Are you ready to grab a fantastic investment opportunity when it presents itself?
In recent months we’ve been able to offer investors some of the best Cashflow Positive properties we’ve ever seen. Unfortunately, strong demand and limited supply has meant that some investors have missed out on these rare, self-funding properties.
So we thought it timely to remind investors about how to prepare themselves for our next hot-property recommendation.
Successful people, regardless of whether they are athletes, business owners or property investors, plan for success. So, here’s a quick checklist of things you should do NOW to make yourself investment ready…
Finance Approval: Do you know how much you can afford to borrow? It’s amazing how many investors pay a holding deposit on a property and then learn they don’t qualify for the necessary loan. Not only is this highly embarrassing for investors, but their lack of preparation also wastes other people’s valuable time. Consequently, many builders and developers won’t even accept a holding deposit unless buyers first provide a finance pre-approval letter from their lender.
Make an appointment with your lender today to find out what your borrowing limit is. If you’d like a second opinion, we are happy to refer you to a great Mortgage Broker. He has dozens of lender options available and his service is FREE.
TIP – Before you borrow a large sum of money you should apply a ‘stress test’ to check your ability to handle the mortgage payments when interest rates inevitably rise. While we currently enjoy record low rates under 3% p.a, the average home loan rate during the past 20 years has actually been 7% p.a, so this is the figure you should use for your stress test. If your payment increased by $500 per month, could you still afford it?
Buy the way, if you don’t believe interest rates could ever go back to 7% p.a, you should consider this… when my wife and I bought our first investment property in January 1989, our variable interest rate was an eye-watering 13.5% p.a. Just one year later it had skyrocketed to a terrifying 18% p.a!
The Australian Securities and Investments Commission (ASIC) has some handy calculators and other great resources on its MoneySmart website: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps
TIP – Relatively small debts such as credit cards, personal loans and car loans can often stop people from buying a property. That’s because the monthly repayment on a $20,000 personal loan at 14% p.a. over 5 years is higher than on a $95,000 mortgage at 4% p.a. over 30 years. If you consolidate these small debts into your mortgage, your total monthly repayment could drop by hundreds of dollars, thereby freeing up valuable borrowing capacity for investment.
WARNING – Credit cards could cost you a fortune. For example, on a modest debt of just $1,251, if your interest rate is 19.84% p.a. and you only make the minimum monthly payment of $26, it will take you almost 31 years to pay off the balance and you would pay total interest charges of $4,141!! Take advantage of your bank’s interest-free period and clear the full balance each month so that you never pay any interest.
Deposit: Do you have funds for the deposit readily available? If you are buying a unit or townhouse ‘off-the-plan’ (i.e. one that hasn’t been built yet), the developer will normally ask you to pay a small holding deposit to secure it, followed by the balance of the 10% deposit within 14 days of signing the contract. As few people have a spare $30,000 – $60,000 lazing around in their bank account, it’s a good idea to think about how you can access these funds on such short notice.
TIP – If you have plenty of equity in your home or another investment property, set up a Line of Credit or Redraw Facility so that when you need instant funds for investment (or an emergency), you can simply write a cheque or transfer money via the internet.
Alternatively, most developers are happy to accept a Bank Guarantee as full deposit on off-the-plan purchases. With a Bank Guarantee you are not actually borrowing any money, therefore you have no interest payments to make. You just pay a fee to arrange this facility. Banks can secure a Bank Guarantee against real estate or funds in a term deposit. (Let us know if you need any help with this).
Credit Report & Credit Score: When was the last time you checked yours? Do you realise that every time you apply for credit, your application details are recorded on a nationwide database? This includes minor items such as opening an account with a phone company, or buying a TV at Harvey Norman on a 5 years interest-free deal, or a personal loan for a second-hand car, right through to substantial loans for buying a property or leasing new equipment for your business.
If you fail to make your agreed payments on time a default can be registered on your file. Even defaults as small as $150 will remain on record for 5 – 7 years and may prevent you from obtaining finance for a property (or anything else).
TIP – Try to minimise the number of times you apply for credit because even if you decide not to proceed, it will still be recorded on your file. Lenders are suspicious of people who make multiple applications for credit in a short timeframe because it can appear they have already been declined several times.
You can obtain a FREE copy of your credit file from these credit reporting agencies:
- Equifax: Equifax.com.au
- D&B: CheckYourCredit.com.au
- Experian: Experian Credit Services
- Credit Simple: https://www.creditsimple.com.au
Buyer Name: Do you know what name to buy the property in? Are there tax advantages if you buy in your name alone? Should it be in joint names with your spouse or business partner? Should you buy via your company, family trust or self-managed superannuation fund? Talk with your accountant or financial adviser to determine the best option to suit your specific circumstances.
TIP – If you’re thinking of setting up a SMSF, don’t wait until you’re about to sign a purchase contract. It often takes up to two months to set these up, open bank accounts and roll funds over from old employer super funds. Even if you know what the name of your fund will be, you cannot sign a contract until it is actually established. Developers with fast-selling properties are unlikely to wait around while you go through this process, so prepare yourself now.
Solicitor/Conveyancer: Do you have a good one to handle the purchase process? Make sure they are experienced in the specific area of need. Some are not comfortable when presented with a 150 page off-the-plan unit contract, or a building contract for a house in a different state or territory.
We have several Queensland law firms on our panel who specialise in property matters, so contact us if you’d like a referral.
For our Asian clients, we can also recommend solicitors who are fluent in Mandarin, Cantonese and Shanghainese. Their services include property conveyancing and Foreign Investment Review Board (FIRB) approval. They are also registered migration agents and can help with visas, immigration and citizenship.