When you're looking to invest in real estate, choosing the right property type is crucial for your investment strategy. Different property types offer varying rental yields, growth potential, and financing options. Understanding these differences will help you make informed decisions when buying an investment property.
Understanding Investment Property Types
The Australian property market offers several investment property types, each with distinct characteristics that affect your investment loan application and borrowing capacity.
Stand Alone Dwellings
Stand alone houses typically offer:
• Higher rental yields in many Coburg neighbourhoods
• Potential for future subdivisions or renovations
• Generally require larger loan amounts
• May attract families as tenants, providing stable rental income
• Often have lower body corporate fees compared to apartments
Apartments
Apartment investments present different opportunities:
• Lower entry costs with smaller loan amounts required
• Access to amenities that attract young professionals
• Potentially higher tenant turnover rates
• Body corporate fees that affect overall returns
• Limited control over building maintenance and improvements
Townhouses
Townhouse investments offer middle-ground benefits:
• Moderate loan amounts compared to houses
• Appeal to small families and couples
• Some outdoor space without full maintenance responsibility
• Reasonable body corporate fees
• Good rental demand in established areas
Investment Loan Features and Considerations
When applying for an investment loan, lenders assess various factors regardless of property type. Your borrowing capacity depends on income, expenses, and the loan to value ratio (LVR) you're seeking.
Interest Rate Options
Most lenders offer both variable interest rate and fixed interest rate options for investment properties. Variable rates may provide interest rate discounts over time, while fixed rates offer payment certainty when calculating investment loan repayments.
Loan to Value Ratio (LVR)
Most investment loans require an LVR of 80% or below to avoid lenders mortgage insurance (LMI). However, some borrowers choose higher LVRs to minimise initial capital requirements, accepting LMI costs as part of their investment strategy.
Financial Considerations for Different Property Types
Stamp Duty Implications
Stamp duty varies significantly based on property value and location. Stand alone dwellings typically incur higher stamp duty costs due to their value, while apartments may offer lower entry costs including reduced stamp duty obligations.
Negative Gearing Opportunities
Negative gearing occurs when your rental income is less than your loan repayments and property expenses. This strategy can provide tax benefits regardless of property type, though the extent depends on your individual circumstances and the specific investment.
Research Property Potential
Before buying a rental property, thorough research helps identify:
• Local rental demand and typical yields
• Future development plans affecting property values
• Transport links and amenities attracting tenants
• Historical price growth in the area
• Competition from similar rental properties
Application Process and Documentation
The investment loan application process requires comprehensive documentation regardless of property type. Lenders typically request:
• Recent bank statements showing savings patterns
• Income verification through payslips or tax returns
• Details of existing debts and commitments
• Property research and valuation information
• Rental assessment for the intended investment
For those purchasing their first investment property, the streamlined application process with experienced brokers can help access investment loan options from banks and lenders across Australia.
Building Your Investment Property Portfolio
Many investors start with one property type before diversifying their investment property portfolio. This approach allows you to understand different markets and rental demographics while spreading risk across various property types.
Successful property investment strategy often involves:
• Starting with thoroughly researched locations
• Understanding local rental markets
• Maintaining adequate cash flow for expenses
• Planning for property management requirements
• Regular review of loan health checks and potential refinancing opportunities
Making Your Investment Decision
Choosing between property types depends on your individual circumstances, risk tolerance, and investment goals. Consider factors such as available deposit, desired rental yield, and long-term growth expectations.
Working with experienced mortgage brokers provides access to multiple lenders and loan products, helping you secure appropriate financing for your chosen property type. Professional guidance ensures you understand all costs, including ongoing expenses that affect your investment returns.
Whether you're interested in apartments, townhouses, or stand alone dwellings in the Coburg area, understanding how different property types affect your investment loan options will support your investment success.
Call one of our team or book an appointment at a time that works for you to discuss your investment property financing options.