New Years Investment Loans

What Are You Investment Goals for 2011

The economy and the unknown of 2011 are heading our way and the lending and real estate market is still
stagnant and somewhat moving slow. we seem to have a two speed economy with north queensland and western australia booming with the mining, however the rest of the country is still just bopping along slowly.

If you were in the hunt for an investment loan or property loan its worth thinking about how the economy and the slow recovery could effect your job security and financial security. Just think and plan for the worst case investment scenario and like the thought of the best. Results are unknown.

Same old story, take care and protect your own interests.

Christmas Time And Mortgage Loans

Going For A Loan After Christmas

After christmas the economy will be in a unique position and the first two or three months will
show the colors of the rest of the year. Retail spending figures will be out soon and
we will see how people treated the big occasion and whether they are still looking to splurge or save

Setting aside money for an investment mortgage is hard at this time of year so having the pressure of christmas spending makes it
a huge hurdle. With a lot of hopes pinned on the economy having a better recovery in 2011, investments are slowly coming back in to
favor. Buying investment property is also looking like a better option with optimism about long term investments recovering also

Time will tell.

Mortgage Insurance Can Be A Killer

Mortgage Insurance Stops More Deals Than Anything

Having to front up with mortgage insurance can be a massive loan hurdle and

catches many potential investors out. It can amount to tens of thousands of dollars 

and is necessary to get a loan with a high loan to value ratio (LVR).

That said being able to borrow a higher amount can sometimes offset this cost. it is a true cost when working out you budget though.

It is a real tangible cost of getting a loan. With the current lending restrictions due to the global financial lowering borrowing, some nutrually come under 

the mortgage insurance threshold any way. Its a n unfortunate bonus either way!

Your Property Mortgage Specialists
1300 323 544
http://investment-mortgages.com.au/

Will Bank Reforms Help Mortgages

Bank Reforms All Talk and No Help To Mortgage Payers

The banking reforms do not seem to be making many waves in the banking world for all the hype.
The reforms will probably not even help increase competition with many saying its actually
going to just help thee big four banks!

This was some what emphasized in stock market trading with investors moving back in the the big four
banks who hold the majority of mortgages in Australia.
What many say we need is government guarantees given to the banks who actually need it! The big four are as stable as
ever and do not need any free giveaways from tax payers.

If we are going to ever have competition in the mortgage industry it certainly isn't going to happen any time soon with our current
reforms.

Investment Property Loans Here

Rent To Buy Mortgage Loans

What a rent to buy agreement means.

In Australia,  Investors are using an agreement to increase their cash flow and help blacklisted home buyers get into a property. they do this by buying a house, then writing a second mortgage to the tenant under a "rent to buy" agreement.

The investor gets more cash flow as the repayments and terms are slightly higher than the standard bank rates and the tenant get a loan without having to conform to the banks requirements to get a normal property loan. They could have had credit defaults previously so this is possibly one of their last options for home ownership
Its a precarious position to be in so lots of due diligence is well needed for both parties. Being in a home with taking a mortgage from a  standard bank has it advantages though.

http://investment-mortgages.com.au/

Interest Rates on Hold and Retail Spending in the balance

Is it going to Provide relief for Australian Battlers?

We had Interest rates left unchanged today which is huge relief for all the big retailers.
They were nervous with all the homeowners being very tight for money at the moment.
With all the past rate rises, people are not having surplus cash flow to spend at the shops and
are battling to make the mortgage payments.

January is going to be a big month for the economy with it possibly showing the way for 2011.
The rates will be left unchanged in January so the retail spending will pave the way for the February meeting of the federal
reserve bank.

The big problem still remains though, with all the successive interest rate hikes how are people going to
move forward if the property market is flat and their mortgage payments are continuously increasing?

Only Time Will Tell

Borrowing For Units and Apartments

Lending For Small Apartments and holiday units

 

Have you ever wondered every now and then, - “Should I purchase that unit or that studio apartment?”

Units and studio apartments are usually promoted with very positive looking rental returns and yields however that’s usually(but not always) where above average returns end.

 

This is some of the “rumors” you may of heard about them-: “The banks won’t let out money against small metropolitan studio apartments, You won’t get lending if the floor size is less than fifty square meters, University or student apartments are a no go, Some lenders won’t let you borrow money for units in large complexes, Hotel or motel conversions are no good, The location of the apartment within the block of units is important

 

Most of the time this is just “noise” some of these points are very true. Where there is smoke there is usually fire.

The recent global credit crisis has put a stop on a lot of borrowing overall and small units have not been protected from this

The most common stopping point is usually lender’s mortgage insurance (LMI).

They are the ones imposing all the restrictions that are passed onto the bank.

