Lenders are in love with borrowers who show good financial habits as we know good habits are gold. And it’s never too late to start – I can help you get into a position where lenders consider you a possibility. 

With that being said, how do you get lenders to love you in a hot property market? 

Broadly speaking, home loans are most likely to be leant to borrowers who…

*This doesn’t mean to say you can’t get a loan easily through me as your broker, it just means we need to jump through a few additional hoops together!

 

What will you need to show lenders if you want a loan this month?

Let’s get you on the road to a loan. Get in touch.

If you’re buying your first home or helping a family member enter the property market, make sure you’re ‘bid ready’ before raising a bidder paddle or making an offer. Here are three things every aspiring first home buyer needs to do before entering the property market.

 

1. Take emotion out of the value estimate

Despite a house or unit being an inanimate object, you can get quite swept up in the emotion of choice. How often do we hear, “I just fell in love with the place.”  This thinking can lead to overpaying. Plus, when you combine attending innumerable open homes, searching online through various suburbs and adding auction dates into your calendar, house hunting can soon feel overwhelming. Sometimes it’s good to have an objective third party give you insights and information that helps make the decision more clear cut. I can look objectively at the real estate data and tell you about the recent sale prices in comparable properties, and what you can expect to pay to secure the winning bid. 

 

2. Know the amount you can really pay

Your ‘borrowing capacity’ is the term we use to advise how much you can comfortably repay. It not only helps you budget, it can be key to finding the suburbs you can afford to buy in. You might want to live in suburb X, but you can buy a bigger place in suburb Y for the same amount.  Getting formal pre-approval is crucial to buying property. It’s not only a green light to spend the money you’re borrowing, it also gives you confidence that when you make an offer on a property you’ll be able to see it through and also not be overburdened so much with your repayments that you’re unable to do anything enjoyable for the next 30 years because you can’t afford to!

 

3. Selecting from thousands of home loans

When you know how much you can spend, you need to find a home loan that offers you the right features at a good rate, while  balancing your circumstances and plans. Not only should you look for a competitive interest rate, you’ll also need to decide the features and add ons you want as well as weighing up costs of ongoing fees and charges. I can lay these out for you simply, so you can compare apples and apples. Otherwise, it’s a maze out there! I can look after this for you, to help you understand what rate and features – such as offsets or redraw facilities,  as well as what your deposit and income allows you to borrow, where you can afford to buy, and which government grants you’re eligible for.

 

I can help you achieve these three steps. I’ll guide you through the process, answering all of your questions, so you can be confident to enter the competitive buying market.

Whether you’re just getting started on the property ladder, or already have a few properties in your portfolio, the investment decisions you make will be the difference between success and failure. Let’s take a look at three common strategies and how they work:

 

Strategy 1 – The capital growth strategy

The capital growth strategy aims to build wealth through gains in the value of your property. While there’s no guarantee of capital growth, buying right could boost your chances. For example, properties in big cities like Sydney and Melbourne have risen in value over a fairly short period of time. So, where and what you buy can impact capital growth.

The capital growth strategy could involve a negative gearing element. This means your deductible expenses, including things like interest on your loan for the property, is more than the rental income you’re generating from the property. Since you have a net rental loss, you might be able to claim this loss against your other personal income (including salary).

 

 

 

Strategy 2 – The cash flow strategy

Pursuing a cash flow strategy means you look for properties with high rental yield potential. Typically, this involves buying properties that offer enough rental income to cover your expenses. Your rental income should cover everything from maintenance and repairs to mortgage interest and property management fees. Any additional income over these costs is then directed to your mortgage repayments.

While these cash-flow optimised properties – usually found in regional areas or on the outskirts of cities – are cheaper to buy and hold, they may offer less overall return in the long run compared to the capital growth strategy. However, you could potentially access more rental income on a regular basis and have more income at hand to cover unexpected expenses associated with owning a rental property.

 

Note: If you’re earning a positive income from your rental property, you won’t be able to claim negative gearing tax benefits, so you’ll be paying tax on your rental profits. Given the high transaction costs and deposit requirements associated with buying property, it’s essential to consider the numbers and do the due diligence to make sure the cash flow strategy will work in each particular case. Some experts suggest the cash flow approach could be impossible in Australia, so investors might need to adopt a modified form of the cash flow strategy.

 

Strategy 3 – The flipping strategy


Flipping houses to create wealth means you buy the property with the intent to sell it to make a quick profit, as opposed to buying and holding for the long term. You could realise a profit from capital growth, by making capital improvements such as renovations. The classic example is buying a rundown fixer-upper in an in-demand suburb, investing in renovations, and then selling it at a high price thanks to the substantial improvements and proximity to amenities.

