Investment Property Loans – Its Boom time

Investment property loans let landlords borrow money specifically to buy a property to rent out.

They work just like a normal home loan, but lenders take the potential rental income into account when deciding how much money they are happy to lend.

How do investment property loans work?

Unlike a standard home loans, with a property investment loan, lenders take your income into account as well as a percentage of the rental income you will get from letting the property.

Property investment loans tend to be on an interest-only basis, which means that repayments will not go towards repaying the loan and at the end of the property investment loan, it is the cash from the sale of the property that covers the outstanding amount.

Property investment mortgages are available as fixed, discounted and variable deals and arrangement fees are normally around 1.5% to 2% of the home loan.

You will need a larger deposit for a property investment than for a standard home loan, due to the higher risk involved.

Follow our tips to help keep your property investment rates down.

Top tips for investment property loans

• Be careful – property investment loans can be risky; make sure you’ve done your sums and you know what you’re letting yourself in for.
• Think about the rental market – don’t buy a property that you like, buy a property that the kind of tenant you want to attract will actually want to rent.
• Location, location, location – the old property cliche. However, choosing the right location will make or break a property investment deal. Do your research and find out what the rental market’s really like in the area you’re looking at.
• Account for maintenance – you need to make sure you can cover all the costs of maintaining the property. Buying somewhere run-down or with a big garden will increase those maintenance costs.
• Remember the tax – remember you will have to pay tax on gains in the value of the property when you sell it, but expenses like agent fees and interest costs can be offset against rental income.
• Don’t forget letting agent fees – if you use an property manager, they will charge 5-10% of the rental income to manage your rental properties.
• Time is money – if you’re not going to use a property manager or agent, take how much of your time it will occupy into consideration. Maintenance, viewings, posting ads, collecting payments etc all take time.
• Think long-term –investment home loans probably aren’t a good short-term investment, you may have to be patient and wait a number of years before you start to see returns.
• Shop around for a investment property loan – the mortgage interest rate you get is vital. Shop around, get plenty of quotes and make sure you’re getting a competitive home loan interest rate.