If you require Lenders mortgage insurance this is where the hard work starts

 

Points to overcome:

 Size: This may not be as important to the borrower, you would expect the LMI insurer to have minimum requirements on the minimum metered floor space of the unit. You should try to avoid any units with a square floor space of less than fifty square meters. It must be fifty square meters of proper ‘living space’ (not verandas and car parks etc). In some cases this may be increased down to forty square meters however the apartment would need to be in a “very good capital city location”. The Lender could not always require a floor-space requirement but mentions that Lenders mortgage insurance might be declined the loan for that reason.

 

Location in the development / complex. One important factor may be whether it’s in a good location in the development or if it’s at the dark shaded noisy rear corner of the complex.

 

Title. Strata/stratum title is usually ok, as are many ‘group unit’ mortgage titles.  Lenders mortgage insurers are not commonly concerned with business titles and will allow you lend, though they might lower the lending on your application.

 

Swapping from industrial or commercial to normal residential. Hotel apartments, holiday units and vacation apartments (commercial) lettings other than residential units fall under completely different lending specifications (it could be even commercial). When they are being adapted the one of these you might not get lending until the conversion is finished with the provision it meets all council’s requirements and the banks standard requirements, most banks will go ahead however there may be a reduced loan amount or restrictions on Lenders mortgage insurance. The banks decision with all of the requirements are that you are depending on the management company performing to a high standard and looking after the apartments.

 

 The amount of units or holiday apartments in a new complex: There might be a cap on the amount of apartments within the one development that you can put up for mortgage insurance.

The bank may cap your borrowing on 6 units in any one new complex or even not allow lending for more than 25 per cent of a new development

Here are some more requirements you may need for getting that loan:

-More thorough valuation inspections and reports.

-A call for additional or cross-collateral security.

-A lower Lending to value ratio (seventy to eighty per cent maximum, although some, usually nonconforming banks, only go to sixty per cent) –and higher deposit required.

-Reduced maximum mortgage amount.

-Reduced consideration of the rental income to allow for longer vacancies.

-A call for additional or cross-collateral security.

-The lenders mortgage insurance will be more pricey if even if offered .

-An actual full rejection of application if it all goes wrong!

 

The basic principals of property investing still are the priorities, not always the mention that there’s a small unit or apartment. There are a lot of small holiday units and apartments that have more than doubled or tripled their value in the last ten years. The apartment might have very good yields, low rental misplacement's and be in a prime inner city location so some time and effort in the loan and research during could be worth it!

 

Have a lending question?  Contact Us Here and let us help you.

Why Not Cross Colaterise Your loans

Why not to cross collateralise your investment loans

Cross collateralisation occurs when the bank uses the security for one loan to secure another loan. What you want to aim for is to have any property you own, investment or otherwise, financed with free standing finance

How cross collateralisation Can It Help You (rarely).

For property investors just starting out, using your home equity can help you get your first investment property most easily. The advantage of using cross collateralisation is that you can borrow 100% or more of the price of your next property plus the costs of purchasing (usually about 5% - 6%).

 

The reasons for not to cross collateralise are numerous and extremely important. Here are our top ten to help your finance strategies for moving forward and decreasing your risk.

1)      The banks decrease your overall servicing/lending ability the more loans you have. The cost of one rental vacancy may be able to be absorbed, however three rentals vacant would be crippling. Your LVR’s may still be conservative however its higher risk to the banks the more you have.

2)      They could force you to sell down some of your portfolio if unforeseen circumstances arose as to maintain their computer generated margins and formulas. Refinancing or a line of credit might be the best short-term option, however the one bank that controls everything might not make this available.

3)      You’re not necessarily having available to you the most competitive products on the market. Terms of the loan and interest rates are going to be hard to negotiate if they all ready have you in the door. They may even limit you to principal and interest only to pay down some of the debt. Taking your business elsewhere may motivate them to keep you through re-negotiations though!

4)      You might not be able to utilize great products like low-documentation or no-documentation if your bank knows through your current loans that you have a paying day job that limits your ability to borrow/service more debt.

5)      In the unlikely event that someone sues you, if you have all of your properties crossed (especially with the one lenders) this could leave the door wide open & you could loose the lot especially if you have a lot of overall equity. Not many people like to have all of their properties/loans with the one bank. This is why it is always best to speak with an accountant & solicitor to make sure you are covered in case something like this happens.

6)       If you want to realize some increased equity when properties have grown in value you need to have your whole portfolio revalued (multiple valuations instead of one, again an additional and unnecessary cost).

7)      When you sell a property in a cross-collateralised structure you may not see any of the funds as the bank may request some or all of it to go back in against the existing loans to strengthen their position. They don’t need your permission either. Picture this you’re releasing one of your properties for an opportunity or worse still a bind, and the bank deducts funds to strengthen their position. Where would that leave you? We have seen this happen to some very asset strong and successful property investors. Answer given, Bank Policy!

