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Buying an investment property: All you need to know
Whether you’re a first-time investor or a seasoned professional, we have plenty of information to help you buy an investment property with confidence.
A guide to capital growth
Wondering what capital growth is, or how to identify it? This guide explains it’s definition and explain how you can find growth opportunities.
Read moreA guide to home equity
Wondering what home equity is, or how to access it? This guide explains it’s definition and explain how you can find further capital for other investments.
Read moreFurther reading
FAQS
Common questions from property investors
There are no silly questions when it comes to property investment. Get all the answers you need right here - the more you know, the more clued-up you’ll feel.
Investing in property
The main difference is the loan’s purpose. If you want to live in the property you buy, you’ll likely need a standard home loan, which is also called an ‘owner-occupied’ home loan. On the other hand, an investment loan might suit you better if you’re planning to rent out the property. Home loans for investment properties generally have a higher interest rate than a standard home loan, and your bank may need you to have a larger deposit. Good to know.
No matter what home loan you’re after, you’ll still need to make a financial contribution upfront. This might be a cash deposit or equity you may have in other properties. You can talk to a Home Loan Specialist or broker to work out how much you'll need to contribute. Your lender will also look at your ability to repay the investment loan, by considering your monthly income and expenses.
The short answer is yes – many property investors use the equity in their current home to get a loan for their next property, which is called usable equity. But it all depends on your circumstances. If you decide to use usable equity for a new loan, then ideally, the new loan should have a Loan to Value Ratio (LVR) of 80 per cent or less. This is because if you borrow anything above 80 per cent, you will have to pay Lenders Mortgage Insurance (LMI).
Here's an example of how this all works.
Say you have a home worth $600,000, but you still owe $300,000 on your home loan. This means you have a current LVR of 50 per cent. You can borrow up to $180,000 (which is the difference between your current loan balance and max usable equity to remain under 80% LVR) to put towards your next investment property without paying LMI, as your new LVR is still under 80 per cent. Now that’s smart.
Getting on the property ladder isn’t cheap. But knowing what to budget for can make it feel more manageable. Apart from your deposit, there are some upfront costs to prepare for, such as:
- Building and pest inspection
- Solicitors' fees
- Mortgage Registration Fee
- Lenders Mortgage Insurance (if applicable)
- Stamp duty (if applicable)
- Transfer fees
- Landlord insurance
It’s also a clever idea to set some money aside for emergency repairs or maintenance to your investment property – from fixing a crack to giving your doors a new lease on life, you never know when you might need to fund a repair or two.
Check out our upfront costs calculator to work out the costs you’ll need to pay at the start of your journey.
Rentvesting is when you buy an investment property in an area that's within your budget, while renting in an area that suits your lifestyle. Any rental income you earn on your investment property can help pay the bills for your dream rental. It’s a win-win for lots of first-time buyers.
Rental yield is a measurement that compares the amount of money you make on an investment property with its actual value. This calculation is a great way to see if your investment property is profitable.
For example, your property (worth $600,000) might earn an annual income of $29,172 ($561 per week). When you divide the income by the property’s value, you’ll get your rental yield. So in this case, the rental yield is 4.86 per cent.
Negative gearing is where the costs involved with an investment (like interest on a home loan or body corporate fees) exceed the income the property earns (most likely from rent). These expenses can be offset against your taxable income, which can reduce how much you might have to pay when it’s tax time. Most banks consider both negative and positive gearing when working out how much you can borrow.
Capital growth is the increase in market value of your property over time. If you keep the investment property, this becomes an increase in equity.
But if you decide to sell your investment property, then you will have to report capital gains or losses in your income tax return. This would depend on if you sold the investment home for more or less than its original price.
If you have a capital gain and earn a profit from the sale, then this will increase the tax you’ll have to pay. However, if you lost money from the sale, then the loss can offset other capital gains you accumulated in the year, such as from stocks, which can reduce how much tax you owe.
We have plenty of easy-to-use calculators to help you work out borrowing power, repayments, refinancing, loan comparisons, stamp duty and other upfront costs. You can check them out on the home loan calculators page.
How to apply for an investment home loan
Most banks offer several investment loan options including fixed rate loans, variable rate loans and split loans (a combination of fixed and variable). You can also choose how you want to pay off your loan via two repayment methods called ‘principal and interest’ or ‘interest only’.
Paying off principal and interest is when you repay the original amount you borrowed, on top of interest. Meanwhile, an interest only loan is when you only pay back the interest charged on your home loan, which can reduce the overall loan balance because you’re not making any ‘principal’ repayments.
Speak to a Home Loan Specialist or broker to work out which investment loan is right for you.
When someone agrees to buy a property, a ‘subject to finance’ condition is a legal clause that protects the buyer in case they can’t get the necessary finances.
A mortgage offset account uses the balance of a linked everyday account to reduce the interest charged on your home loan. This can help you pay off your investment property loan faster, while still giving you access to the funds in your offset account.
An interest only home loan is where you only pay the interest charges on your home loan. Investors might choose an interest only home loan to boost cashflow. This is because repayments are typically lower than those on a principal and interest (P&I) home loan. You can also benefit from capital growth even though you’re not paying back the original loan amount.
Most banks have a maximum interest only period, which you can extend based on the bank’s initial assessment once the period is up. Or your loan might revert to P&I automatically.
