In virtually any property market, it’s possible to find investment opportunities. But what happens when, as we’re currently seeing, finance regulations threaten to inhibit your potential to grow a wealth-producing portfolio of high end housing assets, even though credit is so compellingly cheap?
Many property investors face the reality of restricted borrowing capacity, even though now is the perfect time to make that proverbial hay, while the sun is still shining in the form of low interest rates.
Of course lenders have obvious legal and ethical obligations to ensure borrowers can repay the debt they apply for, but some of the restrictions investors currently face to the continued growth of their asset base have little to do with how the numbers stack up on a loan application.
Australia’s lending landscape was fairly cut and dried prior to the 2008 GFC. If you could prove sufficient cashflow and capacity, you could get your hands on housing credit quite readily.
Post-GFC however, everything changed. Lenders demonstrated less generosity with their funds in the immediate aftermath and tighter application criteria was applied to all who sought a mortgage.
As occurs with the passage of time however, things changed again…and some six years on, we found ourselves in the midst of an investor driven housing boom where the banks were seemingly handing out loans like lollipops to anyone looking to buy up bricks and mortar assets.
This invariably led to talk of bursting housing bubbles, causing an increasingly skittish Australian Prudential and Regulatory Authority (APRA) to flex its own regulatory muscle, and in turn, banks to up retail rates independent of the cash rate and tighten up property loan application criteria once again.
The truth is, the change occurring in today’s financial world is generally rapid, leaving many reeling in its wake. Politics is no different. Everything just seems faster and more extreme because the world is such an interconnected place. And it all happens in real time…hence more of the reeling effect!
Putting aside much of the external noise and chaos exerting influence over the markets is a good place to start if you want to continue to invest successfully in this new era. Don’t bury your head, but don’t lose it either!
A good way to really stay on your game is to remember the investment strategy that’s taken you thus far, and some key fundamentals about obtaining housing finance, including these 7 proven means to boost your borrowing power…
- Keep it clean
I’m referring to your personal credit or debt file. The history of your capacity for financial management on paper, which will be examined by any institution you apply to for some form of credit, including Telcos you buy mobile phone contracts from.
Companies can now list tardy utility payments on your credit file, even if you’re just a few days late, and while you can often counter minor blemishes with an explanation of your circumstances at the time, it’s best to just not have to.
If you do think there might be a few red marks next to your credit history, try to clean them up as best you can before seeking a loan.
- Stay on top of the paperwork
Figuratively speaking of course! Make sure you organise yourself so that you know where everything is, particularly when it comes to tracking the cashflow of your property portfolio and individual assets.
This means having EOFY taxes done promptly by an appropriately experienced professional who has a good understanding of property investment. Particularly if you happen to be self-employed, where proof of income is current financial reports.
You must be able to clearly demonstrate every cent of income that accounts for your serviceability rating on paper.
- Be pro-active when hunting for loan products
More importantly, be considered in what you need and want from a loan portfolio, just as you would with your residential housing portfolio.
Bells and whistle professional loan packages can be enticing, with the many extras a lender might offer for instance, but they can also come with less future capital provision.
In other words, tomorrow’s spending power might be negatively impacted if you opt to include things like a Line of Credit or interest only repayment option with today’s mortgage.
Logically, you also want to get a good deal when it comes to interest rates. The lower the rate, the more money remains in your pocket and the better your capacity to repay on current and future debt. Remember, cashflow is critical to capacity.
- Use smart debt structuring
How you structure your finances is just as important as the strategy and structure you adopt for your property portfolio itself.
Investors who work out how to maximise investment gains by acquiring assets in different names and structures, and therefore spreading the associated debt between individuals (such as a husband and wife) or trusts for example, can greatly increase their borrowing power and also reduce their tax liability, leaving them with more spare change.
Other options include using things like Lender’s Mortgage Insurance (LMI), to borrow at higher LVR’s than you might otherwise be able to.
I would advise anyone seeking to become a professional property investor to seek counsel on appropriate debt structuring and critically, future planning, in order to get this right. Because getting it wrong and then trying to unravel the mess can be a very costly exercise.
- Extend your loan term
Quite simply, the longer your loan term, the smaller your monthly repayments will be. If you have multiple debts across your property portfolio, it might be worth considering taking 30-year loans as opposed to 25, further minimising your repayment obligations.
Additionally, you can opt to make interest only repayments, which will have the same effect.
- Remember ALL of your income!
Different strokes for different folks…or different ways of looking at income levels between different lenders.
Some banks will accept a higher percentage of rental income than others and some will have different methods of considering things like commissions or company profits as part of your assessable cashflow.
The key is to be vigilant when it comes to sustaining a strong cashflow base, including annual rental assessments and other key ways you can hunt down additional income. Every little cent counts!
- Create additional equity.
Got a rental property that could use a little sprucing up? Now might be the time to consider some renovations on tired looking assets so you can generate additional short and long term equity gains, while also bumping up your assessable rental income.
If you would like more financial guidance to ensure you maximise your borrowing muscle and have the funding on hand to take advantage of the many investment opportunities that abound in today’s property market, why not contact the Trilogy Funding team?
The debt structures and strategies we recommend are based on tried and tested fundamentals that work. We know they work, because we use them ourselves. Click here to connect with us today.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; 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).