earnings of the SMSF from all
sources (e.g. salary, investment income, pension income)

● The projected after-tax expenses of the SMSF (e.g. loan

repayments, running costs, insurance premiums)

● The NSR is generally expressed as a percentage and will

usually be calculated annually.

For example, if the SMSF's projected after-tax earnings are

$50,000 and its projected after-tax expenses are $40,000, the
NSR would be 50% (50,000/40,000).

The SMSF has enough income to cover its expenses and still has
$10,000 leftover (the surplus).

The higher the NSR, the more comfortable the SMSF is servicing
a loan.

Debt service ratio (DSR)

The debt service ratio (DSR) measures the SMSF's ability to

repay the loan over the term of the loan.

To calculate the DSR, the lender will take into account:

● The projected principal and interest payments of the SMSF

over the term of the loan

● The projected assets and liabilities of the SMSF at the end

of the loan term

The DSR is generally expressed as a percentage and will usually

be calculated every month.

For example, if the SMSF's projected principal and interest

payments are $2,000 per month and its projected assets and

76
liabilities are $100,000 at the loan term, the DSR would be 2%
(2,000/100,000).

It means that the SMSF's monthly repayments will eat up 2% of

its total assets over the life of the loan.

The lower the DSR, the more comfortable the SMSF is servicing
a loan.

As a general rule, the SMSF's NSR should be greater than its

DSR.

Share of household disposable income

Source -
https://www.rba.gov.au/publications/fsr/2021/apr/household-busi
ness-finances.html

77
If there is a little surplus, always ask how much you should
borrow instead of how much you can borrow. As a buffer, add
2% to 7.25% to the debt cost.

Anyone who has borrowed money recently might consider

basing the out-of-pocket cost of any property loan on a 7.2 per
cent rate (the average interest rate over the last 20 years). Don't
let debt consume more than 40% of your household's income.

Who can lend to SMSF?

Most major lenders, plus a few specialist lenders, are now

offering SMSF loans.

● Regular Lenders

Any lender can fund an LRBA. Most major banks currently lend
to SMSFs.

Using a major lender has advantages such as sourcing funds,

drafting loan agreements, and performing most legal checks.

The disadvantages include higher interest rates than you would

get if you borrowed in your name.

● You, as a lender

You can become the lender of the borrowed fund to your SMSF.

If you have excess funds in your name and your super fund
cannot afford the home, you may consider this. Another reason
could be that you can't find a typical lender ready to lend
against the property you want to buy.

● Expert guidance is highly suggested when lending money

to an SMSF.

● The amount of money loaned to an SMSF is not capped.

78
● If an individual is willing to lend the SMSF the whole
purchase price plus legal fees, they may do so.

79
What are family pledge
loans?
A family pledge loan is when a family member uses their
property to secure your loan. It can be a great way to get into
the property market if you don't have enough money for a
deposit. Normally, principal and interest are repaid. LVR can go
up to 110%.

In many cases, the pledge provider is legally responsible for their

portion of the obligation. There are some risks involved, so make
sure you understand the pros and cons before taking out a loan.

Pros of family pledge loans

● You can often get a lower interest rate than a standard

loan.

● Your family member's property is used as security, so the

lender has less risk.

Cons of family pledge loans

● If you default on the loan, your family member's property

could be at risk.

● You may not be able to get the loan if your family

member's property is not suitable as security.

80
What is a split contract?
A split contract is an agreement between a property investor
and a builder to complete part of constructing a new property.

● The investor provides finance for the builder to start work

and then agrees to buy the finished product from the
builder after its completion.

● This type of arrangement can be helpful for investors who

want to get involved in property development but don't
have the funds to finance a project from start to finish.

● You can also use this contract to purchase an investment

property already under construction.

● Understand the builder's track record and get a fixed price

for the finished product.

Be aware that there may be some risk involved, as the builder

may not complete the project on time or to a high standard.

Make sure you have a solid contract in place that protects your
interests.

A split contract can be a great way to get involved in property

development without spending a lot of money. Just make sure
you understand the risks involved before you sign up.

