Investors’ Mortgage Checklist.
If you are building a property portfolio, there are some very important things you need to consider before applying for a loan.
Here is an investors mortgage checklist of criteria to help you get organised.
Make sure your equity is accessible.
CEO of Zinger Finance, Madhu Karthik Ramana, says portfolio building investors should get their properties valued regularly in order to tap into available equity.
“Having equity accessible is the first principle for an investor,” he says.
“Hundreds of opportunities slip out of investors’ fingers because they are not finance ready.”
He says, having equity at hand will help you to take action when you come across a great deal so you can work to achieve your financial goals sooner.
Stay on top of property trends.
In order to be able to extract the most equity from your portfolio, it is essential to stay on top of the game. Following market trends will help you stay educated about how much your properties are worth.
“You need to constantly probe the market to see what your property valuation comes back at,” Madhu says.
Diversifying your investments across different markets will also improve your chances. This should allow you to maximise the amount of equity you can get out so you can build a portfolio as quickly as possible.
Keep a close relationship with your team of experts.
Madhu says that the world of lending changes every couple of years.
In order to navigate this shifting landscape, it is crucial that you maintain a close relationship with your financial planner, your accountant and your finance strategist.
They can help you stay informed about any changes that might affect you so you can keep pushing forward.
Make sure your servicing is strong.
If you are self-employed, your servicing needs to be strong. Your business needs to be making profit – and this needs to be incremental on a year or year basis.
“The trend has to be upwards because the majority of banks take an average of two years’ tax returns for self-employed borrowers,” says Madhu.
If your second year’s tax return is lower than the first, most banks will use this lower amount to assess your serviceability.
“For your servicing to look stronger, the trajectory has to be upwards.”
Know what you are trying to achieve.
Knowing what you are trying to achieve through investing will help you in more ways than one. Not only will it give you clarity, it will maximise what you get out of your relationships with your accountant and your finance strategist.
Your accountant is likely to do whatever they can to minimise the amount of tax you have to pay – which is great for those who want to save money. But, this will likely mean your income will appear smaller in the eyes of lenders, which may affect how much you can borrow for your next property purchase.
Your accountant should help you present your best self to the banks while helping you to make the most of tax breaks – but they can’t do this unless they know what you are trying to achieve. An Investor’s mortgage is very different to a non-investor’s, and your accountant needs to know which one you are.
Optimise your portfolio.
Investing is not just about buying the right properties, it is also about maintaining your portfolio. Regular rental reviews should be done to ensure you are getting the best cashflow. Not only will this help your income, it will also improve your serviceability when applying for loans.
Keep on top of your payments.
The more properties you buy, the more outgoings you have. This can make it difficult to stay on top of all your accounts, bills and paperwork.
But, you must remember than investing is like a business, so it is important to set up effective structures that will help you operate smoothly.
Using an app such as My Property Tracker can really do wonders. MPT enables you to capture and record every piece of paperwork that comes in. It also generates reports to give to your accountant at tax time and sends out reminders for upcoming payments.
Know how to structure your finances correctly.
Getting a loan is one thing, but structuring multiple loans is quite another. If you are building a portfolio, it is essential to set up your lending well from day one.
“Getting a loan in the correct structure is very critical,” says Madhu.
If you cross-collateralise properties, for example, you could hold yourself back from buying any more.
He says, if you have tied two properties together they could balance each other out when it comes to getting equity. If one property had gone up and the other had gone down, the poorly performing property would prevent you from getting equity out of the well-performing one.
Locking in rates can also stop you from moving forward. You usually cannot access equity during a fixed rate term, and if you want to refinance to a variable rate loan instead, you will have to pay exit fees.
Another thing to consider is whether to make interest only payments for the first few years. It may be beneficial to split the loan into an interest only portion and a principal and interest portion depending on your goals and strategy.
A finance strategist can help you to set up your lending in the best way possible to maximise your cashflow and improve your servicing for the next lot of purchases.
Knowing the importance of structure and how it can either make or break your goals will prevent you from falling into the interest rate trap. While rates are important, they come second place to being able to grow your portfolio as quickly as possible.