Tag Archives: lending institutions

Why Buy Investment Property?

Before you buy investment property, you could ask yourself a few simple, yet powerful questions.

 

The content is general in nature and it’s important for investors which may be contemplating buying investment property to note further investigation is required in order to identify specific properties for investment potential…

According to Australian Bureau of Statistics (ABS), 97% of people aged 60 or more are in some way reliant on a government pension. In case you don’t know how much a pension is worth, imagine trying to survive on $15k pa (if single) or $24k pa (for a couple).

(a) Debt free family home still doesn’t produce income for utilities, food, transport, hobbies, and holidays

(b) Superannuation will be nowhere near enough to replace the income required to live life on your terms

(c) A “rule of thumb” formula for calculating the size which your investment portfolio (net of all liabilities) needs to be is to multiply the required income stream you want by 20.

For example: Required income (debt free) x 20 = Investment portfolio value (net of liabilities) $80,000 pa x 20 = $1,600,000

(Above figure excludes the value of your family home and does not factor inflation)…

buying investment property
Buying investment property with a focus on successful investment properties in highly sought-after locations

First question, “am I buying investment property or (PPR) principal place of residence? Next, “why would I buy investment property”? The answer to both questions is where to buy and what area(s) you know or feel comfortable?

Buying investment property or principal place of residence in context to if you are going to live there?

Generally speaking, any in market it is important to understand capital growth cycles, (structural change which is occurring) your target market (demographics, right style of property for right location) and population growth.

Key is understanding how the contract does not get in the way of closing deal because the contract must protect the interests of you as the developer and ensure settlement takes place smoothly. Of course, you want the maximum financial return, right?

Investment property has many different purposes, you are wanting to maximise your wealth via property investment so you need to factor your capital, borrowing capacity, lending institutions combined with macro and micro indicators.

Buying investment property involves due diligence with a clear strategy to focus on, which can give you real confidence you are investing based on correct research criterias and more than just a gut feel.

Buying investment property the infrastructure investment: The government and private enterprise spend billions of dollars each year on roads, transport, hospitals, mining, resources etc…

Look at what they are spending funds on and what impact the infrastructure has long term in those areas.

Buying investment property the populatIon growth: The Australian national population growth rate was 1.7% or 394,000 new residents in Dec 2012. Take note of where those people are moving too. Is it a capital cities, regional cities or regional areas? We also look at interstate migration, which is generally associated with employment opportunities or lifestyle choices.

Buying investment property the economy and employment factors: What is the diversity of industry? Consider what business/industry is in the area you are investing in.

Does area have a cross section of industries that can support current and future employment or is it reliant on one main industry?

Buying investment property the supply and demand relationships: Is there an oversupply or undersupply of residential housing? If there is an undersupply you are likely to see increased rental income and improved cash flow for an investor.

In this scenario you will also see a lowering of the vacancy rate. Undersupply could also put pressure on property prices. With an oversupply the opposite normally occurs for an investor. Rents decrease, vacancy rates increase and property price can decline.

Amenities: The better the amenities are the more attractive an area become for people wanting to rent. Look for good employment, schools, shopping centres, medical facilities, sporting facilities and café lifestyle.

Transport is a very important consideration: Look for a combination of good public transport and does it service the area well especially in the exact areas you are looking to invest in?

Buying investment property and rental yields: Rent yields are determined by the supply and demand of property. When investing it’s finding the balance between your rental income and cash flow.

If there is an oversupply of rental properties your rental income will reduce. This affects affordability and holding costs for investors.

Value: Look at the price of the property relative to similar properties in the same area. This will give you an idea of the real value of the property. Also consider the likely resale value by looking at the properties that are currently being sold in the area.

Design: Take a good look at the design of the house. Is it practical? Will people want to live in it? Does is have good natural light? What aspect does it face? What is the internal size of the property as this could affect future resale?

Projected Capital Growth: When you look at the macro and micro indicators to help you decide where to invest you give yourself a strong opportunity to see long-term growth with your property.

You can clearly see the crucial relationships of due diligence and number crunching in conjunction to all the above and using these macro and micro indicators which can really help you answer the big and important question, where do I buy?

If you want to know more about  buying investment property please click here to contact us.

Buying Investment Property

Equity Home Loans | What are equity home loans?

What are Equity Home Loans?

Equity home loans are a type of loan that involves a borrower using the equity in their house as a means of collateral.

Equity home loans can be useful in helping home owners finance huge or major house expenses like medical bills, college education or house repairs.

equity home loans
Equity Home loans - How to use equity in as a means of collateral...

Equity home loans or otherwise known as home equity loan creates a form of a lien against loaner’s home and therefore slash or decrease the actual equity home.

Also lenders and other lending institutions feels much safer with equity home loans because with your house being collateral you can’t easily hide and disappear as your home won’t vanished.

That means the lender has a much better chance of ensuring the borrower pays any mortgage owed.

Also lenders have a better chance of getting back collateral in the form of a house in case borrower wasn’t able to meet and follow provisions of mortgage contract.

Equity home loans may be referred as second tier liens or second trust deed, but they can still be assumed in first or a third position.