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5 c's of credit - credit
assessment for investment
property loans
When applying for an investment property loan, the lender will
assess your creditworthiness using the Five Cs of Credit.

The Five Cs of Credit are:

● Capacity: Can you afford the loan repayments?

● Collateral: What asset are you using as security for the

loan?

● Character: Are you a good borrower?

● Conditions: What are the economic conditions like?

● Capital: How much equity do you have in the property?

Lenders will look at all of these factors when assessing your loan
application. It's important to understand each one to put your
best foot forward.

Capacity

Capacity refers to your ability to make the loan repayments. The

lender will assess your income and expenses to see if you can
afford the loan.

They may also consider whether you have other debts that
could affect your ability to repay the loan.

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Collateral

Collateral is the asset you're using as security for the loan. The
lender will assess the asset's value and whether it can be sold to
repay the loan if you default.

Character refers to your history as a borrower. The lender will

look at your credit report to see if you've made late payments or
defaulted on loans in the past. They may also consider your
employment history and financial stability.

Conditions

Conditions refer to economic conditions, such as interest rates

and inflation. The lender will assess how these factors could
affect your ability to repay the loan.

Capital

Capital refers to the equity you have in the property. The lender
will look at how much money you've put towards the property's
purchase price and whether you can increase your equity if the
property value decreases.

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Does a property investor
need to register for GST?
You must register for GST if you are carrying on an enterprise
and your GST turnover is above the registration threshold. If you
purchase property as part of your enterprise, you will need to
pay GST on the property finance.

When owning the property, as a property borrower, you should

be GST registered to avoid paying taxes on the interest earned
from your investment. GST registration also allows you to claim
tax deductions, which can offset the cost of your loan
repayments.

If you are not GST registered, you may find that the interest you
earn on your investment is subject to GST. It can significantly
increase the cost of your loan repayments.

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What is arrears payment?
Arrears payment is a type of payment made when the amount
owed is more than what is currently being paid. It can result
from missed payments, interest charges, or other fees.

When making an arrears payment, it is important to ensure that

all of the correct information is included so that the payment
can be processed correctly. It may include the account number,
the amount being paid, and the payment date.

Arrears payments can be made in various ways, including by

check, online, or over the phone. You can also make these
payments through a debt consolidation program. It can help
lower the monthly payments and make it easier to catch up on
the outstanding balance.

Arrears payments can significantly impact your credit score, so it

is important to make them on time and in full. If you are
struggling to make arrears payments, contact your lender or
creditor as soon as possible to discuss your options.

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Commercial finance in real
estate financing
Commercial finance in real estate financing is the process of
providing funding for commercial real estate projects. You can
use this type of financing for various purposes, including
purchasing property, developing new projects, or refinancing
existing projects.

Banks and other financial institutions typically provide

commercial finance, but several private lenders provide this type
of financing.

● The process of commercial finance in real estate financing

typically involves several different steps.

● The first step is to identify the property that will be

purchased or developed.

● Determine the required amount of financing. You can do

this by estimating the project's total cost and then
subtracting any funds that are already available.

● Submit a loan application to the bank or other lender.

● Wait for a decision on the loan application.

● The last step is to close on the property if the loan is

approved.

This process can be time-consuming and complicated, so it is

important to work with an experienced professional who can
guide you through the process.

Commercial finance in real estate financing can be a great way

to fund your next real estate project.

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Loans for different properties
and structures
There are a variety of loans available for different types of
property and structures.

Whether you're buying a house, a commercial property, or a

development project, there's likely to be a loan that fits your
needs.

Some of the most common types of loans for property

purchases include:

Owner builder loans

Owner builder loans are a type of construction finance that

allows you to finance the construction of your new home as an
owner-builder.

It can be a great option for those who want to build their own
home but don't have the funds to do so outright.

There are a few things to consider before taking out an owner

builder loan, such as -

● Whether you have the necessary experience and skills to

build your own home.

● You'll also need to factor in the cost of materials and labour

and any permits or inspections that may be required.

