Monday, October 22, 2012
So You Want to be a Property Investor?
Is the Great Australian Dream to buy one’s own home still realistic? Everyone, it seems, wants to own their home and an investmentproperty. Since the Great Financial Crisis shares have become less attractive for investors, with many share investors still recovering from losses incurred. Investing in property has rarely looked so good.
The wealth dream is the desire to invest in property. Property has become the choice for those aspiring to create wealth for themselves. What could be better than real estate as an investment? Security of bricks and mortar is by far the most bankable security as far as lenders are concerned. Not even a good business can attract the level of financing from a bank that residential real estate does. Most banks will consider approving a mortgage against property whereas very few lenders will lend, for example against a business. The question is can I borrow to invest? Am I able to secure an investment loan?
Investment mortgages are growing part of the mortgage landscape and you don’t need to be wealthy to secure this type of finance. First up, investment loans have gained in popularity since the mid 1990s. Until that time, banks dominated the mortgage market and investment property loans were generally considered as available only to high income earners and those with assets such as their own home. When non bank mortgage originators came on the scene, such as Aussie Home Loans and RAMS, a raft of new products and much more competitive mortgages came on the scene too.
Strong economic growth spurred an entire generation of new investors and hence boosted the development of the investment property finance. By 2001 more than 25 percent of all mortgages originated were for investment properties and the vast majority of these were for people on modest incomes; often without any other assets. In recent years this percentage has fallen to around 15 percent but as at October 2009, the percentage figure is on the rise once again as investors start returning to the property market.
Investment loans are issued on similar conditions to owner-occupier mortgages although certain conditions do apply such as mortgage insurance where the deposit is less than 20 percent.
Investment loans have certain advantages over owner-occupier loans. Whereas the owner occupier has borrowed to secure their principal place of residence, the investor buyer of an investment property is interested in the rent from tenants as well as capital appreciation.
The income from rent can be calculated in the serviceability calculations for the borrower. In other words your income is boosted by the rent received after allowing for tenancy costs such as rates, management fees, and other costs.
Investment property mortgages are easier to secure because the rental income can be assessed in the application. Further, investment loans can be secured by fixed rate mortgages which give the buyer certainty of costs.
Investment loans are affordable, and relatively easy to secure. Of course as an investor you need to do your homework and ensure that you seek a suitable investment property. Join the growing pool of investors who want to secure their future.