Investors Direct - Investment Property Advisory Firm
Investors Direct are a full service financial services firm focused on growing wealth through property investing in Melbourne, Sydney and Brisbane. Our mission is to help our clients achieve and maintain their financial freedom.
Banks have already passed on a forecast of a rate increase to investors and tightening lending conditions, with many lenders forcing ‘principal and interest’ repayments onto investors whose loans fall out of ‘interest only’ positions as we spoke of in recent months.
This all said, it’s never a bad time to review and ensure you are getting a good deal.
Call us today and discuss how the RBA decision affects your situation with one of our experienced Mortgage Advisors on 1300 663 836 or email email@example.com
Last month we introduced the concept of Duplex properties as a means for investors to improve their income position for finance. Following along with our DIY theme for this month, let’s explore the subject a little further using this new aspect.
Let’s start by saying that it’s perfectly understandable that investors want to get the best results they can, in fact we believe it’s their responsibility to do that. What we want to be clear about is the difference between a DIY strategy and one that is supported by a Professional Property Advisor. By that we mean professional, as in someone who is paid to help.
Clearly, there are thousands of properties for sale around the country at any one time and logically there must be at least one that suits each investor’s situation. Well, what are investors looking for when they begin searching for properties by themselves? We have all heard of the phrase, location, location, location and there is no doubt that suitably located properties perform well. How do you find the methodology needed to target a suitable location that fits your budget? More importantly, where would you start?
Obviously, you could start with price. That measurement would definitely ensure that each property is one that you know you can buy, as long as you know your price range to start with. Of course, using such a wide search parameter means you would be comparing properties from all over the country and you would need to have some knowledge of the areas you want to buy in to make a decision. You can see then, that this would mean a lot of research.
To make it easier you could subscribe to some of the property websites available that promote their ability to predict property values around the country. Some even have a selection of charts of suburbs that are doing well based on specific criteria. The downside of these sorts of lists is that, in the past, a lot of mining towns were highlighted as places to buy based on statistics. From our point of view, despite what the growth rates were indicating, we never advocated these areas to our clients.
Surprisingly, personal bias can also play a part in selecting property using a DIY strategy. Sometimes it can be difficult separating performance from prejudice when it comes to property or even location. For instance, when we first proposed Point Cook as an investment opportunity there was a lot of scepticism around the location however this suburb has since proven to be very successful despite the initial negativity.
Do you search endlessly for what you want? Selecting a property can be confusing so some inexperienced investors start out buying their first investment property close to where they live. The reasoning is usually so they can always drive past it to make sure everything is all right. Plus, they feel they know the area well because they live there and a tenant should like it too. DIY strategies usually contain anomalies like that.
Fixed fundamentals for investing are often not adhered to stringently with DIY strategies, which can undermine the potential of their portfolio. Research can be a time consuming and frustrating activity.
Knowing where to start and what factors should be considered are usually learnt by experience. Of course you can gain experience by making mistakes but property purchases are expensive and a mistake can cost a considerable amount of money.
So how can an investor avoid mistakes?
Well, unsurprisingly the answer is quite simple. Discussing a DIY strategy with a Property Advisor can provide some certainty. Combining the best elements from your DIY plan and tweaking it with advice from a professional can be the solution you are searching for.
Using a professional Property Adviser can cut down the time it takes to sort through the available options because rather than trying to find a specific property, an Advisor can ask pertinent questions to determine what you are actually trying to achieve. This type of information is far more important than a mere postcode because it will match your goals with your budget. The Advisor can then focus in on where to buy, from an investment perspective, to achieve these goals.
Coupling the Property Advisor skill set with a Finance expert and a Financial Planner all in the one meeting creates enormous efficiency. We have found this reduces a lot of leg work and aligns the purpose of these areas of advice.
So, why not take some time this weekend to sit down and really get clear on what you want from a property. Make a list of the points you think are important in a property investment and also the things you want to steer away from. Believe it or not, knowing what you don’t want is just as enlightening as knowing what you do want. Actions like these help to clarify what you want and you’ll find the information extremely valuable when it comes to talking to an adviser.