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Kit and transportable homes

A kit or transportable home is a prefabricated home that can be

transported to your property and assembled on site.

These homes are usually less expensive than traditional

stick-built homes and can be a great option for those on a
budget.

There are a few things to keep in mind when considering a kit or

transportable home, such as

● The cost of transport and assembly

● Permits or approvals that may be required.

Acreage, farms, and rural zoned

properties

Some lenders consider this a residential loan. Obtaining a

commercial loan is often preferable, especially if the property
generates or has the potential to generate income.

In the event of a repossession, the lender would take the

borrower's property and the location from where the income is
made.

Acreage, farms, and rural zoned properties present a unique set

of challenges regarding financing. There are several different
loans available for these types of properties, including:

● Rural development loans

● Farm loans

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 ● Agricultural loans

Each of these loans has its requirements and conditions, so it's

important to do your research before choosing one.

Display homes

A display home is a property that a developer or builder builds

specifically to display their work.

These homes are often used as model homes or show homes

and are usually located in new developments or subdivisions.

Display homes can be a great option for those looking to invest

in a property, as they often come with several features and
amenities that aren't typically found in other homes.

There are a few things to keep in mind when considering a

display home, such as

● The cost of the property

● Whether the property is furnished or not

● The terms of the lease, if applicable.

Multiple dwellings on one title

You will see multiple dwellings commonly on the Australian

Landscape. Multiple dwellings on one title refer to any property
with more than one dwelling unit on a single piece of land. It
can include duplexes, triplexes, and quadplexes.

Financing for multiple dwellings can be more complicated than

for single-family homes, as there are a few different options to

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consider. Some of the most common loans for multiple
dwellings include:

● Secured loans

● Unsecured loans

● Development finance

Serviced apartments and student

accommodation

Investing strategies abound. Some tactics yield good cash flow

or capital growth, while others waste time and damage an
investor's property goals.

Many consider student housing and serviced apartments to be

bad investments.

Consideration 1:
Banks rarely lend more than 60% of either type of property
value. It is one of the riskiest residential investment property
decisions an investor can make, and lenders do not want to take
that risk.

Consideration 2:
Because lenders normally only consider 60 per cent LVR
(loan-to-value ratio), an investor must contribute 40% plus fees.

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It is a waste of money. These funds may have gone to alternative
investment properties with higher capital growth potential, up
to 95% LVR.

The resale market is far smaller than the usual property market,
which is terrible enough for the investor.

There would be many fewer consumers willing to chip in 40%.

Like the initial investor, they would have difficulty obtaining
financing, as only a few lenders will lend on such security.

So the vendor can't demand the price they desire. It would

always be a buyer's market (i.e. sellers would not be in a strong
position to negotiate).

Few investors want to put 30-40% of their funds, and many

won't have that much. So don't think about whether you can
afford it; think about how many people can afford it - the answer
is not many.

Serviced apartments
The capital growth potential of serviced apartments is linked to
the property's rental increase. Some serviced apartment
contracts include rent hikes over time.

● Leasing increases capital growth. The increase represents a

capital gain.

● Be aware that the value may not rise at the same rate as a
regular unit.

Services apartments present additional risks such as

management service quality, use of the flat, and whether it can
be owner-occupied. Lenders dislike them because they are
burdensome, restrictive, controlling, and costly.

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Student accommodation
Student accommodation can be profitable, although it is usually
significantly smaller (under 50 square meters) and riskier.

Depending on location, student housing contracts may be less

demanding. Some investors rent out rooms in a house, but it is
still a suburban home.

This is preferable to designated student housing since it permits

standard debt amounts to be borrowed if the property is valued
before locks are installed on each bedroom door.

Lenders regard it as a house and are unaware that they may

purchase the property to rent to students.

Vacant land

When there is no construction contract on land smaller than 5

acres, many lenders will only finance up to 90% plus LMI. Later
on, a loan increase of up to 95 per cent LVR may be possible,
allowing for construction. Lenders frequently require that water
and electricity be connected to the land to make it more
marketable.