By comparison, a standard home loan is P&I, where your repayments go towards paying back a portion of the original loan amount and the interest accrued. This is a great option if you want to increase your equity while benefitting from lower repayments. At the end of the day, your repayment option is entirely up to you.
There are a few different ways you can apply for an investment home loan. You can apply online with our digital application, speak to a Home Loan Specialist, visit your local branch, or go through a home loan broker.
Investment home loan settlement
Your deposit and any costs associated with the property are withdrawn from your chosen bank account on settlement day. Your solicitor will confirm the total costs and contribution you’ll need to pay, so keep an eye out for the details.
It’s a smart idea to make sure the funds are in your account a few days in advance to avoid delays on settlement day.
It really depends on your property and how you plan to keep maintain it. Some of the ongoing costs can include insurance, property maintenance, rates, loan repayments, body corporate fees and property management fees.
Landlord insurance can help cover loss of rent and damage by tenants. It’s an option worth considering if you’re looking for peace of mind.
There are plenty of clever ways to pay off your investment property loan faster. You can set up auto-payments or use smart tools like The Boost.
With The Boost, you simply set an amount between $0.01 and $5 to automatically transfer to your home loan account every time you use your Great Southern Bank Visa Debit card. Every little bit adds up and the best part is you’ll be paying off your home loan faster, without even realising it.
Refinancing an investment home loan
If you’re not happy with your current investment home loan, refinancing can help lower repayments with a better rate, reduced fees and improved serviceability. Remember, there might be extra costs involved with refinancing that you’ll need to factor in too.
When refinancing, it’s important to think about the costs involved. Discharge fees, early payout fees and even Lenders Mortgage Insurance (LMI) are some of the common costs to be aware of. You can speak to your new lender about the different fees that are involved with refinancing.
Investment home loan calculators
Our investment home loan calculators can help you work out how much you can borrow, all your upfront costs and stamp duty. Find a calculator that’s right for you and start planning for your next investment property.
Start your property investment journey with us
If you’re ready to apply for an investment home loan, then our digital loan application process lets you apply online and at your own convenience. All you need is information about your finances and proof of ID.
The best part is that, until 28 February 2025, we'll waive the $600 establishment fee when you apply for an investment property loan online#.
If you’d prefer to chat to someone about your options, contact one of our Home Loan Specialists. They’re available six days a week and can answer all your questions about investment home loans, the buying process and more.
Did you know we’re customer-owned
At Great Southern Bank, we pride ourselves on putting our customers at the heart of everything we do – that means no shareholders required. All our profits go back into new products and clever ways to help you manage your money.
Our products have won awards over the years. But our true passion lies in our purpose – helping everyday Aussies own their home, whatever that looks like for them. And we’ve been doing so for over 75 years!
Speak to one of our Home Loan Specialists via live online chat.
Fill out our online enquiry form and one of our Home Loan Specialists will get back to you to start the process.
Mon - Fri: 9:30am - 4:00pm (AEDT)
Rates are current as at 20 August 2024 and subject to change.
Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959, AFSL and Australian Credit Licence 238317. Lending criteria, limits, conditions, and fees apply. Applications are subject to credit approval.
1 A daily transfer will refund any amounts paid in advance in excess of the total advance repayments allowed during the fixed rate period ($30,000) unless sufficient to pay out the loan in full (in which case an Early Payout Cost may apply). Excess funds will be transferred to the nominated deposit account, which must remain open for the fixed rate period.
2 A $200 minimum withdrawal amount applies for redraws conducted in-branch.
3 Great Southern Bank may withdraw or amend this offer at any time without notice. A change in your loan purpose, your repayment type or your loan product will permanently end your entitlement to the discount.
4 LVR means ‘Loan to Value Ratio’. It is the amount of your loan divided by the valuation of your property, calculated as a percentage. For example, if you apply for a loan of $400,000, which will be secured by a property valued at $500,000, your LVR is 80%. We calculate your LVR at the time we approve your loan and your discount won’t change because of changes to the LVR during the life of your loan.
5 Fixed Rate loans are available to (a) new home loans with a minimum application amount of $100,000; or (b) switching or restructuring of existing home loans. Maximum Loan to Value Ratio applies and includes Lenders' Mortgage Insurance and Great Southern Bank loan setup fees where applicable.
6 On expiry of the fixed rate period, the loan reverts to the Basic Variable Reference Rate relevant to your loan purpose and repayment type which applies at the time of expiry.
7 You must maintain a minimum balance of $500 in each offset account to obtain an offset benefit. You will also not receive any interest on the funds in your offset accounts.
^ Comparison rate accurate for $150,000 secured loan over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
#Offer includes $0 Establishment Fee and is open to new or existing customers applying for a minimum application amount of $100,000 or more. Excludes applications for Internal Refinance of existing facilities. Applications must be received between 31/08/2022 and 28/02/2025 and settled by 31/05/2025. To be eligible to apply online you must be at least 18 years of age, a permanent resident of Australia, applying for yourself or as a married/defacto couple and buying an existing property or refinancing. Great Southern Bank may withdraw or amend this offer at any time without notice.
This is a one-off insurance payment which protects your mortgage lender if you default on the loan. LMI is commonly paid when borrowers have less than a 20% deposit.
The amount paid can vary depending on the lender, the loan amount and your deposit size. Most lenders let you to choose to pay LMI upfront or add this to your loan amount and include it in your repayments.