A DIY strategy can work though we feel that using a professional property advisory service to give it some “weight” makes more sense in the long term.
To discuss your strategy, make an appointment with one of our experienced Property Advisors today.
Some people think that DIY gives you control. After all, when you are doing something aren’t you therefore in control of it? For example, let’s say that right now you are investing where you want, buying the asset classes you want and taking any appropriate measures to keep on track towards your preferred result. Most people would accept that this is control as we generally interpret it and leave it there. However most people would be open to making the same mistakes over and over again. Unfortunately, DIY might work for building a deck or any other number of handyman activities but when it comes to finances, your hard earned money deserves total control. That might sound a little confusing so let’s explore this a little further.
To start with, let’s take a closer look at the notion of Control.
Control could apply equally to the doingness part of the activity as it can to the result part. For example you could be in control if you purchased shares yourself or you could be in control by seeking professional assistance to ensure the result is what you want it to be.
It’s this link between doing and achieving that often gets muddled together. People sometimes think that doing equals control. DIY is doing it yourself. There is no result mentioned at all. I could lay row upon row of bricks, easily achieving the doing part of DIY but if the rows of bricks don’t look like a straight brick wall then my result is in question. DIY is popular because people love to do things but the result is rarely considered at the planning stage. The same applies to investing.
Do you want your share or property purchase to look like my wonky brick wall or do you want long term pleasing results?
Taking control of the result gives you real control. This form of control allows you to set the terms of the result because it frees you up from doing. In the same way as buying a chocolate cake gives you control over the result and removes the necessity of doing the actions of making the cake. You controlled the result by choosing the cake you wanted. In our financial example, the doing part becomes more directional by seeking out and choosing a professional to help with your result. The professional completes the doingness part.
The same can apply to your plan for retirement. Do you have a plan or a task to be completed?
Are you falling into DIY mode for your financial future by doing it all or at least thinking you are doing it all? If you are, how can you be sure you have the skills to do a better job than a trained industry professional? You could learn of course, but you see, learning on the job means mistakes will be made because that’s often where the learning part comes in. We learn from our mistakes. The trouble is if you make a mistake it’s your money that you are risking and although it may be recoverable if you have enough time, if you don’t the result can be permanent.
Think of it this way. What is it that you want? This type of question can be revealing although it could open up a line of thinking that may take you only part of the way to the answer. We think it’s more instructive to ask a different question.
What financial outcome do you want and how do you get it?
Can you see how this question is more specific and forces you to think directly about what you want your plan to be? At the same time, you also have to start thinking about how it can be achieved and for some people that is the scary part.
We believe that starting with the end result in mind and comparing that idea with where you are now should make it crystal clear what has to be done to achieve the desired result. The problem that emerges is knowing where you start to formulate a strategy that gets you there and how successful you’ll be in following that strategy. You see, while it’s easy to formulate a strategy if you know how, it’s not so easy to stay the course when things get tough. It’s more difficult to hold yourself accountable to yourself because you will be easy on yourself when you make excuses for not following the strategy.
You have to be the cause of your financial situation not the effect. You have to make it happen and that means taking action. It does NOT mean you have to do it all by yourself. Some people think that taking action is linked to doing everything for yourself, hence the term DIY. Don’t be misled, choosing professionals to help you achieve your goal, or even help you define your goal is still taking action.
Today you can take a simple action that we are certain will benefit you more than most of the other things combined. Take some time and write down your goals. If you have a partner this task is best done together. Ask yourself the hard questions. How much money do you want as an income? Think about the type of lifestyle you would like and write it down. Once you feel good about what you want, that’s the time to map it out and if you need help a good financial planner provides great support.
We recognise the difficulties most people have in formulating a plan. That’s why we created a new style of workshop where you can learn how to understand where you are now and identify what’s needed to get to where you want to be. If you ever wanted to know what was stopping you from moving ahead, this workshop is for you.
The earlier you begin creating your future, the easier it will be to achieve.