Non-conforming/credit impaired

Many lenders finance property investment for people with

non-standard credit. Loans may be available up to 95% LVR and
often do not require any deposit.

Credit impaired or "non-conforming" finance is a type of lending

typically used by people who have had some financial

92
difficulties in the past. This can include things like defaults,
bankruptcies, and other credit problems.

Non-conforming finance is often more expensive than

traditional finance because lenders see it as a higher risk.
However, it can still be a good option for people who might not
be able to get approved for a regular loan.

Suppose you're thinking about applying for non-conforming

finance. In that case, it's important to compare different lenders
and make sure you understand the terms and conditions of the
loan before you sign anything.

● Credit Hits

Your credit file is hit by:

● An enquiry every time you apply for finance;

● If a lender does a "hard" credit check (this is more common

with loans over $500,000);

● If you are declined for finance

● If you default on a loan or credit card

Each credit hit decreases your credit score, so it's important to

minimise the number of times you're knocked back.

● Credit score

It is a three-digit number that lenders use to measure how risky

it is to lend money to you.

Your credit score is based on your credit history, so anything

that lowers your credit score will make it harder for you to get
approved for finance.

If you're struggling with your credit score, you can do a few

things to improve it.

● Get a copy of your credit file and check for errors.

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 ● Make sure you're paying your bills on time.

● Don't apply for too many loans at once

● Try to keep your credit utilisation ratio low (this is the

amount of money you owe compared to the total amount
of credit you have available)

● Talk to a financial counsellor if you need help managing

your debts.

● Consider using a credit repair service.

Lenders use your credit score to decide how risky it is to lend

money to you. The higher your score, the better your chances of
getting approved for a loan.

A good credit score is important, but it's not the only thing
lenders look at when considering a loan application. They will
also consider your income, debts, and other factors.

If you have a low credit score, you can do a few things to

improve your chances of getting approved for a loan.

● Get a copy of your credit file and check for errors

● Make sure you're paying your bills on time

● Don't apply for too many loans at once

● Try to keep your credit utilisation ratio low

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Discharges bankruptcy, part 9
and 10
If you have been discharged from bankruptcy, part 9 or 10, it is
still possible to get property investment finance.

Many lenders will finance property investments up to 80% LVR

for people who have had a discharge in the past. You may need
to provide additional documentation to prove that you are now
financially stable.

What is discharge bankruptcy part 9?

A discharge bankruptcy Part 9 is when a court declares that you

are no longer bankrupt. This usually happens after you have
completed all of your required repayments, and it can happen
even if you still have debts outstanding.

What is discharge bankruptcy part

10?

A discharge bankruptcy Part 10 is when a court declares that

you are no longer bankrupt but still have some outstanding
debts. It usually happens if you have arranged with your
creditors to repay your debts over time.

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How do I get a discharge bankruptcy
part 9 or 10?

You will need to apply to the court for a discharged bankruptcy.

The court will consider your application and decide whether to
grant you a discharge. You will need to show that you have
complied with the terms of your bankruptcy and that you have
made a reasonable effort to repay your debts.

96
Tax debts
Many people owe the ATO money (usually self-employed rather
than PAYE). For example, a self-employed individual earned
money from their firm. Still, they either mismanaged their cash
flow or used it to stay afloat, leading to irresponsibility and not
saving the tax they knew they would have to pay. They spent
ATO-allocated revenue.

Banks rarely lend to these folks. Non-banks can accept clients

who owe the ATO, but they usually ask that the ATO debt be
paid at settlement, even if on a payment plan.

Some lenders can let you keep your debt if you agree to a
payment plan with the ATO. Naturally, rates are higher. LVRs are
up to 95% for purchases and 90% for refinances.

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Finance strategies to invest in
properties for first-time
homebuyers
1. Borrow less than 80%
If you have a deposit of 20% or more, you can avoid paying
Lenders Mortgage Insurance (LMI). Borrowing less than
80% will also give you access to lower interest rates.

