Challenge of building a portfolio
Financial hurdles come in all shapes and forms and one of the more common ones faced by investors is running out of borrowing power.
And this is when you’ve already dealt with gathering deposits in a low interest rate environment, accounted for excessive stamp duty on property purchases and then got around any attempts by APRA to deter investors from the market.
You may have found a great deal on a property and know that you’ll be able to service the loan easily, but when you go to the bank, the “computer says no” and you get stuck.
He may have 230 properties, but b Invested founder Nathan Birch says he’d have 2000 plus if it wasn’t for these limitations around financing.
He believes that a lot of people who want to buy 10 properties might get stuck on one or two because they allow themselves to bring emotion into it.
They don’t want to buy something that they wouldn’t like to live in themselves and this makes them lose sight of whether or not the numbers stack up.
What a bank wants
What Nathan realised over time is that it’s important to detach your emotions and think about what the bank wants rather than what you want as an investor. How can you give the bank what they need so that they lend you the money that you need?
Well if your strategy is to buy 10 properties, or 20 properties, the bank will require that you have income, that you have a deposit and that you can afford the deal.
When Nathan looks at a deal he’s thinking about how he can get the equity and the necessary cashflow to move onto the next property. He thinks about the lender.
Million dollar investment?
If you buy a property for $1 million and it rents for $1000 a week, will that allow you to buy the next one? How about a third one, or a fifth, or more?
You may find you need better cashflow to boost your servicing, or you might need to make decent equity to fund your next deposit.
You may have made $50,000 in equity pretty quickly, which sounds good. But say that instead of the $1 million property you bought five properties at $200,000 each and got $50,000 equity on each of them, you would have a total of $250,000 equity, which you could use as deposits for several of the next investments, rather than half of the next one.
Debt needs a strategy too
Nathan says that just as it’s important to have a strategy for accumulating assets, you also need a debt strategy for how you are going to be able to achieve significant debt and then be able to service it in the best way.
If you need help mapping out a strategy for yourself or just need more information, reach out to b Invested on 1300 367 925 or at firstname.lastname@example.org.
To watch the full podcast episode on ‘Property Investment Challenges, Business Success & Side Hustles’.