Some people think finance is just an interest rate. On the surface, it’s hard to fault that logic because you have to pay the money back PLUS interest so the interest rate component should be a focus. When you have that view, nothing else matters. In fact this may well be the majority view for most Australians.
For an investor though, the interest rate is not the most important aspect of finance. Let’s see if we can discover why interest rates dominate the minds of average Australians.
If we look at what’s advertised in the media it becomes more understandable. We are bombarded with messages about saving money through sales, we are encouraged to buy the cheapest products on offer, we are told we can spend less when we buy and we listen intently when most advertisers talk about their product or price being the cheapest. Is it any wonder we apply the same thinking to finance?
To be fair, for most people, finance is a once off transaction. Borrowing and buying become blurred when the emotion of a house purchase is entered into the mix. Do Owner Occupiers think that they are buying a home loan so they should employ the same thinking to borrowing as they do to everything else? Possibly.
It follows then that borrowing the least amount of money possible would be at the forefront of a person’s mind because it’s bound up in the ‘cost is everything’ thought process. More borrowing means more interest cost so why do that? Why indeed.
Houses, cars, furniture, shares and food all have a price and we know from the old adage “you get what you pay for” that cheap doesn’t mean good. This leads on to another aspect affecting DIY finance strategies.
When cost is the focus, inexperienced investors see negotiating the interest rate and costs as the best way to obtain finance, for them. The Lender obviously looks at every loan with the view of what’s best for themselves and the borrower is incidental to this view. So if the interest rate is so important, why does the bank give it away so easily? I mean, the rate is even important to them, because it’s their income.
Think about this for a moment. Would you give up your income so quickly?
Banks have rules and regulations around how, where and when they will lend. As long as you meet those rules they will lend to you. These rules, called Credit Guidelines, are there to make sure the Bank is protected from Risk. By the way, you are the Risk in case you didn’t know it. Risk is what the Bank fears because it reduces profit if they happen to get the mix wrong. So, as a consequence, they limit the Risk by making rules about lending you money. Every Bank has these rules and regulations but there is a trick involved. They are not all the same and they change constantly.
If we accept that the sole limiting factor for any investor is access to money then surely understanding the ebb and flow of these Credit Guidelines is critical.
Negotiating this maze to get access to the most money is a job for a professional. Someone who is involved in finance day in and day out, someone who sees the changing Credit Guidelines when they happen.
A DIY finance strategy is usually based on approaching the Lender with the lowest interest rate but without any knowledge of the latest Credit conditions. A Professional on the other hand will consider all of the person’s circumstances, now and into the future, before approaching any Lender.
With that in mind, why not take some time this weekend to gather up all your information and, if you haven’t already done so, create a spreadsheet that you can update on a regular basis. Keeping track of simple things like rental amounts and repayments go a long way to demystifying cash flow performance in your investment property portfolio. Other details like the date you purchased and the price can be seen as the benchmark to calculate growth and identify available equity when combined with a current debt position. Take the time to get the fundamentals right.
We bring this up because rising interest rates are a constant source of discussion these days and how you react is a good reflection of how much control you have. There are two ways to look at your finance position.
You can be Reactionary or you can be in Control.
As you might guess, being reactionary means that you are subject to outside influences and are constantly measuring your position against any and all changes. This can be a symptom of a lack of confidence in what has been set up previously or simply just a focus on reducing cost. Either way, DIY finance strategies generally fall to the reactionary side because of a lack of a useful financial strategy.
Conversely, control is usually favoured by investors who incorporate professional advice. Finance is an area where advice can make a big difference to the growth of the overall portfolio. A logical and sensible approach to finance can mean more money in reserve to take advantage of other opportunities or to meet an unexpected emergency without stress or the need to sell.
A plan looks to provide the desired result in a given timeframe by undertaking a particular set of actions. It isn’t usually about chopping and changing positions. While DIY finance can control the action part of the process it doesn’t add to the control of the result.
When it’s all said and done, Professional advice for an investor can provide the necessary control for a desired future result.
Isn’t that why we invest in the first place?