A lot of equity home loans needs a very good credit history or acceptable combined value from loan and reasonable value from loan rations. It also comes in dual types namely the open end and closed end.

In Australia, some equity home loans interest are deducted from an individual’s personal rate of their income taxes.

Here are some advantages of using equity home loans from the other kinds of home mortgage set ups because equity home loans remain an attractive option for many borrowers for these simple reasons:

  • Usually have a much lower APR or interest rate
  • Can be quicker to get even if you have a bad credit history
  • Payments made on equity home loans may become tax deductible
  • Borrowers have more chances of availing themselves a much bigger loan amount with this kind of loan.

Some tips to maximize your equity home loans:

To have this deal ending up working to your benefit, make sure it is the correct kind of loan to fit your financial structure.

What if an equity home loan makes better sense to meet your financial needs compared to lets say a credit card account? If yes, this may be the right kind of loan to utilise.

More importantly plan all your existing budget right away, make sure any loan you will avail will not put more burden in yourself.

Paying the premiums every month and not totally up front will also help you take advantage of equity home loans.

Equity Home Loans

Crucial Questions to Ask Your Mortgage Broker

Home Loans, Property Investment Loans and Refinancing

 

A mortgage broker or finance broker negotiates with banks, credit unions and other credit providers on your behalf to arrange loans. A mortgage broker typically specialises in home loans, helping to select a loan, manage the whole process right through to settlement.

Mortgage broker for your individual circumstances, as they change it’s important to review your home loan to ensure it meets your needs. In context to home loans changing from time to time, its worthwhile to review what’s available and maybe changing lenders.

How to refinance your home loan?  The refinance process begins with a face-to-face interview to better understand your investment needs and objectives with a complete review of all existing loans in the market place to identify products which best suits your goals.

When a lender is chosen, application form is completed and supporting documentation is submitted to lender, next step is for approval to be granted as contracts are prepared and issued to you for signing.

mortgage broker
Mortgage broker for your individual circumstances, as they change it’s important to review your home loan to ensure it meets your needs. In context to home loans changing from time to time, its worthwhile to review what’s available and maybe changing lenders.

What happens at settlement? Lender pays out existing loan(s) based on your instructions…

Why do some investors choose to refinance?

Most people refinance for one of the following reasons:

  • Home renovation
  • Better rate than your existing loan provides
  • Need cash for investment property
  • Save money by offsetting interest earned on money available against interest charged on loan
  • Switch from a fixed rate to variable rate or vice versa
  • Consolidate debts into a home loan at a cheaper rate to make repayments more affordable

When deciding which mortgage broker to use there are a few questions you want to ask. Is mortgage broker a member of the MFAA?

(MFAA) Mortgage and Finance Association of Australia is the national body which represents Professional Credit Advisers, mortgage, finance brokers, mortgage managers and aggregators.

Membership requirements of MFAA, accredited mortgage consultant (AMC) has achieved certification with experience level and all members are obliged to comply with a strict code of practice. MFAA members must be part of an external dispute resolution service.

How many lenders does a mortgage broker represent on their panel? It is important a mortgage broker has a wide variety of lenders on their panel:

  • Banks
  • Credit Unions
  • Mortgage Managers
  • Non-conforming lenders

Some mortgage brokers represent twenty or thirty different lenders, which means you get a wider choice instead of only a few.

How does the mortgage broker get paid? Brokers are paid a commission on loans which they refer to lenders. Some lenders pay higher level of commissions than others so it’s important to understand how much your mortgage broker is paid.

Mortgage brokers are required to provide a quote and a credit proposal document detailing the amount they are paid as a percentage and as a dollar figure. Professional mortgage brokers are objective and offer a comparison of at least three to five different lenders.

Do mortgage brokers charge a fee? Most mortgage brokers don’t charge a fee as they are paid by lenders to introduce loan as described above, however recent regulation of credit industry means mortgage brokers charge a fee for service as financial planners do.

mortgage brokers
Mortgage brokers, not all charge upfront fees…

 

This involves an upfront fee, which varies from broker to broker, although some brokers do not charge an upfront fee.

How are loans and lenders compared? Under MFAA code of conduct and National Consumer Credit Protection Act, a mortgage broker must only recommend loans, which are “not unsuitable” to the client.

Mortgage brokers typically do an interview to determine needs of the borrower, then use software packages to compare and eliminate unsuitable loans. The broker details differences between shortlisted loans to allow borrower to select preferred product and provider.

Loans are generally compared using a comparison rate as this rate takes into account cost of fees and charges associated with each lender’s product, allowing consumers to quickly and easily compare…apples to apples.

What insurance does the mortgage broker use? MFAA membership requires accredited mortgage consultant professional indemnity insurance. This means in the event a client needs to take legal action, they’re insured.

How is your personal and credit information protected? You need to make sure your mortgage broker understands the importance of maintaining your privacy and ensures your information is held under lock and key.

All reasonable actions must be taken to protect your personal information. These are core to principals of the Privacy Act. Mortgage brokers must abide by Trade Practices Act, ASIC Act, Fair Trading Act and NCCP.

Mortgage Broker

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