Can I cash out on an investment property?

Lenders apply slightly tighter LVRs to investment cash out at the margin, are more likely to require a full valuation, and look at the portfolio as a whole: total exposure to you, number of properties, rental yield and vacancy. Some lenders cap the number of investment loans they will hold or the total lending to one borrower. Interest only is more freely available on investment cash out, which helps serviceability and keeps the deductible balance intact.

Another investment property deposit is the classic purpose. Renovating the investment property to lift rent or value. Consolidating other investment debt. Paying down non-deductible home loan debt is not a tax-effective use of investment cash out, because the released funds become non-deductible; investors sometimes do it anyway for cash flow. A specialist will structure the split so the deductible and non-deductible portions are separate whatever the purpose.

The valuer assesses the property and its market rent. If the property is under-rented, lenders use the lower of actual and market rent, and if it is vacant they may assume market rent less a vacancy allowance or exclude it. Low valuations on investment property are common in flat markets and are the usual reason an investment cash out comes back smaller than expected.

As the portfolio grows, lenders become the constraint. A borrower with four investment loans at one bank will find that bank's appetite exhausted, while a non-bank or a second bank will still lend. Specialists spread lending across lenders to preserve capacity, which is easier to plan from the first cash out than to fix later.