By attending our new interactive workshop you’ll discover the Five Barriers to financial success and how you may have unwittingly included them in your own DIY strategy.
Why not make an appointment with one of our experienced Mortgage Advisors to discuss how a dual occupancy property could benefit your portfolio:
When you first start out there are so many opinions about how to do it, where to start and what’s the most important that it can be very confusing for a beginner. Everybody seems to have tips for property investors, whether they are investors or not! Things like taxation benefits, cash flow positive properties or capital growth properties. Follow along with us as we make it easy for investment beginners to understand how to invest in property.
Planning – The most common mistake property investment beginners make is to rush in and start searching for properties, thinking they have to buy something before they are all gone, or at the very least, before the price goes up. What tends to be missed is that the most important part of investing lies in the foundation. Any builder will tell you that you have to have a solid foundation on which to build. The same applies to your investment journey. Before you do anything it’s wise to understand in your own mind why you are investing in property because once you do understand you can move forward with confidence. So before you buy your first investment you have some thinking to do and the more time you spend now, getting clear on your reasons for investing, the stronger your foundations will be.
Budgeting – A budget is a great way to start understanding your financial position. It’s a good idea to learn how to understand and control your money first so you know where it’s going before you start allocating it to areas you may not be sure of. In fact, a budget will clarify if you have money available to support your first investment property. It will also identify any areas where you could cut back to improve your savings for example. Contrary to popular opinion, investment properties are not a set and forget asset, you will have to learn to be orderly with receipts and expenses so the experience at Tax time is a pleasant one.
Borrowing – the next step is to confirm your borrowing capacity. This is best done through a Mortgage Broker which may surprise some people but the reasoning is quite simple. A Mortgage Broker has access to lots of different Lenders who can meet your specific needs. Most property investor beginners go to their Bank of choice and believe they can negotiate a low rate. In their eyes this equals a good deal. The trouble is, money, not the interest rate, is the primary essence of a good deal and a Bank can only ever provide you with a limited amount of money. The money is determined by their Credit Rules and lending capacity calculators so all they have is the rate. Brokers on the other hand have access to numerous Lenders that may provide more money than your own bank is capable of. Investing is about having money. Money to buy property and money to hold property. Compromising on having money because of the interest cost is a lesson that must be learnt early on. The more money you can borrow means the more of your own money you can hold on to.
Assemble a Team – Have you decided on who is going to help you to build a property portfolio? Are you going to assemble a team of experts or will you try to do everything yourself? Doing it by yourself will save money in the short term but paying for the advice of experts will pay off in the long run because they have the experience, knowledge and skills to help you avoid any mistakes. You’ll need a property advisor, a Mortgage Broker, a Financial Planner and a Solicitor or Conveyancer. All of these people make up your team. They will provide the experience you haven’t built up yet. Understand though, that you will have to pay them.
Buying – Only after the previous steps have been completed successfully should you start seriously looking at buying something. Speak with experienced Property Advisors who can follow the property investment strategies you have agreed on with your Financial Planner. Beware of the Real Estate Agent when you are looking to buy. Do not rely on the Agent to educate you on whether a property is investment quality or not. The Agents one and only job is to sell the property for the Vendor at the highest possible price. Your job is to identify the location and type of property to look for prior to organising an inspection on anything you think is suitable. Of course if you have a team behind you they can advise you on the ways to pinpoint suburbs that meet the important Value Criteria.
At Investors Direct we value our clients by educating them on the finer points of being a property investor. Why not call us today and find out why Investors Direct is the home of property investors.
What have puppies and money got in common? Join us as we take an irreverent look into the serious subject of savings and property investment.
How much savings do you need for Mortgage deposits? Most people think that knowing how much is the place to start BUT they would be wrong. The place to begin is to work out how much you CAN save. Knowing how much you can save gives you a framework with which to start your deposit savings. Look at it this way, if you knew you have to save $50k for example without knowing how long that would take or even if you have the capacity to do it, some people might not even try. Let’s be honest, $50k is a huge amount to be confronted with and just the size of that number may stop some people. So, we can see that deposit times and savings capacity are linked.