If you do it right, this type of strategy could give you a quicker return on investment than other strategies. However, the risk of losing money is higher, especially when you take the costs and taxes associated with buying and selling (including capital gains tax, mortgage repayments, and stamp duty) into account.

 

Which strategy is right for you?

Put simply, there’s no single correct answer as it’s heavily influenced by your circumstances and goals. 

To find out which strategy, get in touch. We can chat about your situation and see what suits you.

Stamp duty is one of the biggest costs associated with buying a property, whether you’re investing or buying a home to live in. So, what is stamp duty and how does it affect you if you’re buying a property for investment purposes?

What’s stamp duty?

Stamp duty is a state or territory government tax the buyer pays when purchasing a home or investment property. Stamp duty goes towards funding government services and infrastructure. It’s a one-off, lump-sum cost and you pay it in addition to other expenses like registration fees and legal costs.

Stamp duty is usually one of your biggest expenses when buying property. It’s often paid before settlement or prior to transferring the land title into your name, but always within 30 days of settlement. Typically your lender or legal representative will make the payment on your behalf.

Calculating stamp duty

Stamp duty can vary significantly depending on the state or territory in which the property is located, and it could add tens of thousands of dollars to the cost of an investment property. The amount you pay is usually based on whichever is higher: the purchase price or the valuation of your property. So, the more expensive your property, the higher your stamp duty is likely to be. An example of an instance when you might purchase a property for less than it’s valuation price would be if you purchased the property from a family member at a lower price than it’s worth.

How stamp duty affects investment property?

Stamp duty is a major cost you must plan for when working out purchase costs and applying for loans. If you’re buying property in Victoria or Queensland, you could end up paying more in stamp duty if it’s an investment property and not an owner-occupied one. However, in the other states and territories you’re likely to pay the same amount whether it’s an owner-occupied property or an investment.

If you’re buying a property as an investment, you won’t be able to claim stamp duty as an expense for tax purposes, unlike things such as legal costs and inspection reports. Additionally, it’s included in the cost of your property when working out capital gains. However, you can claim it (deduct the stamp duty amount from the total capital gain) to lower your capital gains liability when you eventually sell the property, though obviously you could be waiting decades to realise the saving.

To find out more about stamp duty and how this affects you, get in touch.

Investing in property could allow you to build significant wealth and secure an income stream for the future, but it’s not without risk. If you’re thinking about investing in property, you’ll want to understand the potential limitations and drawbacks as well as the potential advantages of property investment. 

 

The Pro’s: 

The Con’s: 

Investing in property is generally seen as a safer option (than investing in the sharemarket) for good reason: the underlying asset could produce rental income as well as capital gains. Get in touch today if you’d like to chat about your property investment loan needs.

Investing in property can increase your wealth by generating a rental yield and capital growth. But you’ll also have some expenses and costs that you’ll need to take into account when determining whether your investment will be viable or unprofitable. Your property investment costs include one-off and ongoing costs, so let’s take a look at each and break down what you need to know.

Why it’s critical to understand your costs

One-off costs

These are your one time costs for each property purchase: 

Ongoing costs

As the owner or landlord of an investment property, you’ll be paying for maintenance and other costs. Some ongoing costs can be hard to estimate, so it’s best to allow some wriggle room.

An investment property could involve more one-off and ongoing fees than you’d anticipated. You need to be aware of these costs from the start so you can choose the right property, secure the right loan, and budget right for your investment. Once you buy the property, the costs can change from time to time, so ensure you update your projections and account for them in your budget by tracking and accounting for the costs, you’ll ensure your investment continues to be a manageable and profitable one for the long term.

What’s rental yield?

Rental yield is the ongoing return on your investment property. You can use it to assess potential income and cash flow of a property before you buy. It gives you a way to quickly compare returns on different investment properties (or investments), though it doesn’t help you work out capital growth. The higher the yield, the better the cash flow tends to be.

How to work out rental yield

There are two types of rental yield that are widely used. 

#1 – Gross rental yield

Gross rental yield = Annual rental income (weekly rental income x 52) / property value x 100

For example, you buy a house for $800,000 and charge $700 a week for rent. The gross rental yield for your property would be 4.55%, from $36,400 ($700 X 52 weeks) / $800,000. If you’re assessing a property you want to buy, you can use the market value instead of the purchase price.

You calculate the net rental yield by accounting for also the ongoing expenses like mortgage repayments, council rates, maintenance costs, insurance, and renovations.

#2 Net rental yield 

Net rental yield = (Annual rental income – Annual expenses) / (Total property costs) x 100

Since one-off expenses like legal fees and stamp duty aren’t factored into annual costs, you’ll want to keep them in mind while assessing a prospective property. For example, for the same property as above you incur annual expenses of $5,000. This gives you a net rental yield of 3.925%, from ($36,400 – $5,000) / $800,0000.

