Property-Investment-Background

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Interest only loans: What are the benefits?

Interest only loans are different from your personal mortgage. On your personal mortgage, you're likely paying both Principal and Interest. This means that part of your payment goes to the servicing of the loan (payment for the bank giving you the loan), and part to pay down the principal.

Because you're only paying the interest, you don't have to pay as much each week on an interest only loan. This means that you can take any extra money and put it towards your personal mortgage.

What is the difference between yield and growth properties?

Generally there are two types of properties – capital growth, and cashflow positive. Capital growth properties will increase in value at a faster rate (say 5% each year), but may require a small contribution you have to pay each week. Whereas cashflow positive properties might pay you a surplus each week, but will achieve slower capital growth over time.

Neither is right or wrong, as long as you know why you are buying the property and know how it fits within your portfolio strategy.

What professionals do you recommend for the property investment process?

It's very important that when you’re looking for these professionals that they are people who know property investment and possibly have successfully invested in property themselves previously. Here is a quick list of the professionals you should engage with when looking at investment property: Lawyer, Accountant, Mortgage Broker, Insurance Broker, Property Advisor, and a Property Manager.

How do you pay off your mortgage with an investment property?

Why property investment is exciting

Using property to build wealth for the future

Property on hold

Procrastinating

Say you look at purchasing a $500,000 investment property today and then decide to not go ahead with it, and put off doing it for one year. What would that mean?

If that property was to appreciate at 5% growth, in one year it would be worth $525,000.

If you did buy the property you would have a $525,000 house and a $500,000 mortgage and therefore have $25,000 of equity.

So there is the opportunity cost of waiting that you missed out on $25,000 worth of growth. But then there is also the higher entry cost of entry to get into the market. That's another twenty five thousand dollars.

So essentially by putting it off for one year, you're $50,000 in the red.

Equity

What are interest only loans and why do you need them?

Capital gains tax