Property Investing/ Property Advice: Series 4 of 7; Series 4: FINANCE: Part 1

I believe you must engage a Buyers Agent with every property purchase, Using a Buyers Agents/Buyers Advocate and Property Advisor is key to more property investment success. These are extracts from my latest book “The Australia Property Investment Handbook 2018-2019″. In all good book stores now. Also Read Property Finance Made Simple and Property Investing Made Simple. Property investment, using buyers agents/ buyers advocates, is so important, and if looking in Melbourne for example, you should look for Melbourne Buyers Agents or Melbourne Property Advisors.

 

Investment strategists, property investment, buyers agents, Melbourne buyers advocates, Melbourne Buyers Agents, Melbourne Property Advisors,

 

Rule: Avoid using a company that is vertically integrated, i.e. they have their own finance division, property division and even conveyancing division, there are too many horror stories to mention that have resulted from people using these types of organisations. There is quite simply a complete lack of accountability if everything is done in house.

 

When considering buying an investment property, the most important thing you need to know is what you can afford to borrow. Until you know this you cannot start looking for a property, unless you just want to waste your time.

I recommend using a broker. There are so many reasons why you should not go straight to a bank. My recent book is a must read for you to understand this more. www.propertyfinancemadesimple.net.au.

Bank branches can place a great deal of pressure on their ‘in house’ loan writers, expecting them to cross sell insurance, financial planning services and other types of debt like credit cards and personal loans. As recent events have demonstrated, even the biggest banks can be investigated for scandals, selling the wrong insurance products to the wrong people, and end up investigated by the regulatory authorities for alleged involvement in money laundering activities.

 

Rule: When obtaining finance, do not go directly to a bank; use a good broker.

 

When assessing what is best suited to your needs, you need to consider the loan type and features such as line of credit, a redraw facility, an offset account, a fixed rate loan, length of time to fix the loan, variable rate loan, and whether you pay lenders mortgage insurance.

Every lender is different as are their borrowing capacity calculators. Your borrowing capacity may vary by tens and tens of thousands.

 

The cost of the mortgage should never be based just on current interest rates, but rather the future cost of debt. Look at ‘repayment figure’ not ‘interest rate’ to understand the cost to you.

There are many cases where a lower rate can equal higher repayments, compared to a slightly higher rate with lower repayments, due to lower fees. The most important consideration is whether the loan gives you what you want, this is determined by policy, whether the policy of that particular lender ticks all your boxes. It is a minefield out there and can be quite frustrating doing it yourself.

Most people focus on the ‘now’, not the ‘what if’. The modelling of holding costs – taking into account interest rates, lending criteria, income being earned, unexpected changes in personal circumstances – and being better prepared, is so important. Not factoring in the potential future cost of debt in conjunction with actual living expenses (which may differ to the standard expenses the lender will factor in), is the craziest thing you can do.

 

Deciding when to fix or have your rate variable

 

Ultimately, it’s a question of risk appetite. If a person has a low risk appetite, perhaps fixed rates are important. It is not necessarily about making or saving money as much as it is about minimising future risk.

Variable rates used to be tied to the market but they’re now at regular and on-going ‘risk’ at being changed as and when, and to what, the given lender feels in the mood for at the time, especially for interest only on investment and owner-occupied loans and principle and interest repayments on investment, although to a lesser degree.

To hedge your bets, perhaps you consider half fixed and half variable; it’s a personal decision.

Fixing the rate is a risk reduction strategy. It provides piece of mind that for the selected period of time the interest rate won’t change and the repayment will stay the same. Bear in mind the lender has priced the fixed rate to the projected market, meaning they have more resources than you or me – and you cannot outsmart them.