Think of it this way. If you know you can save $2000 a month then you will have that money in 25 months. Now you have a timeframe for when you will HAVE that money. In fact, with the miracle of compounding interest and the diversity of investment products available, it should be less than that. Saving a deposit becomes much more realistic.
The amount of money you can save will always be unique to your situation but that doesn’t mean you shouldn’t challenge yourself to achieve a better result than you thought possible. Is the amount you are saving now the maximum you can do or is it just what you end up with after you pay your expenses?
How do you know what you can really save?
The way to know is to identify where you are spending it. Then you can make decisions about what is important and those decisions end up as a budget. Your budget gives control and control is something that you need to make your money work for you so knowing how much deposit can be dealt with more easily.
You see, your money is like a puppy. If you don’t train it to obey your commands it will do what it wants. Putting a budget together is like having a set of commands that your puppy learns to respond to. A budget then, is like going to Puppy school. If you train your money, look after it and nurture it, it will grow.
Tip number one is to treat your money like a puppy
Puppies respond best to love and attention. They like to run around and play and they love you playing with them. When you first start saving, your money won’t grow quickly. That’s just because it’s small and it takes a while before it’s big enough for the returns to become significant.
That doesn’t mean you shouldn’t look for the best returns you can get for your money. Don’t ignore it because it’s small, pay attention to it and nurture it while it’s growing.
Tip number two – pay attention to your money while it’s still small
Puppies need to be fed every day. It’s a habit you quickly get into. Just like cleaning up after them, making sure they have fresh water. Making feeding time a habit makes sure that your puppy won’t miss a meal. Habits are good for savings too. Saving regularly means your money is growing and the longer you have it the more interest or return you will see. If you are regularly putting money into your account, don’t neglect this aspect of your saving.
Tip number three – feed your savings regularly
At some point you should see a Vet. Not because your puppy is sick but because it’s wise to have him checked by the Vet to see if you are treating him well. Is he getting the right amount of food, water and exercise? Your money shouldn’t be overlooked either. After a while of being in the habit of saving, growing your money, nurturing it and looking after it as best you can, it’s time to see the Vet. In your money’s case though, the vet is called a Financial Planner. A planner will talk to you about what you want to achieve and help you with your goals. Your planner will help you to keep your money healthy just like your Vet will keep your puppy healthy.
Tip number four – see a Financial Planner to keep your savings healthy and strong
Occasionally your puppy will have accidents. Some you can clean up, some will leave more permanent reminders unfortunately. The same may happen to you and your savings. You may be tempted to invest in something that sounded too good to be true and instead of a reward it leaves a pain that’s hard to ignore. Accidents are for learning. Sometimes we need to have an accident to see why something wasn’t the best course of action. Puppies learn fast and you can too. Stick to what works and understand that experience comes from making mistakes.
Tip number five – Accidents may happen but they can be a useful experience
One day you will notice that something has changed. Your puppy isn’t so small and clumsy anymore. When you go for a walk your puppy walks with you, just like you trained him to do and he doesn’t bark at every car, bird, postman or other dog anymore. He doesn’t weave madly back and forth in front of you while stopping to smell every power pole or letterbox along the street. Instead, he obeys your commands and for a moment you are surprised, not because he is so well behaved but because the time it took to get to this point has gone so fast.
One day you will go online and check your account, just like you do every month. This time you notice something has changed. As you scan the transaction list you’ll struggle to understand but then in a moment of clarity it dawns on you. You have reached your target. The money you dreamed of a mere two years ago is there, right in front of you. For a moment you are surprised, not because you got there but because the time it took to get to this point has gone so fast.
Our Financial Planners love helping people reach their investment deposit goals. Why not make an appointment to come in and have a chat today?
As each month goes by and the Reserve Bank makes no change to the official cash rate, we get closer and closer to the next movement upwards. The vast majority of experts believe this to be inevitable and our view is very similar.
Besides, investors have been experiencing increases from the Banks for some time and the majority understand that increases are not to be feared because there will be opportunities arising from this next phase.
