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Purchasing an Investment Property
Once you’ve built up equity in your home, purchasing an investment property may be the next step in your journey to build wealth. Investment loans are essentially the same as home loans but consideration should be given to the structure of the loan. We recommend seeking advice from your accountant or financial adviser before proceeding with the purchase.
Knowledge and experience of your Citiwide lending specialist can be invaluable. They will look at your overall situation and identify areas in which you can potentially save money by simplifying loan structures and maximising the use of assets. You may be able to leverage the equity in your home to finance the purchase of a new property.
With the help of our investment loan / negative gearing software, our lending specialists will assist you in determining the best structure for your investment loan and avoid many of the pitfalls.
For more information call us on 1300 732 630, contact us using our Online Enquiry Form or contact your local Citiwide lending specialist.
Building Wealth through Property
If you’re wanting to expand your portfolio of investment properties i.e. more than two investment properties, then you may want to consider how you structure your loans. Some factors you may want to consider:
- Most lenders will “cross-collateralise” properties. What this means is that all your properties secure all your loans even though they are under separate agreements.
- If you ever have to sell a property, all the loans may have to be reassessed. This means that you may be up for higher costs, i.e. several valuation fees and possibly a very expensive lender’s mortgage insurance premium calculated on a large amount.
- If your financial situation has changed you may no longer qualify for the loans you currently have.
- Banks tend to limit their exposure per client which means that you may not be able to borrow as much as you need when your portfolio grows.
- Refinancing only one of the properties (e.g. for renovation purposes) may mean having all your loans reassessed.
Your Citiwide lending specialist will be able to provide you with more detailed information tailored to your specific situation.
Buying an Investment Property through a Self-Managed Superannuation Fund
Using your self managed super fund (SMSF) to purchase property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’.
A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property. Before committing to a property investment under your SMSF you should seek advice from your accountant or financial adviser.
SMSF property risks to consider:
- Higher costs – SMSF property loans tend to be more costly than other property loans which must be factored into your investment decision.
- Cash flow – Loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
- Hard to cancel – If your SMSF property loan documentation and contract is not set up correctly unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF.
- No alterations to the property – Until the SMSF property loan is paid off alterations to a property cannot be made if they change the character of the property.