Investment loan versus home loan
An investment loan functions the same as a normal home loan. However, an investment loan is tax deductible where one’s home loan is not tax deductible. Therefore, getting the structures of the investment loan correct is crucial.
If the structures are incorrect, it could cost you thousands of dollars and you may even find yourself in trouble with the ATO for not being tax compliant.
Investment loans are usually taken out by someone who wants to buy a property that they are going to rent out for the purposes of generating an income.
Most Lenders charge higher interest rates for investment loans compared to the normal home loan that is being used for personal purposes. The Lenders also normally place stricter eligibility requirements on investment loans such as tighter loan to value ratios (LVR), meaning investors need to raise a larger deposit before applying for a loan.
Expenses that you incur to run your investment property can be claimed as “tax deductions” to reduce your taxable income while you’re renting it out. 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
Go to Canstar for more information regarding negatively and positively geared investments.