When was the last time you reviewed your Portfolio?
Now is the perfect time. It’s essential to periodically sit down with your mortgage advisor to ensure your portfolio is optimised for you to take advantage of the opportunities in the current market.
We often find that once a review takes place, clients are amazed that they have the capacity to buy another property, use some of their equity to renovate an old property, get that subdivision approved or consolidate other debts.
Some Key considerations for Financing your Investment Property Portfolio:
- Interest Only – you want to ensure you are making Interest Only repayments to maximise your cashflow. If you’ve had an investment loan for over 5 years, chances are you could be paying Principle & Interest, but because of fluctuations in interest rates you may not be aware of it. There is no harm in paying extra, however that cashflow would be better utilised paying off any non-deductible debts or being put towards holding other investments.
- Avoid Cross Collateralising – you don’t want the bank to tie up your family home with your investment loans, neither do you want to link all your investments into one loan with one lender. This is risky for you the borrower and doesn’t allow any le-way should anything go pear-shaped.
- Lines of Credit – These types of loan facilities can be very useful to the serious investor. They provide access to your equity and the flexibility to draw down as required and sometimes can even offer capitalisation of repayments.
- Leverage up – Don’t be afraid to take a high LVR (Loan to Value Ratio). Some people are reluctant to incur Mortgage Insurance which is an extra cost. However it enables finance to an LVR of greater than 80%. This will minimise the deposit you need and you also get to claim all of the borrowing costs as tax deductions. Avoiding Mortgage Insurance will reduce the total costs associated with your purchase, however the real cost is the loss of opportunity of diverting those funds elsewhere or the extra time you wait to enter the market while you build your deposit.
- Mortgage Insurance is a deductible cost. This premium forms part of your borrowing costs and as such becomes deductible. Discuss all the tax implications with your tax specialist.
- Put your lazy equity to work – If you own property that you purchased many years ago there’s a very good chance that you may have ‘lazy equity’. That is equity that you can access that could be used to acquire another investment property or other income producing assets. For example, lazy equity of $100,000 could be put to work in adding another property worth between $400,000 – $600,000 to your portfolio.
- Property doubles roughly every 7 to 10 years – Talk to any serious property investor and they will know this saying, it’s common knowledge. Here is some data on Sydney’s median house price over the last 4 decades:
- 1980 – $68,800
- 1990 – $194,000
- 2000 – $287,000
- 2009 – $547,000
For a complete review of your current portfolio arrangements, contact us
Warren Buffet says “true wealth comes from the transference of funds from the impatient to the patient.” Pay attention to your current portfolio, work on building by adding more properties during the tough times, and be patient, and you will most definitely prosper over the long term!