What is An Investment Loan?
An investment loan is a type of debt in which the borrowed money is intended for the purpose of purchasing assets such as commercial real estate or residential real estate. The main objective of an investment loan is to borrow the money that will be used to pay for the investment, which in this case, is the property.
Purchasing a property, whether it is a commercial or a residential real estate, is a good form of investment. By renting the real estate property that he purchased, the investor can earn money from the leasing amount that is paid by the tenants.
How Does An Investor Gain Money From An Investment Loan?
An investor can gain money from an investment loan by relying on either the capital gain or the building equity. In the capital gain, the investor applies the concept of property appreciation. More likely than not, the value of a property tends to increase. For example, an investor purchased a real estate property for AU$300,000, sold it for AU$450,000, and repaid the investment loan for AU$80,000. If the original price of the real estate property, which is $AU300,000, is added to the repayment cost that is AU$80,000, the total expenses of the investor is $AU380,000. Subtracting the total expenses, which is AU$380,000, from the selling price of AU$450,000 will give the investor a gross capital gain of AU$70,000.
In a building equity, the investor relies in the simultaneous appreciation of the property and the reduction of the investment loan. An investor who bought a property for AU$300,000 with a AU$250,000 investment loan will gain AU$50,000 in equity. If the value of the property appreciates at a value of AU$335,000 while the pending debt is still AU$200,000, the investor still gains AU$135,000 in equity.
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