We believe that being prepared for change makes taking advantage of the opportunity more likely.
How prepared are you for what’s coming? Have you reviewed your budget recently and taken control of your cash flow? Have you maximised your reserves by refinancing and restructuring? At the very least you should have an understanding of what an interest rate increase would do to your cash flow.
Call us today and discuss how the RBA decision affects your situation with one of our experienced Mortgage Advisors on 1300 663 836 or email firstname.lastname@example.org
When APRA decided to intervene in the property market by forcing the Banks to curb their investment lending growth, the end result was much more than just slowing the market. It was obvious to anyone interested enough to look that this aim could have been accomplished very easily using specific measures targeted directly at the centre of the heated market, namely Melbourne and Sydney. Imposing temporary LVR limits would have addressed the issue quickly with no other changes being necessary unless other outcomes were intended.
Think about that. Why has every single investor in the country been hobbled by the regulators simply to slow down the market in two capital cities? It doesn’t make sense. The regulators intent was clearly something more wide ranging.
It has been suggested that the existing household debt levels across the country are the main cause for concern by the regulators, especially borrowers with little or no cash in reserve. That’s understandable but is it the regulators job to remove investor risk from the market?
Anyway, let’s take a look at what finance conditions are we working with as investors. There are limits on High LVR’s (Loan to Valuation Ratio), in fact most have virtually disappeared while I/O (Interest Only) now carries a premium compared to P & I (Principle and Interest)which is a direct result of the Banks pricing. At the same time O/O (Owner Occupied) properties have also been lumbered with interest rate margins for I/O and lower LVR’s are the norm now. Borrowing capacity calculators have been adjusted to reduce borrowing power so that equity has now been surpassed by income as the dominant force in borrowing.
Does this look like the actions of a regulatory body trying to slow the market?
All of these changes have one thing in common. They limit the ability of an investor to create wealth through property to the same extent that was possible before. Your ability to create wealth through property is effectively worse today than it was 5 years ago, using credit guidelines as the ultimate measure. Clearly then, increasing interest rates combined with tighter serviceability calculators effectively means income is what’s needed to counterbalance the direction APRA is pushing.
Now we know that, the question becomes somewhat easier to work with. “How do I generate more income from my investments?”
Data forecasting what the future looks like for the property markets highlights low growth for some time to come. What can property provide to an investor to fill the long term income need, or more accurately, what type of property is best suited to fill that need?
Considering the measures APRA has put into place to stifle investment, we believe there is a clear loophole that investors can use to get back on top of the property ladder.
The answer, we believe, is Dual Occupancy or Duplex properties.
Now these types of properties are not new, in fact they have been around for decades, but what is interesting is the way investors can use them to shake up the existing tough conditions they face.
A dual occupancy is simply a property with two sources of income and that means two dwellings or liveable areas. Some Councils will allow a three bedroom and a two or one bedroom apartment to be constructed on the one property. Rental returns for both the short and long term are superior for that reason and this helps investors to generate more income per property.
Dual occupancy properties have advantages over single dwellings too. They produce more income obviously, because they have two lots of tenants and twice the income gives you an improvement when dealing with the Banks capacity calculators because the property has more income.
Imagine the cash flow from having multiple dual occupancy properties inside your portfolio.
Dual occupancy properties are two separate dwellings on one title so, in theory, down the track you could look at sub dividing them to create two separate houses, thereby increasing the value of each property. When you are looking to buy you can make sure that dividing the property into two parts provides two quality homes, rather than one home and one granny flat for example.
As usual, knowing what you will end up with is vital.
Dual Occupancy properties provide plenty of options for reducing debt if you wanted to. Higher than normal cash flow is a very attractive proposition in the current market, especially when you are creating equity and reducing debt.
Naturally, because you are buying two houses on one title there will be a higher purchase price but the benefits are very attractive all the same.
Opportunities to own these cutting edge dual occupancy dwellings are available right now. Why not talk to one of our Property Advisors today and see how you can benefit from boosting your cash flow quickly.