2. Get a family guarantor

A family guarantor is someone who uses their property as
security for your property investment finance. This can help
you borrow more money and get a lower interest rate.

3. Choose a longer-term loan

A longer-term loan will have lower monthly repayments
but will cost more over the life of the loan. This may be a
good option to keep your repayments low.

4. Fix your interest rate

A fixed interest rate means that your repayments will stay
the same for a set period, even if interest rates increase.
This can help you budget for your repayments.

5. Make extra repayments

Making extra repayments on your property investment
finance can help you pay off your loan sooner and save on
interest.

6. Get property investment insurance

Property investment insurance can help you protect your
property investment from fire, theft, and storm damage.
This can give you peace of mind that your property is
protected.

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There are several different finance strategies that you can use to
invest in property. The best strategy for you will depend on your
circumstances. Talk to a property investment finance specialist
to learn more about the different options available to you.

99
Finance strategies for buying
multiple investment
properties
1. Borrow more money:
If you have a good credit history, you may be able to
borrow more money to invest in property. This will give you
more options when it comes to buying property.

2. Use equity to invest in property:

Equity is the difference between the value of your property
and the amount of money you owe on it. You can use this
equity to invest in property.

3. Borrow against your home:

If you have equity in your home, you may be able to borrow
against it to finance your property investment. This can be
a good option if you have a low-interest rate on your home
loan.

4. Involve LMI:
LMI is a type of insurance that protects the lender if you
cannot repay your property investment finance. This can
be a good option if you cannot put down a large deposit.

5. Property Development:

The Ferrari of all property investment strategies.

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Putting together lending
structure and finance
strategy
When looking for property investment finance, it is important to
put together a lending structure and finance strategy. This will
help you get the best deal possible on your property investment
finance.

Your lending structure should include:

● The amount of money that you want to borrow

● The type of property that you want to buy

● The loan term that you are looking for

● The interest rate that you are willing to pay

● The repayment schedule that you are looking for

● Any other features that you want in your property

investment finance.

Your finance strategy should include:

● How much money do you have available to put towards a

deposit

● How much you are willing to pay in interest

● How much you are willing to pay in monthly repayments

● The type of property that you want to buy

● The loan term that you are looking for.

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Conclusion
So, there you have it, a complete guide to property investment
finance. Whether you're looking to buy an off-the-plan property,
invest in an SMSF, or take out a family pledge loan, you must
understand the risks and benefits involved. Do your research
and speak to a financial advisor before taking out any loans.

If you're looking to get into property development, a split

contract can be a great way without spending a lot of money.
Just make sure you understand the risks involved before you
sign up.

And always remember the Five Cs of Credit when applying for

an investment property loan.

When considering your loan application, the capacity, collateral,

character, conditions, and capital are important factors lenders
will assess. Make sure you put your best foot forward by
researching and understanding each of these factors.

Happy investing!

Learn More

● Ultimate guide to property development

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FAQs
How to buy an investment property?

There are a few key things to consider when buying an

investment property: 1. Location: The best investment properties
are in desirable neighbourhoods and have good rental potential.
2. Size: Make sure the property is big enough to accommodate
tenants comfortably. 3. Age: opt for newer properties, as they
will likely require less maintenance and have a longer lifespan. 4.
Budget: be realistic about how much you can afford to spend on
an investment property. 5. Financing: Consider this ultimate
guide to property investment finance or work with a lender who
specialises in investment properties to get the best financing
options available to you.

What are the different types of

property investment finance?

When it comes to buying an investment property, there are a

few different types of finance that you can consider. The first is a
standard mortgage, usually for around 80% of the purchase
price. This means that you'll need to put down a deposit of at
least 20%. Another option is an interest-only loan, which can
help to keep your monthly repayments down. However, this
type of loan does come with the risk of owing more than the
original purchase price if property prices fall. There are also
several specialised investment loans available from some
lenders. These can often offer lower interest rates and more
flexible repayment terms. Whichever type of finance you choose,

103
it's important to compare different deals to ensure you're
getting the best possible rate.

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