Financing Property Investments Now
Is your primary goal to add value to property through renovation or development? Why focus on one or two key strategies and specialise? We’ve seen many people try so many different strategies, never really giving any of them the focus required to get results.
Finance property investments for most residential real estate investments…it means you could be in a position to borrow and buy an investment property with a typical deposit (or surplus equity in another property) of 20% of purchase price.
While you can borrow more than 80% loan to value ratio (LVR) with some lenders, you need to factor in higher interest rates, lenders mortgage insurance and higher risks of larger mortgage payments.
Finance or be it raising funds or cash required for a deposit, plus allowing for closing and holding costs on an investment property is probably one of the biggest stumbling blocks, even if you get a 90%+ LVR loan…
Finance property investments is all about knowing how the numbers stack up, taking action and knowing what action to take:
- Stamp duty
- Settlement costs
- Conveyancing costs
- Bank fees
- Title transfer fees
- Other miscellaneous costs
- Holding costs until rental income begins
- Others sources of finance
Equity is the difference between your property’s market value and outstanding balance of all loans on property. Recycling equity is the process where investors leverage/borrow against equity in each existing property they own to help to fund the next deal…
Finance property investments using money gifted, borrowed or pledged from family members as guarantors as a source of finance or your deposit for your next real estate investment.
Superannuation funds (SMSFs) can purchase real estate for investment. Legislation changes made in 2008 mitigated the risk to an individual’s investment portfolio by making property investment possible.
Mortgage brokers and non-bank lenders can either belong exclusively to a particular financial institution or work for a mortgage lending company which can apply for loans on behalf of their clients across various financiers.
Vendor finance – where the seller (also known as the vendor), instead of demanding 100% of the sale proceeds at settlement, accepts terms that allow the borrower to pay an initial amount at settlement e.g. 80% and then repay the balance of the property’s sale price over a fixed term e.g. 20% over 2 years at an agreed interest rate.
Types of finance property investment loans available consist of interest only whereby the borrower only pays the cost of annual interest on the loan each year and does not have to repay the principal until a later date.
Principal and interest loans whereby you’re paying a principal and interest loan means you’re paying the current monthly interest due and progressively reducing the outstanding balance on mortgage and making principal repayments, so you’re progressively paying off the mortgage.
Revolving line of credit enables you to use generally up to 80% of your equity as collateral for further credit to make future purchases. It is an option chosen by real estate investors wanting the flexibility to top-up their mortgage to pre-agreed level without having to take out a separate mortgage each time…
Non-recourse financing means the borrower, in the event of failing to fulfill the terms of loan, has their liability limited to property which the mortgage is secured against only and does not offer other asset security or personal guarantees.
Full doc loans requires the documentation of all income, assets and liabilities and is the most common type of mortgage loan used
Lo doc loans need less for stringent income information than full doc loans, but still rely on a good deal of documentation to get approved.
Low start loans offers borrowers low establishment costs, a very low variable rate for the first 6 to 12 months and no monthly fees.
Refinancing is the process of re-financing, topping up or consolidating existing and/or new debt with the same or new lender/s. Always check the full cost of doing this and especially break fees on existing mortgages.
Deposit bonds are alternatives to a cash deposit for borrowers who have existing equity in property and want to use bond/guarantee rather than a cash deposit.
This is common when buying off the plan with a 12-24 month settlement as it avoids paying a (borrowed) cash deposit and then paying the interest on the money while it sits in trust awaiting project completion and settlement…
Finance property investments and financial competence as this proves several points:
Please never overlook the discipline of a very good understanding of banking, finance, accounting, tax and importance of cash flow management, financial due diligence, budgeting, tracking and reporting because it’s often easier to get lots of money than a little.
Frequently going after small investors is the most troubling of all and it’s better to aim at people which are more substantial.
The magic word (no) is frequently the best way to make somebody want to get involved with you even more.
Knowing your numbers and business is what makes people want to move forward. Money always follows expertise and when you demonstrate you’re an expert with tactical skills in specific areas, money flows in a big way.
And sometimes so much money flows…you just have to say no.
The loan approval process using conditional and formal approval letters:
If a loan application meets certain broad guidelines at the initial assessment stage, a lender or finance broker may approve the application in principle or indicate pre-approval.
As the application progresses, information provided by the potential borrower such as identification details, salary and overall financial situation is subsequently confirmed and credit check reports are received. The lender or broker will form an opinion of the applicant’s ability to service a loan and a conditional approval letter will be issued if lending criteria are satisfied.
Approvals confirmation – Once all the necessary paperwork has been completed, it’s normally only a short time before approval.
Make sure you read and understand everything before signing up. Keep your conveyancer or solicitor in the loop. Ask questions if there is any confusion – taking on a housing loan is the largest financial decision most people will make.
The bank valuation is a basic part of a property loan approval, which is confirmation by the lender that the valuation of a property being offered as security is sufficient to cover the loan.
Lenders instruct a bank panel valuer to perform a market valuation and analyse what percentage of the purchase price is being financed with risk profile of the loan taking into consideration other factors such as location and average time to sell property…
Finance Property Investments