For a personalised overview on your portfolio or to discuss your next purchase, make an appointment with one of our experienced Property Advisors today.
Finance revolves around two main issues. Serviceability and Security.
Follow along as we look at how these impact on potential Dual Occupancy Property financing.
Serviceability is the testing of your financial position against a set of specific parameters mandated by the Bank. How you fair against this test depends on your particular situation. By any measure income is the key to meeting serviceability standards on all levels because income provides the means to cover your commitments. In addition, your income provides reserves for any unexpected expenses. It is this ability to meet the Banks servicing standards that will ultimately determine how much of a loan you can get.
All other issues are secondary. For example, you can have the best property in the best postcode and the most stable and secure job but if your income is not enough to meet the Bank’s required minimums, they just won’t lend. It’s really that simple.
The conditions under which you borrow are not tied to the interest rate advertised by the Bank. Let’s get that perfectly clear. Just because low interest rates are advertised doesn’t mean credit is flowing freely nor are Interest rates an indication of your ability to borrow either. The relationship between commitments and income and what guidelines the Bank has in place relating to your circumstances is what determines your capacity.
Income remains the key to leveraging property.
In the current environment income unlocks serviceability and access to equity requires higher and higher levels of income due to the tightening criteria used on borrowing capacity calculators. To match the stricter criteria Lenders are applying, the main focus for the investor, should be to increase income.
There are two main ways to improve your income.
You can increase your salary by earning more and you can reduce debt. Both options create the same result which is a better balance between earnings and expenses. You could earn more by getting a raise, changing jobs for another better paid position or increasing the rent on your investment properties. Reducing debt would mean repaying loans or selling property in your portfolio.
As an example, this could involve something like selling an underperforming property and replacing it with another property with superior rental yield. Is it time to move with the times and adjust your holdings to reflect the new regime or do nothing because the Banks are making it tough?
Where do dual occupancy properties fit in?
Dual occupancy properties create more rental yield than other residential types so immediately you should be in a better position than before. Another plus is that the general lending criteria is basically the same for dual occupancy properties as for other residential property.
Assessing your financial position and determining borrowing capacity is the first thing to do. Keep in mind that I/O (interest only) loan products over 80% LVR (loan to valuation ratio) are hard to find these days so it’s reasonable to consider P& I (principle and interest) if you need a high LVR loan.
Banks therefore price their products to funnel potential business to P&I rather than I/O.
This slow push to P&I has been brought about by APRA forcing the Lenders to regulate their investment lending levels. The explanation by APRA that P&I results in growing equity in property is correct but equally misguided as the extra funds would be far better utilised by reducing Home Loan debt.
However, it seems inevitable that regulatory change will bring about P & I as the new normal. In the interim, investors should get used to the constant changes.
Obviously, Lenders like to verify everything so make sure you have separate leases in place for each tenant of a Dual Occupancy property and it is a good idea to have separate rental estimates. It’s also important for the property to have separate metering to enable separate billing of gas and electricity. All of this is to demonstrate to the Lender that there are indeed two separate dwellings, even if they are under one roofline.
This brings us to the next issue that plagues investors. Valuations.
Dual occupancy can sometimes cause valuers some consternation even when a Contract for Sale is provided. That’s because normally, valuers are looking for comparable sales, similar properties that they can use to get an idea of the value in that location. As you can imagine it may be difficult for a valuer to hang their hat on a value for which they can find no direct comparisons.
Difficulties with valuers is nothing new in this current environment so overcoming the issue is the same as normal properties.
This emphasis from the regulators to pressure the Banks into reducing Investment and I/O Lending means investors will have to conform to the new regulations. How long this will last is anyone’s guess but with long term growth rates predicted to remain low, the urge to improve one’s financial position remains strong.
Finding ways to continue to invest, no matter what the economic environment dictates, is always on our minds.
Let’s face it, there are two avenues open to us at the moment. One is to find solutions to the obstacles of the day while the other option is to do nothing.
Why not make an appointment with one of our experienced Mortgage Advisors to discuss how a dual occupancy property could benefit your portfolio: