Loan structuring closely linked to investment strategy

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For some investors, financing the purchase of their investment property is all about getting the lowest interest rate possible, while also weighing up the pros and cons of fixed versus variable.

While these are certainly important elements in the investment loan equation, what is often more important is the structuring of the loan - when done properly this is where you can 'turbo charge' the wealth your investment property creates for you. However, with the wrong structure, you can get yourself in a mess.

Loan structuring focuses on the type of loan used, how you fund the required deposit (or whether you pay a deposit at all, with enough equity in other properties you own it is still possible to borrow 100% plus costs), what securities are provided and what type of payments you make.

Loan structuring is important for any property purchase, but even more so for an investment property because of the associated taxation issues. 

However, if you buy an owner-occupier property now with a view to 'trading up' in the coming years and want to keep the original property as an investment, having the right loan structure in place from the outset will determine whether this is even a possibility.

In order to structure your investment loan appropriately for your individual needs, you actually need to know what these needs are and have some form of a strategy in place. You need to know where you want your investing to take you, so you can work out how to get there.

This means asking yourself:

  • Are you happy with a single investment property or do you want to build up a large portfolio?
  • What time frames you are considering investing for (five years or 30 years?)
  • How much you are able/prepared to put in every week to fund the gap between income and expenses?
  • Is your focus on cash flow or capital growth?

Once you've given some thought to these questions, you should then be looking to work with your accountant and mortgage adviser to determine the best property investing strategy and structure that will help you to achieve your property investment goals.

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