An investment loan is a type of home loan that you take out to buy an investment property. It is a finance solution for those who want to buy a property and rent it out to receive income from it.
There are many things about investment loans that are different to how standard home loans work because they have stricter eligibility requirements. Investment loans often require a higher loan-to-valuation ratio (LVR). Also, the interest rate is slightly higher on average than a residential home loans rate.
Expenses that you incur for your investment property can be claimed as tax deductions to reduce your taxable rental income while you’re renting it out, and your capital gains tax if you sell the property.
The tax deductions you can claim for an investment property include:
- Interest on the investment loan
- Home and contents insurance and landlord insurance
- Real estate agent’s commission
- Maintenance costs
- Council rates
- Decline in value of depreciating assets
- Construction costs (“capital works”)
- Travel expenses to the property to do an inspection, maintenance or repairs
- Interest on the investment loan
- Home and contents insurance and landlord insurance
- Real estate agent’s commission
- Maintenance costs
- Council rates
- Decline in value of depreciating assets
- Construction costs (“capital works”)
- Travel expenses to the property to do an inspection, maintenance or repairs
The term ‘gearing’ refers to borrowing money to buy an asset. In property circles, it means taking out a home loan to buy real estate.
There can be positive gearing, where the rental income an owner gets from a property exceeds the interest repayments, property maintenance costs and other expenses they pay on it. Negative gearing is the opposite, where the rental income is less than the cost of the mortgage, property maintenance and other costs. In summary, positive gearing refers to making a profit out of your investment property, while negative gearing means you’re making a loss and are eligible for some tax concessions.
There can be positive gearing, where the rental income an owner gets from a property exceeds the interest repayments, property maintenance costs and other expenses they pay on it. Negative gearing is the opposite, where the rental income is less than the cost of the mortgage, property maintenance and other costs. In summary, positive gearing refers to making a profit out of your investment property, while negative gearing means you’re making a loss and are eligible for some tax concessions.
The way that rental income and expenses are divided between co-owners varies depending on whether the co-owners are joint tenants, tenants in common or there is a partnership carrying on a business of letting rental properties.