If you have a home loan but also equity in your home property and want to purchase an investment property to build wealth, then it is important to research the investment loan market to make sure that you apply for an investment loan that really works for you. When you apply for an investment loan, most lenders will simply offer you their standard term investment loan. Quite often they will seek to structure the investment loan so that it is on a principal and interest basis. While ever you have home loan debt it is much better to have an interest only investment loan. This ensures that the repayments you make on the investment loan are the minimum possible as opposed to including any principal reductions. If you apply any principal amount that you would otherwise have made on a principal and interest investment loan to the repayment of your home loan you will repay your home loan much faster and save yourself a heap in interest payments. There are also the tax considerations – if you do not reduce your investment loan debt then you do not reduce the amount of deductible interest you can claim each year. Your negative gearing position is maintained as opposed to diminishing each year.
Ideally an investment loan will also include a capitalizing line of credit so that you can have a buffer during high interest rate times or when there are unexpected vacancies or costs relating to your investment property. By including a capitalising line of credit within your investment loan you are also in a position where if you wished or need to you could capitalise the shortfall between the rental income you receive and the outgoings you incur (including the interest on your investment loan). This shortfall is added on to the investment loan instead of being met from your personal income. By not having to subsidise the shortfall in interest on your investment loan you have freed up your cash flow. The most efficient way to use this freed up cash flow is to apply it to an additional repayment on your home loan. You may not realise but if you were to capitalise a monthly shortfall of interest on your investment loan of say $350 (rather than pay from your salary) and instead applied that $350 to the repayment of your home loan of $150,000 (@ 9.25% over 30 years) then you would repay that home loan out in less than half the term (in 14 years and 2 months to be precise) and by doing so save your self almost $175,000 in interest repayments to the bank.
Many investors when looking for an investment loan do not properly research the market and accept whatever is offered to them by their bank. This approach can be costly in the long run. Check out the other investment loan options in the market and look to a lender who understands your investment needs and can provide you with an investment loan that gives you a lot of flexibility, is priced competitively and defintiel includes a capitalising interest feature.
It is also helpful if your lender is able to issue separate statements for each investment loan you have and your home loan. Some mortgage managers also give you the ability to name each account e.g. 16 William St making for easy identification of each investment laon for you, and your accountant at tax time.
Be an astute investor and look for an investment loan that offers these sort of features as it will help you reach your wealth building goals much quicker.
Real estate investment has emerged as one of the best way to generate revenue and can be used as collateral to secure a loan for a business venture. The investment in real estate whether international or domestic involve risks, even if the venture is successful, when the future flows of income will accrue to the investor and could help alternative investment opportunities.
According to Ross Moore, vice president of Colliers International USA, “foreign real estate investment offers diversification that is a superior investment style”. It distributes the risk in an effective manner among the multiple markets and optimizes a possible return. Sometimes number of commercial real estate investors need a huge amount of capital to attain and maintain their global portfolio, but the small investors has the opportunity to diversify the assets on a microcosmic level, such as buying residential property, which show considerable possibility of a good profit. However, regardless of the type of investment in foreign real estate, which may be commercial real estate or vacation home in Mexico, investors should look for professional’s help, who have the knowledge about global markets and are well connected with the local real estate agent.
Since a foreign real estate investment involves more risk, as you are expanding your property holdings beyond your country and you are not aware of the local market of other countries, you would have to do lots of research on the various countries, in which you are interested to invest. You have to collect various sources of information to acquire knowledge of properties that you would need and invest. You may not get time to do a research on many countries, but you could take the help of websites. This will give you an overview of various countries and their style of living. It is always advisable to visit the country personally and experience the living out there, if you plan to invest in foreign real estate. You can expect higher rewards even with the risk that you take to invest wisely.
You can inquire about different loans and mortgages that are available in that particular country, which would give you a clear idea that investing in that country would be a profitable venture for you or not. Once you are finished with the investigation of the countries’ real estate markets, you would now think, how you should invest in the international real estate market.
As the foreign real estate investment market is huge, so you can get a property, which may be larger than the one in your own country. It could be a provincial property and if you could convert it into a commercial property, you could get higher returns on investment. Always look for the advantages and disadvantages, while you purchase a property, otherwise you may end up losing money and the investment may turn out to be a waste.
Some of the countries, where real estate investment could possibly turn out to be a profitable venture are Croatia, China or Europe, where you find rapid growth in real estate properties due to industrialization and increase in the quality of living. In North America, investors find agricultural properties quite worthwhile to invest in, as they have higher returns on investment. Apart from these Asia and Africa are also worth considering as far as real estate investment is concerned.
If you are a beginner in this foreign real estate investment, you may make mistakes, as it is a very difficult field to get into. However, even if you have invested in a property, you will not run in a total loss, even if the value of the property decreases. You still own the property, which you could hold onto until such time, its value increases and your foreign real estate investment would prove worthwhile.
Written by: GS
Date Written: 07/04/08
Reviewer Assigned by: David
Reviewed by: GD
Quality Control: AG
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Quality Control Completed on: 07/07/2008