It has been well documented over the past few decades that house prices across most of Australia have been, on average, increasing steadily. Even in this time of economic uncertainty, house prices in Australia still managed to increase by a record 2.1% in February 2021 alone, the largest month-on-month increase since 2003.
This has posed an interesting predicament for those looking to enter the property world for the first time. On one hand, it is becoming increasingly difficult to get a foothold on the proverbial property ladder, but on the other hand, this increasing difficulty is a testament to the continued value of buying property for a return. So, this leaves one question on the minds of budding investors: “How much can I borrow to buy an investment property?”.
At My Rental, our team is dedicated to providing both current and future property investors with the information they need to make positive, proactive decisions with their capital assets. So, how much can I borrow to buy an investment property, and what caveats will those looking to do so have to contend with?
Can You Borrow 100 Percent For an Investment Property?
The short answer is yes, but it’s not without its own set of difficulties compared to other loan varieties. Borrowing 100% for an investment property requires a large amount of trust on the side of the bank that you will be able to successfully pay this money back, and as anyone who has tried to get a loan in the past is likely aware, that trust is not so easily gained.
Under normal circumstances, there are two ways in which a bank will be willing to loan 100% for an investment property:
Method 1: The Guarantee of Security
Guarantors are a big deal for banks, as they effectively give banks a way to get their money back of everything turns sour. So, if you have a parent that is willing to be your guarantor, whilst also placing their home as guaranteed security for the loan, the bank is far more likely to give you the amount you need.
Method 2: Preexisting Property
If you already happen to be a property owner, you can use the equity from that existing property in order to then purchase your new investment.
Both of these methods do come at a level of risk that needs to be acknowledged prior to making a final decision. However, for those that wish to start investing as soon as possible, they are both viable options that will allow you the resources to start your property investment journey.
Can I Borrow Against an SMSF For an Investment Property?
As with the previous point, the answer is yes, but it’s not without caveats. SMSFs (or Self-Managed Super Funds) can be borrowed against, but only if you are borrowing through a LRBA (Limited-Recourse Borrowing Arrangement). This involves an SMSF trustee taking a loan from an outside third-party lender. This system is set up so SMSFs can purchase property using borrowed funds.
Preexisting Assets: Can I Borrow Against My Investment Property?
Yes, you can! As mentioned in our first point, borrowing against the equity of a preexisting property is one of the few potential ways to get a 100% lend for an investment property.
Can You Borrow Money to Invest in an Overseas Property?
This one is a more hesitant yes, as it will always come down to the specifics of the lender. Most lenders won’t see rent accrued through an overseas property as income from that property, and they will require a large amount of documentation and deliberation prior to you potentially securing a loan.
So, there you have it. Whilst borrowing money or taking out loans for an investment property may be a difficult process, it’s one that is definitely worth the time. For more information on investment properties and the Australian property landscape at large, explore the My Rental blog today.