Property Investing/ Property Advice: Series 4 of 7; Series 4: FINANCE: Part 3

 

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,

 

 

Loan Mortgage Insurance (LMI)

Most lenders, will mortgage insure their loans above 80% loan to value ratio (LVR).

LMI may be able to be added on top of the loan. If you wish to avoid LMI you will have to use more of your cash or equity. Borrowing more for investment properties gives you more tax-deductible interest to claim, it uses less of your own money by having a higher gearing/leverage ratio, and it could help you purchase more properties (depending on the overall cost of debt).

You should consider having a balanced approach as to whether you have a larger loan or higher loan to value ratio, as they will impact on your borrowing capacity and cost to maintain the debt. The higher you leverage yourself the less equity in the property (riskier if the market has a downturn). Compare this to using more of your cash or equity reserves. While this will lead to less money or equity being available for future property purchases, it will contribute to the property being more positively geared.

 

Commercial Property Finance

Standard residential and commercial lenders will only lend up to 75% generally, as a maximum, and up to 2.5 million for a commercial investment property. Whilst a 15-year term is more common, 30 years is also possible. Lenders have dedicated lending teams for commercial property due to the bespoke nature of the industry, and the diversity in economic conditions that may come to bear on a credit decision. The biggest difference with commercial finance is that it does not fall into a predefined set of boxes as easily as residential lending, it is less predictable.

The type of documentation required is similar to a residential loan, whether low documentation or full documentation, however, with commercial lending, future cash flow forecasts can be considered rather than the black and white approach of residential lending.

Repayment frequency can be the same as residential lending, so weekly, fortnightly, or monthly, with additional repayments allowed, on fixed rates though it is only monthly repayments allowed normally. There is often an ‘early termination’ fee attached to the loan. Some lenders do provide unlimited cash out to 75% LVR, and this can also be used for working capital and purchase of business equipment.

Stay tuned for my new book ‘The 100k Property Plan’, which will be quite comprehensive.

 

RULE: A finance strategy is as important as a property strategy, making use of lenders as and when they suit your needs.