Investing in property

Property is generally viewed as a long-term investment. It can play a valuable role in an overall strategy as it can balance an investment portfolio and create wealth.

There are three main ways property can create wealth:

• The value of the property increases
• Income is generated from rental returns
• Tax benefits

 

Advantages of investing in property include:

• It is a fairly secure, long-term investment
• It provides a solid visible asset
• It can 'pay itself off' when the rent covers the loan repayments - but be warned, this is not always the case
• There can be tax benefits through gearing

 

Like every investment, property also entails expenses and risk. It is important to be aware of the following:

• There are significant purchase costs, including legal costs, stamp duty, property inspection fees, loan establishment fees (our Purchase Cost Calculator can help give you an approximation)
• There may be significant holding costs, including maintenance, rates, body corporate fees and insurance
• The rental return may not meet expectations
• The value of the property may change unfavourably
• If you ever need fast access to the money invested in the property, it may take time to sell it
• You might earn a higher return if your money is invested elsewhere

 

How much can I borrow?

You may be able to borrow up to 90% of the property value, so your contribution may be as little as 10%. If you don't have the necessary cash savings you may be able to use the equity in your existing property to fund the deposit for the new property. By doing this, you may be able to borrow up to 100% of the cost of the new property, including fees.

Mortgage insurance is another option that may allow you to borrow up to 90% of the purchase price if you don't have additional security in the form of equity in a property.

Our How Much Can I Borrow Calculator can help you with your sums.

How much can I afford to repay?

The amount you can comfortably commit to loan repayments will be determined by your income level relative to your financial commitments, which include your proposed investment home loan repayments, credit card repayments, repayments on other loans and any other expenses. The amount of your home loan repayments plus other income should not exceed 10-40% of your gross income, depending on your income level.

Deductions

Deductions, or expenses, may be offset against rental or other assessable income. Expenses that can be deducted from your rental income include:

• Loan interest
• Body corporate fees
• Local government and water rates
• Land tax
• Gardening expenses
• Costs associated with advertising for tenants

 

Depreciation

Depreciation refers to the writing-down of the cost of an asset over its estimated life. This form of deduction is allowed for assets such as furniture, carpet and washing machines. You can claim a proportion of each item, each year over its effective life. There are different ways of calculating your depreciation and this should be decided upon in consultation with your accountant.

Good advice

A Commonwealth Bank Personal Lender can help you with your investment home loan needs.

Learn more about our range of investment home loans.

Important information

• Applications for finance are subject to the Bank’s normal credit approval. Full terms and conditions will be included in the Loan Offer. Bank fees and Government charges are payable.
• The information on taxation is of a general nature only and is based on the continuation of present taxation laws, rulings and their interpretation. As individual circumstances differ, you should seek assistance from your taxation adviser.