Home Loan Benefits for Property Investors
Most homeowners take out a home loan because it’s the only way to finance their dream of homeownership. The average Aussie homeowner isn’t thinking about anything beyond what the monthly repayments are going to be and are looking forward to the day when the debt is repaid in full.
It’s a different story for Aussie property investors, though. Most investors don’t have the cash to buy their investment properties outright and therefore need to borrow the money as well. There are certain home loan benefits for savvy property investors, and this article will highlight what those benefits are so you can capitalize on them.
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You’ll Have More Cash Reserves
Even if you have a pretty decent stash of cash in the bank, one of the most significant advantages to buying investment properties with a home loan is you’re not depleting your cash reserves. As a property investor, as your portfolio grows, so does your rental income and your upkeep expenses increase.
You need cash reserves to cover various costs, and it’s also wise to have money in the bank just in case you need it to close a hot deal. When you don’t have every cent tied up in your investment properties, there will be less stress, more security, and more peace of mind for you.
You Can Claim the Interest You Pay As a Tax Deduction
The average Aussie homeowner can’t do this, as their home is their principal place of residence. It’s different with home loans for investment properties, though. Because your investment property is a money-making machine (everyone hopes it will be), the ATO allows you to claim the interest you pay on your home loan for that investment property as a tax deduction. You’re earning income from that property, so. Therefore, the home loan interest is a legitimate deductible expense.
This is yet another good reason to buy your investment properties with a home loan rather than paying for them outright and depleting your cash reserves in the process.
The Advantage of Interest-Only Home Loans
One advantage regarding interest-only home loans was mentioned above; the interest is tax-deductible. But what is an interest-only home loan exactly? When you arrange a home loan for an investment property, you can negotiate to repay the interest-only for a time, rather than to pay back both the interest and principal.
At the same time, it’s evident that the actual principal amount is not being reduced while in the interest-only phase of the loan. It enables you to have more cash flow in the initial stages, which is particularly helpful if you haven’t yet found a permanent renter.
When you save money with an interest-only home loan, that cash can then be put towards your next investment property. Keep in mind that the interest payable on some interest-only home loans can be higher than that of a loan where you’re repaying both the good and principal.
What Is Negative Gearing?
Negative gearing can be taken advantage of in the investment property game. Suppose you borrow money for a property, yet the cost of the loan and various property expenses exceeds your rental income. In that case, that property is negatively geared and operating at a loss. How is this a benefit?
Because investors can offset that loss against the properties they have that make a profit and thus reduce the amount of tax owed overall, the home loan attached to the property effectively increases the property’s overall expenses and can work in your favor.
Learn From the Experts
To truly get a grasp on all the ins and outs when it comes to property investing, home loans, and other related matters, you should seriously consider doing a property investment course as well as teaming up with qualified and experienced investment consultants.
Property investing is exciting and rewarding, but it’s not easy. You want to learn as much as you can before you start investing your money into homes, apartments, or commercial properties.
Home Loan Benefits for Property Investors: The Takeaway
As a property investor, you’ll discover that you have several advantages for home loans to purchase those investment properties. To make the most of investing, it’s always wise to take advantage of every benefit you can find.
