Over the last three years, the dynamic of home loans in Baldivis has shifted. As Baldivis began to become a “hot” suburb, investors noticed and started paying serious attention to what was happening here. Consequently, many of the home loans here at Smartline Rockingham have been obtained by investors looking for investment properties in Baldivis.
Currently, the most-used strategy for small investors to get into the real estate investment is the interest only loan. Here’s how it works.
Interest Only Loans: Why They Make Sense for Investors
Traditionally, homeowners obtain a standard home loan when buying a home. In fact, the majority of home loans in Baldivis are still obtained under traditional terms. The homeowner pays principal and interest. This allows them to eventually pay off the home.
With interest only loans, the investor only pays interest. This allows them to purchase a home and rent it, often breaking even or creating positive cash flow. If the rent is more than the total of the taxes, loan repayments and expenses, they create positive cash flow. Even if it isn’t, they are still controlling a home with only a small bit of expenditure out of their own pockets.
While the investor doesn’t pay off any of the principal, they do gain equity as the value of the home increases. As inflation occurs, the property achieves capital growth while producing more revenue in rent. This extra revenue is often used to invest in another investment property.
This strategy is how real estate investors make most of their money.
What to Do when the Interest-Only Period Ends
The only problem is that most interest only loans are written for a period of five to ten years. When that period is over, the loan becomes a traditional principal and interest loan. This leaves you with three options: sell, extend the interest-only period or start paying principal and interest. It depends on your financial situation and the performance of the property.
Call (08) 9527 1800 to learn more.