8)      When you sell a property you have to resign all of the existing mortgages. Extra unnecessary paperwork. You can’t simply just sell the property and release the title to the vendor – 9 times out of 10 you need to re-value ALL properties that the secured against the property your releasing which means extra valuation fees, time & the existing loans usually have to be kept UNDER 80% LVR (or sometimes 60% LVR if its LO DOC)

9)      Buying across state boarders you are subject to mortgage document stamp duty of that state, this in itself is OK, but when you have other properties as security for the purchase, regardless of the state they are in you may have to pay the mortgage document stamp duty on the entire loan amount, rather than just on your purchase price. This could triple your stamp duty costs!

10)  The biggest disadvantage of crossing your collateralisation is that it ties you to one financial institution. It is so much harder to move banks, if you no longer like or agree with their service or lack of.  Control- The one bank can literally have control over your entire portfolio. You wouldn’t hand control over to your hairdresser, so why would you to a bank with no interest in your property goals and aspirations?

Its not to say your current bank is bad, they may have served you well for years, but you now have to ensure your best interests are looked after here and your current bank may not be able or willing to meet your needs going forward while still ensuring their own profit margins.

Banks will naturally assume that you are going to cross collateralise your home to purchase your investment property. By asking that the equity you have in your home or other real assets be made available to you as a LINE OF CREDIT you are put in a much more flexible position.

 

Remember cross collateralisation can bring your real estate investment financing plans to a standstill.

 

If you have any questions about your current loans, possible new loans or just want a friendly chat Contact Us Here.

The benefits and Downfalls of Negative Gearing

The benefits and Downfalls of Negative Gearing

 

One of the biggest hurdles in purchasing the first investment property is getting your head around the fact it may be “losing” money every week. What is called negative gearing is the fact the cash flow of the property is negative-Its holding costs are more than the rental income. This may be the first and biggest stopping point for many.

 

However it’s simply the nothing more than the cost of doing business short term. If your $300,000 property was to double in value in ten years (assuming the traditional cycle time), would you look back and stress about the $5000 in the first year, $4000 in the second year it may have cost you initially? I’m in no way saying that it is insignificant because it is very when it comes straight out of your wages or income!!

 

If you worked out how much per week your investment property grew in value per week by doubling every ten years I’m sure it would far out way the short term negative gearing.

 

There is really only one benefit to negative gearing-Tax deductions.

An income-producing asset (rented investment property) that has negative cash flow is allowed tax deductions that can be passed on to your personal tax return.

 

Example

 

$300k Property

 

Expenses (p/a)

                Loan Interest = $21,000

                 Rates            =$2,100

                 Management=$1,165

                 Insurance      =$600

                 Maintenance =$500

                 Accounting   =$400

 

Total                              =$25,765

 

Income

               Rent               =$17,160

 

Shortfall                       =$8,605          =$165 per week

 

Property Doubles in ten years             =$576 per week

(600k – 300k = 300k / ten years/52 weeks)

 

So by thinking short term is not really that beneficial in term s of building up a sizable portfolio. Managing your cash flow from day one when its negatively geared can only teach you good habits on how to budget well and will set you in good stead for in time when the rent does double and the cash flow is in fact positive! You are only buying time in the market to hold your hopefully appreciating asset.

 

Still doesn’t seem like you can afford it? Just think- What else do I spend my money on that goes up in time with being able to borrow with such great leverage like investment property?

Credit cards? Holidays? Cars? Clothes?

 

Need help calculating your borrowing cash flow?  Contact Us Here for your help.

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Why Use Property Managers?

 

Many people cringe about the cost of using property managers to manage their investment property. Mostly because of the 7-8% commission they charge.

 

The benefits for the advanced property investor though far outweigh the somewhat small cost involved.

Here’s just some-

-Time!! Who wants to be phoned up that the toilet in the investment property has sprung a leak on a Sunday just before the footy starts?

-The huge advertising resources they have if aligned to a real-estate company when it comes to finding a good, reputable tenant.

-The professional and unemotional approach to what is essentially a business when making tough decisions regarding breaches etc.

-The local knowledge they possess if you are an interstate investor-this alone could be priceless!

-The legal know-how required when things don’t go as planned and court hearings are required.

-The “passing of responsibility” in regard to outsourcing the management and relieving yourself of direct risk against lawsuits and personal indemnity.

-And best of all, it is tax deductible!

 

The most important part of the management process is selecting a well-qualified, competent team to take care of your all-important asset so you can focus on the important things like how to get into the next one for example.

Here are some tips:

-Getting independent testimonials from current and past customers is a good starting point, all happy with good recommendations?

-Ask for a list of currently managed properties and drive by them to check how they are maintained and cared for, lawns mowed and garden tidy?

-Ring them on a busy part of the day about something trivial and see how they respond, helpful and interested?

- Ask them about their local knowledge and see if it compares to the research you have done? Do they know accurately the yields and expected vacancy rates?

-Have a look at their office desks and also the back seat of their car? Tidy and organized or a mess?

 

Don’t ever compromise with the management of your property, as it is priceless to have peace of mind that it is in safe hands!

Check out one of australias smartest mortgage brokers
http://investment-mortgages.com.au/