If you have sufficient equity in your home or another investment property, with the correct structuring you can borrow 100% of the purchase price and your costs for the purchase of an investment property.

It’s important to consider this in relation to whether you still have a home loan for your family home to pay off and your long term goals.

Reach out to us for a confidential discussion specific to your circumstances and we’ll help you evaluate what might suit you best.

Interest only loans can be used strategically in a number of ways both for investors and future potential investors. In making a recommendation about what might suit your needs, we’ll take a number of factors into account including:

Whether you still have a home loan for the property you live in, your short and medium cashflow needs and preferences and your long term plans to pay both your home and investment property off.

Reach out to us for a confidential discussion specific to your circumstances and we’ll help you evaluate what might suit you best.

It’s not essential to have a separate bank account for all transactions related to your investment property, but it can have a number of benefits.

Receiving your rental income and paying all expenses relating to the investment property separately to your personal transactions will make it easier to provide your records to your accountant at tax time and also help you keep track of how much your investment property may be costing you to hold so you can budget accordingly.

With the right structure, your rental transaction account could be set up as an offset account against your home loan, so that any balance helps you save interest and pay your home off sooner.

It can feel like your investment property is a drain on your cashflow, especially in the one month each quarter when the rates, water and strata fee/ body corporate fee invoices all arrive at once.

If you don’t have a PAYG variation in place, you will also need to wait until the tax year is finished and your tax return is submitted and assessed to receive your refund (for negatively geared properties) or tax bill (for positively geared properties).

If you evaluate the holding cost of your property without taking the tax savings or costs into account, it’s easy to overestimate how much the property is costing you.

At Affinitas Finance, we have the benefit of our founder, Tanya du Preez’s, knowledge of tax as well as finance to be able to help you decode your tax returns and work out the real cost of / income from holding your investment property.

The tax breaks that come with an investment property are often a key part of making an investment property affordable, especially in the early years.

Waiting until the end of the financial year to receive your tax refund can cause cash flow problems, particularly when interest rates rise or when unexpected repairs and maintenance come up. 

But the good news is that a Pay As You Go (PAYG) withholding variation can be used to spread the tax savings more evenly over the year.

A PAYG withholding variation allows you to take advantage of the deductions for your investment property expenses, such as interest, rates, repairs and maintenance, property management fees, capital works and depreciation regularly, rather than in one lump sum at the end of a financial year. It allows your employer to vary the amount of tax withheld to anticipate tax liabilities and as a result you can adjust what you receive in each pay.

A PAYG Variation should be set up by your accountant. If you have an accountant, we’re happy to work closely with to make this as easy as possible. If you don’t, we know some great ones and will happily make an intro.

Cross collateralisation is when a bank takes more than one property as security for a loan.

While this may be pitched as an easy way to secure one nice, neat loan for the full purchase price of a property using equity in others, it carries a number of risks:

• Increased risk of the loss of multiple properties in the event of a default.
• Allowing the lender easier options to choose which property is sold first in the event of a default. It’s quite likely that your family home will be better presented and easier to sell than a rental property with tenants in it.
• Cross-collateralisation can limit your options if you’re wanting to restructure or access equity in any of your properties in the future. It gives the lender the ability to revalue all of your properties and reassess your entire position before agreeing to even a minor change on one loan within your portfolio.
• A fair generalisation is that cross-collateralisation makes it harder to raise additional finance as it leaves the lender holding all the cards.
• It can cause issues when you come to sell a property and may result in the lender using the full proceeds of the property sale to reduce other debts, which may not have been your intention behind selling.
• Cross-collateralisation can be complex and lead to confusion and misunderstandings which can lead to last minute hold ups when you need least need them.

There are rare instances where cross-collateralising properties makes sense, but they are few and far between.

If you suspect your property portfolio may be cross-collateralised and would like a review of your finance structure, reach out for a confidential conversation.