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How To Finance Investment Property - Articles

Using Your Equity To Secure An Investment Loan

Date: 12/04/2012

securing loan for property investment

When carrying out your property investment strategy, securing the right loan that meets your current and future real estate goals is beneficial.

Options range from simple home loans to complex plans that assist with effective use of tax, gearing and repayments.

Depending on your objectives and financial situation, there are several borrowing options for investors with varying degrees of market knowledge.

Securing the right loan involves using your equity

For investors looking to tap into real estate acquisition for the first time, securing the right loan will likely involve using your principal place of residence (PPR) as equity.

This kind of arrangement is security for the lender and can greatly reduce the deposit you are required to pay.

Experienced investors, who already own real estate in addition to their PPR, may be able to use cross-collateralisation loans to buy more property.

These types of loans use both properties as security and come with many advantages, including reduced fees and charges, increased borrowing power and higher loan to value ratio.

However, selling one of the properties being used as equity can get quite complicated – and if something goes wrong, the lender may sell one of the properties to recoup the costs.

Line of Credit

Line of credit home loans are generally a large amount of secured credit and are commonly used to buy multiple investment properties.

Set up for a term like a normal home loan, a line of credit is essentially a revolving credit feature.

You generally pay interest on the portion of the loan that is drawn down and there are various repayment options depending on your own personal situation.

Experienced investors may take out separate loans for each property – even from different lenders – rather than use the cross-collateralisation method.

There are several options for borrowers and the strategy you undertake largely depends on your own personal scenario, so it is best to speak to a qualified professional to garner the most effective advice.

Profile photo of Steve McKnight

By Steve McKnight

Steve McKnight, the founder of PropertyInvesting.com, is a respected property investing authority as well as Australia's #1 best-selling business author.

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