Many Home owners understand the benefits of long term Property Investment, however, a large portion have had unfortunate personal experiences, have heard of their friends/family fruitless experiences.
There are 2 main contributors to these experiences, and that is the property may have been the wrong property OR the finances were structured incorrectly, and didn’t allow the freedom to enjoy their lives in the present – Whilst allowing the Capital Growth to work towards their future lifestyle.
However, more and more Australians are building wealth through the property.
According to the Australian Taxation Office, there are over 1.7 million landlords in Australia. Over a quarter of these own more than one investment property.
The largest percentage of property investors are not high income earners with the majority falling into the $30,001 – $75,000 income bracket.
10 Financial Tips for Property Investors
1. Reduce your credit card limits and cancel any credits card you don’t use
Reducing your credit card limit can make a huge difference with how much you can borrow for your property. Cancel any you don’t use. Lenders take credit cards into account when calculating how much you can borrow regardless of whether you use these or not.
2. Consolidate personal debt
Always look for the opportunity to consolidate any personal loans which have a higher rate of interest as these don’t only cost you more in interest but also impact on your borrowing capacity. This includes any interest on store cards from a department store.
3. Use different lenders
Loyalty and convenience is the main reason people continue to use the same lender to borrow money. Unfortunately this is reducing the amount that you are able to borrow and increasing your risk. By using different lenders you can always find the best deal, increase your borrowing ability and stay control of your assets.
4. Avoid Cross-Collateralising securities
This refers to providing a lender with security over more than one property. This can cause enormous problems when the properties increase in value and you want to release some of the newly created equity. The lender has your assets tied up so if you want to go to another lender that is offering a better deal, the current lender may not partially discharge their mortgage to allow you to refinance the property.
5.Have a plan or strategy
No one plans to fail… they just fail to plan! Like any successful business, an investor should prepare a detailed business plan detailing the strategy to grow their property portfolio, the finance that is required to achieve this and a cash flow analysis of how the debt and other costs are to be serviced.
6. Regularly review your security
Giving too much security to lenders can greatly restrict your investment potential. As far as lenders are concerned there is never too much security. Review your property values annually and have them re-valued with the bank.
7. Have a Line of Credit or Redraw Facility
Focus on the positive but be prepared for the negatives! Unfortunately too few investors take this advice. They have done nothing to ensure that their cash flow is protected if times get tough.
8. Have the correct loan structures in place from the start
A poorly structured loan portfolio reduces your flexibility, increases your risk profile and can create reporting and tax nightmares.
9. Interest only versus principle and interest
Structuring your investment loans with interest only increases your borrowing capacity and still allows you in most case to pay down the principle if you wish.
10. Use an experienced mortgage broker who specializes in investment home loans
The biggest finance tip is to have the right experienced and connected mortgage broker which specializes in investment property on your team.
Why do we invest in property?
- Wealth Creation
- Retirement Planning
- Capital growth
- Tax Benefits
Finance is equally as important as selecting the right property.
In many cases it may even be more important.
Why? The amount of property you can buy is determined by the amount of finance you can borrow. So if you don’t get your finance right then you may restrict your borrowing ability to create a large property portfolio.
The rich get richer because they have better access to finance. Here are 10 finance tips for property investing.
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