Your Property Investment Questions Answered By Nathan Birch pt 2
Nathan is no stranger to tricky property investment questions. We get hundreds sent in from the Binvested community every month. He answers some of those burning ones below.
Do you guarantee that every property you buy for clients is below market value?
Just like life itself, there are no guarantees when it comes to property investing. Investing always comes with a risk, and you can’t avoid unexpected changes that may occur from time to time.
When I buy properties for our clients, I always look at their personal situation and goals to see if the property will serve a positive purpose in their journey.
I also make sure that the property ticks all three boxes of being below market value, with a strong cash flow and a good upside for growth.
When it comes to valuing a property, opinions can differ. Sometimes when I buy a property below market value it isn’t below the advertised price. Sometimes, the agent doesn’t have a good idea of what it is actually worth.
How banks value a property can also differ. At the moment, they are being pretty conservative with their valuations.
I always encourage clients to do their own research. At the end of the day, I am there to negotiate a good deal on their behalf and to make sure the property is in line with their strategy and goals.
And, after more than 10,000 property transactions over the past ten years, I can’t recall any clients complaining that I have bought them a lemon.
We owe about $160,000 on all our debts and our house is valued at about $1,000,000. My main goal is to pay off our own house first and buy some investments. Can I borrow a little more and use the extra money to pay our main house off?
Congratulations on having such a good position. You have very little debt and a strong amount of capital under your belt.
However, you may be leaving some opportunities on the table by focusing on paying back your mortgage.
I can’t offer you financial advice without knowing more details about your situation, but I can speak from my own experience about changing a ‘debt is bad’ mindset.
Like most people, I used to think debt was bad and that you should pay it back as soon as possible. But when I thought about it, I realised that if I was to spend a good chunk of my life paying off a house, I would have one property that would have gone up in value.
If I had of focused on investing in good properties instead of paying back debt, I would have ended up with a whole heap of properties that had gone up in value instead.
In my personal position, if I was able to have the capital locked into an offset facility that would allow me to access it, this would give me a good starting point.
There are plenty of options out there, but to find the best one for you, I would recommend speaking with a professional who can break down your goals and situation to develop a sound strategy.
I’ve built up $600,000 to $700,000 in capital doing small developments and want to transition to buying stuff with a better return that is more suitable for a foundation portfolio. I am concerned that doing this would then reduce my working capital and borrowing capacity, and limit my ability to do further developments. This would therefore make it a slower road to the end goal of replacing my salary. Am I better to stick with developments for another year or two to boost it up?
It is great that you have come up with a strategy that has made you so much capital. I am not going to sit here and tell you to convert. When it comes to investing, one strategy is not necessarily better than another.
However, I think that it is important to look at all aspects when building a portfolio.
The reason I decided to use a buy and hold strategy is because I like to be a passive investor. This has allowed me to hold my assets through multiple market cycles and reap the most out of capital gains while generating a passive income.
Ultimately it comes down to your goal. How will your strategy help you achieve this? Work out how your portfolio and end goal would look if you changed strategy to see if it would be a more viable option.
Who was Nathan’s financier during the GFC?
I have used multiple lenders over the years. Currently, I am going through about 12 different lenders to finance my portfolio.
This spreads things out in order to minimise risk. It also allows me to structure my lending in order to give me enough mileage to fund so many purchases.
Before the GFC, I went through St George until they wouldn’t lend to me anymore. After that I used a variety of lenders such as CBA, Bank of Queensland and Westpac.
Structuring your finance is an extremely important part of investing. You can’t build a portfolio without an adequate amount of funding.
What safeguards can you put in place to protect your properties when growing a portfolio?
With all the risks involved in property investing, it is crucial to develop a strategy that minimises risk at every step of the way.
Buying below market value helps to minimise the risk of overcapitalising. Having a good upside for growth minimises the risk of prices going backwards. Having a strong cash flow that looks after itself minimises the risk of you being out of pocket and under financial stress if you lose your job.
Other risks can come from not having the right finance strategy, buying the wrong sorts of properties and not structuring your purchases properly.
Educating yourself by speaking to people in the industry can help you come up with a solid game plan. Having a good team of experts around you will also help. A good solicitor, accountant and finance strategist who specialise in property investing will help you set yourself up in the best way to avoid preventable mistakes.
Did you miss the first in this series? You can catch up here!