When you’re unable to secure a home loan for an investment property through traditional means, it can seem like the opportunity’s out of reach. However, this doesn’t have to be the case. With a bad credit home loan from Redrock, you may be able to make that jump onto the first rung of the investment property ladder.
What is property investment?
Property has the advantage of being a relatively safe and stable investment.There are two basic methods of generating a return with an investment property.
1. High rental yield
If you want an investment that provides you with a steady stream of income, you will be best to find a sound property that has a high rental yield. This is when a property returns a high percentage of its purchase price in rental income. For example, a $250,000 property that provided $12,500 of income per year would have a rental yield of 5 per cent. A high rental yield can help in finding a property that provides more income than it costs in interest payments and maintenance, which is known as a positively geared property.
2. High capital gain
If you’re not so concerned about your investment providing a steady income, you might want to aim for a property with a low rental yield, but with a high growth potential. A property that gives you negative cash flow – when your mortgage and maintenance costs are more than the property provides in income – is known as a negatively geared investment. This is a riskier strategy, as it relies on the price of the property increasing enough to recoup your costs and provide a healthy return.
Negative gearing also requires you to have sufficient cash flow to cover the period where you’re losing money. It doesn’t matter how much money your property may one day be worth on paper if you’re insolvent and can’t service your debts. Fortunately, historical trends are on the property investors side. The last few decades have seen Australian residential property prices increase by an average of 7.5 per cent every year, according to data from the Reserve Bank of Australia.
How do I invest in property if I have bad credit?
You might think that all of this is out of reach for you because you have bad credit, but that’s not necessarily the case. Depending on the reasons for your bad credit rating, you still may be able to secure financing for your investment dreams. Talk to the team at Redrock about our bad credit home loans today.