So the gross rental yield focuses on your rental income only, with no consideration of expenses, which the net rental yield does take into account. So the net rental yield could give you a more accurate idea of the return on a particular property. However, gross rental yields are more commonly used because it’s simple to calculate and allows you to easily compare different properties, regions, and areas. Gross rental yields are often used for multiple-property figures like suburb profiles, so they can also be helpful guides if you’re comparing properties to suburb or street averages.

 

Using rental yields to assess properties

Rental yields are helpful tools when used correctly. You could get a good idea of the property’s value proposition using rental yield figures – especially when you compare them to wider rental yield trends like property-type yields, suburb yields, or local averages – but keep in mind current or historical figures aren’t indicators of future performance.

Rental yields should play an important role in assessing the potential value and return of a property. They shouldn’t be used alone but with other indicators like location and potential for capital gain when assessing properties.

Note the net rental yield assumes fixed figures for costs that vary, like vacancy periods, interest rates, and maintenance costs. However, as long as you understand the limitations of these two metrics, you could probably use them wisely to guide your purchase and property portfolio management decisions.

 

Get an accurate picture of your investment returns

Rental yields can be helpful tools for assessing a property you want to purchase and for tracking how your investment properties are performing. The gross rental yield is a simple figure that lets you easily compare properties and properties in categories, while the net rental yield is more accurate and specific as it takes all the applicable costs into account. By using rental yields along with other metrics, you could obtain an accurate picture of your return on investment and value of potential investments.

If you want to know more about how to calculate your rental yield, get in touch.

You might think one home loan is the same as the next, but property loans come with different features and structures. These could have a dramatic impact on the cash flow and returns associated with your investment property. While there’s no one best loan, choosing the right one for your situation could help you save money.

Loan structure: interest versus principal and interest

Your loan structure could have a significant impact on your return on investment.

You could have a principal and interest loan, which means you pay down the principal – the debt you owe on your mortgage – as well as the interest, which is what the bank is charging you for the loan. This is usually a fixed term loan, and the benefit is you’ll be paying down the loan to eventually own the property outright.

You could have an interest only loan, which means you’re paying only the interest component on the loan with each repayment. While you’re not working away at the principal, this type of loan lets you minimise repayments and maximise cash flow for as long as the loan stays interest only, which might be for only the introductory period, typically between one and five years.

Loan structure: variable versus fixed versus split

You could have a variable or fixed loan. A variable loan means you’ll be subject to interest rate changes and your repayments will reflect this. A variable loan could be ideal if you expect interest rates to go down. A benefit of this type of loan is it usually lets you make unlimited extra repayments so you can pay down your principal as quickly as you want. Some loans could come with introductory rates for a “honeymoon” period (for example, the first year) during which low rates apply.

On the other hand, a fixed loan allows you to lock in an interest rate for the first few years, usually one to five years depending on the terms. You’ll be charged the same interest rate for those first years. This could be ideal if you’re financing in a high interest-rate market. In addition, if you need to fix your cash flow in advance, this gives you the ability to do so. However, keep in mind you usually can’t make extra repayments with fixed rate loans.

Note: there’s a third type, the split home loan. This gives you the security of a fixed rate and the benefits of a variable home loan, so you might be able to take advantage of lower interest rates but enjoy lower repayments if rates do rise.

Offset account

Offset accounts are popular with investors because you can use them instead of your everyday bank account, and the money is accessible via EFTPOS and ATM facilities. The money you keep in your offset account is counted towards your principal, so you can reduce the interest charged while having the flexibility of a redraw facility. Note, this feature is not available with all loan types.  

Revalue the property to access equity

Some property investors like to have the option of revaluing their investment property and accessing the equity. If your property achieves significant capital growth, you could have your lender approve the new valuation so your loan reflects the higher amount of principal (or equity) you now own. You could tap into this equity to buy another investment property.

Line of credit

Adding a line of credit facility to your investment property loan lets you access the equity you’ve built up in the property through a withdrawal facility. As with a credit card, you can use the funds when you need them and interest charges apply only to the amount you use. You can use these funds for emergency repairs and other costs associated with the property – or for any purpose you choose.

Option to choose repayment frequency

Standard home loans usually only let you pay monthly, but some types of home loans could offer the option of weekly or fortnightly repayments. If your tenants are paying weekly or fortnightly, you can choose to pay more often and end up saving more on interest over the long term.

We get it, there’s a lot of options (sometimes too many) and it can be overwhelming. We can help you understand your options and find a solution tailored to your needs.

