When the market is hot you need to be quick and decisive, or as they say, you snooze you loose. So keeping this in mind here’s a few pointers that we feel will help you stay on track when you’re making those quick decisions.
1/ Discuss openly with your broker your short and long term investment goals, that way when you locate a property and you have some emotion creeping in, your broker can push back and challenge you, use them as a sounding board to keep you aligned to your original objectives.
2/ Know your spending limit and your borrowing limit. Two different, but equally important numbers. We all know most investment properties are negatively geared today and cost money to hold. We also know that banks will typically give you more money than you’re prepared to pay back. So in this low interest rate environment, know how much you’re comfortable with in holding costs per week, that way you stay within your budget boundaries, not the banks monthly lending targets. A good broker can show you how to work this out.
3/ Be careful with pre approvals and auctions. Not all lenders check and analyse your supporting documents at pre approval stage. If you plan on going to auction you need to be sure that they did do a credit check on you and they did confirm your ability to service the new debt. If you’re borrowing over 80% and need Lenders Mortgage Insurance, you need to know that the bank has spoken to the insurer as well. Only use lenders for auctions that do proper analysis. Be sure to ask the question.
4/ Avoid Cross Collateralisation where you can. It may be the easiest thing to do in the short term but typically will give you long term pain. There’s plenty written about this on the internet, read it and understand it.
5/ Manage your lenders; only expose yourself to $1 – $1.5m per lender. It’s a myth that the more you owe the better the deal. Most lenders sweet spot is in the band of $1 – $1.5m, stay here and experience better service, interest rates and product selection. Step too far over and you may experience unwanted conditioning to your loans like Principal and Interest being offered instead of interest only, or a shortened Interest only term.
6/ Know the lenders timeframes to settlement; they are not all the same. If you need to use a specific lender and they’re swamped with applications, allow for this in your settlement planning. Negotiate a longer period like 60 days. Purchases are cued first and it’s a first in first serve basis.
7/ Borrowing through your SMSF. Quite frankly this is not an area for novices, it is complex and costly mistakes are easily made. Ask your broker and your solicitor the question “Have you done a SMSF loan / settlement before”? Ask how many? If they’ve done less than ten, move on and seek an expert. Quickest way to find an expert in this space is through the broking industry body the MFAA, they certify individual brokers that have undertaken and passed the necessary training (It is quite expensive and involves more than 20hrs of study). These brokers also only use experienced solicitors and Financial Planners to execute your SMSF loan.
So if you have a purchase on your mind, pick up the phone and call one of my finance strategists on 1300 657 132.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors. Now recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost 2 billion dollars worth of residential and investment loans over the last decade.
Known for his straightforward, accessible style, David believes by educating people about their mortgages; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).