Successful property investing isn’t just about the property you buy. It can also hinge on something you may not have given much thought to – your investment loan. Phil Gallagher, Franchisee at Aussie Belmont in NSW’s Hunter region explains four ways your Aussie Broker can help you become a successful property investor.
1. Get a better deal on your home loan
Before you start thinking about investment loans, Phil recommends asking your Aussie Broker to review of your current home loan. The reason? The potential to improve cash flow with a lower rate loan.
Phil explains, “A lot of my customers are using home equity to fund an investment property, and where that’s the case, it makes a lot of sense to review your current home loan first.”
He adds, “It’s not unusual to find that an investor’s owner occupied home loan is not the most competitive option available. I often find for instance, that the customer is paying a rate that’s 1% higher than many of the loans available today – especially if they’ve had the same home loan for a number of years. Cutting your home loan rate by just 0.5% can have a significant impact on repayments, freeing up valuable cash flow to invest in a rental property.”
Even better, Phil says your Aussie Broker can usually help you get a better deal on your loan without blowing out the loan term or even necessarily needing to refinance.
2. Provide insights about the market you plan to buy in
With your home loan in top shape, Phil says the next step is to talk to your Aussie Broker for valuable insights into those locations where you can afford to buy.
He explains, “Investors have more access than ever before to market information, so they no longer have to rely heavily on details provided by selling agents to make an informed decision.”
Phil adds, “Your Aussie Broker can point you in the right direction for key industry insights such as current market values, details of past capital growth and current rental yields – information that puts property investors in a strong position to negotiate.”
Your Aussie Broker can also provide one critical piece of the puzzle that isn’t available to ordinary investors – and that’s details of those postcodes where lenders may impose particularly tight loan-to-valuation ratios (LVRs).
The LVR is the percentage of a property’s value you are able to borrow, and Phil points out, “There are some postcodes where certain lenders won’t lend above 80% of the property’s value.”
It’s essential to know these sorts of details because it can heavily impact your borrowing power across a variety of locations. Phil adds, “Because Aussie brokers work closely with up to 21 different lenders, we know which lenders impose tight LVRs – and those lenders that have more flexible limits for a given suburb. This is where Aussie Brokers add real value, helping investors understand their borrowing power across different lenders and locations.”
3. Ensure your investment is manageable over the long term
There’s no doubt property is popular as a long term investment. As a guide, residential property topped the league table of returns among mainstream assets over the 10- and 20-year timeframes to December 2016, with annual returns averaging 8.1% and 10.3% respectively.
It turns out that many investors do take a long term approach, with Phil saying, “The vast majority of investors I work with are “mum and dad” investors who plan to buy and hold the property. They understand property, they feel safe with it, and this degree of comfort makes it more likely an investor will hold onto the place.”
That said, Phil notes, “In my experience, one of the biggest concerns I encounter among investors is how they would be impacted by a rise in interest rates.”
The solution according to Phil, is to run some financial modelling. “As an Aussie Broker, we model the loan to see how the customer would manage if interest rates rose to, say, 6%. By encouraging investors to consider the affordability of the property if rates climb higher, they have peace of mind knowing they won’t be forced into the position of having to sell an asset they’d been planning to hold onto for some time.”
4. Select the loan that’s right for you
Your choice of investment loan can have a big impact on the profitability – and manageability – of a rental place, and so it’s worth understanding what’s happening in the current lending market.
Phil points out, “Banks have a real appetite to lend to investors at present. However, the focus is more on principal and interest (P&I) loans rather than interest-only loans.”
This reflects a clamp down on interest-only loans by banking watchdog APRA, which earlier in 2017 imposed stricter lending criteria in relation to interest-only loans.
Despite the banks’ preference for P&I loans, as Phil points out, “Investors are still very keen on interest-only loans. So there can be a disconnect between the type of loans banks are offering, and investors’ expectations.”
It’s an area where your Aussie Broker brings good advice to the table.
Phil notes, “It comes back to reviewing an investor’s home loan in the first instance to see if a better deal can improve cash flow. Then we look to see if the investor can afford to make P&I repayments. If they can’t, interest-only loans are still available however the rates on these loans tend to be higher than for P&I loans.”
The good news is that with up to 21 different lenders to compare, your Aussie Broker can find a solution.
Phil explains, “We know which lenders offer competitive loans that are suited for an individual investor’s needs. An investor trying to work this out themselves could burn through a whole lot of rubber, only to cop knockbacks from different lenders because they don’t meet the lender’s criteria.”
The bottom line is that your Aussie Broker can show you the scenarios to help you decide whether you can comfortably afford an investment property, while also helping you secure a good deal on the investment loan – something that can improve your cash flow and long term returns.
Talk to your Aussie Broker today for expert advice that can add value to your decision to invest in property.