There are many decisions to make when purchasing your home – choosing between an ‘off the plan’ property or a ‘house and land’ package. This is a high stakes, yet thoroughly enjoyable phase of your purchasing journey. Since buying a house is probably one of the most expensive decisions you could make, it pays to invest time and resources in doing your research and getting your facts right to make informed decisions.

What are ‘off the plan’ properties

When you buy a property off the plan, you are buying a property before it is built. The building plan or display suites will be the main factors in your decision to buy the property. 

One of the primary motives for buying a property off the plan is the expectation of an increase in prices once the actual construction is completed. House prices normally move north with time, and it could be fair to expect that your house would be worth more when it is completed.

Risks associated with off the plan

There are some big considerations that need to be addressed before deciding to buy off the plan.

Understanding the contract

It is important to review the contract carefully when purchasing properties off the plan, since you would make an advance payment to secure the property and settle the balance amount upon completion of the construction. When you secure the property, you commit to buying the property that is not constructed yet, and it helps to seek legal or expert advice before signing on the dotted line.

Dealing with agents and developers

You may also want to consider whether you are buying the property from the developers themselves, or through agents. It is customary for builders to market their properties through multiple agents, and hence prices may differ for the same property from one source to the other. As always, take your time to consider the pros and cons before making your decision. 

Buying ‘house and land’ packaged property

As the name suggests, when you buy a house and land property, first you buy the land, and then you build the home. 

They come with the freedom to choose your own place, space, design and structure, giving you a free hand to discuss your ideas with the builder, rather than being constrained by designs imposed on your property.

However, there are concerns that need to be addressed before deciding to build your own home.

Cash flow issues with construction in phases

One of the key issues with house and land packages is that it’s being completed and funded in phases. In effect, you could consider two parts to the house and land package financing – you are financed for the land initially (i.e. a regular mortgage), and then you get financed for the house as each section of the house gets built (i.e. a construction loan).

What this means is that you have incremental loans accumulating on your account with every stage of the house being built, and you’ll need to plan carefully to ensure you have good cash flow.

Fluctuating prices of building a house

When building a home, you will be faced with countless decisions that all have the ability to affect your budget. 

For example, the actual price that you end up paying your builders could be dependent not just on the area or the locality and the size or the style of your property, but also on the way it is structured and the soil that it is grounded on. If part of your land area happens to be on the slopes, or if the soil is not of the best consistency, this could result in significantly higher investments in time and equipment before you get to the desired structure and design. This could overshoot your planned budget significantly.

The puzzle of buying your first home has more answers than one – and an investment property is such an attractive option that could help you realise your property dream. Often, potential homeowners have to compromise on one aspect of the other, such as location, style, or size of the property, due to financial constraints and the need to meet other existing obligations.

What is rentvesting?

To put it simple, rentvesting, or buying a property to rent out from a long term investment perspective, gives you the best of both worlds – you could continue to live in your favourite place, enjoying your lifestyle, as you stake your claim to a new property in a well researched locality of your choice.

How does rentvesting work?

Rentvesting is an alternative way of getting into the property market. If you want to buy a property in Fitzroy in Melbourne, for instance, you would have to plan for years and stick to a savings discipline to get to your destination. And even then, with inflation, it might continue to grow further out of your reach. 

With rentvesting, you could continue to live in your own rental home while investing in your first home that falls within your financial means. In a process that is pretty similar to that of purchasing a home, you would consider your ongoing rental outlay in the light of your prospective rental income from the investment property that you purchase.

As with any property that you buy, you would invariably be saddled with a considerable mortgage for the major part of your working life. The difference in terms of rentvesting is that you do not pay out of your salary for your mortgage, but would be using your rental income from your new property to pay your mortgage off.

The upside of rentvesting

Rentvesting is an important investment decision in your life that could offer you a range of benefits:

Tax benefits

Owning an investment property provides a host of advantages in terms of tax benefits compared to owner-occupied mortgage payments. These tax deductible items include:

Even with scenarios where the rental income tends to fall short of the expenses incurred on your investment property, you could still be able to benefit from negative gearing, a phenomenon where you could claim tax deductions on expenses incurred on your investment property against your other income such as salary, wages, or business income.

As with any financial decision, there is an element of risk in rentvesting and you should seek independent advice from an accountant or a taxation specialist.

Living where you want to be

Rentvesting is not about living the high life in one of the most expensive localities of your city, but is about choosing your locality wisely. While you may have to physically relocate to a suburb that may not be of your choice when you buy a residential property merely because of the affordability of the region, with rentvesting, you could continue to stay where you love to rent, while you could be building up your investment portfolio. Again, you have to choose your locality wisely, since investing in a high end asset in an expensive locality may not give you the returns that you expect out of rentvesting.

Could rentvesting be the right strategy for you? Give me a call and we can have a look at your options.