Return on Investment: that’s the ultimate goal when you enter the property game. While most people consider home value growth and rental returns as the two main influencers, having the right finance is just as important. Get it wrong and you will be missing out a large share of the profit pie. Here’s what you should be doing to ensure you have the correct set up and aren’t paying more than you need to:
1. Have a clear financial strategy
Any serious investor should have a plan as to what they want to achieve and how they are going to reach it. This includes knowing how much you can afford and what you want to repay so that you can determine how you are going to grow your portfolio and which finance is best to achieve this.
2. Check the comparison rate
Many investors fall into the trap of thinking that the loan with the lowest interest rate must be the cheapest. What they don’t factor in are all the associated fees and charges. The comparison rate includes these extra costs so is therefore generally a better indicator of what you will actually pay.
3. Don’t cross-collaterise
Cross-collateriasation is when more than one property is used to secure a/or multiple loans by the same lender.
If you are considering this option there are a few things to consider:
- If one property increases in value but another decreases by a greater amount you are unable to access the equity created in the first, which could be a major hold-up for your strategy.
- You can lose flexibility with your sale proceeds as it’s up to the bank how they are used. They may decide to pay down your existing loans when you would rather build your portfolio.
- Every time a property in this set-up is released, every other one included needs to be revalued. Of course valuations come at a cost so can end up quite expensive.
- Changing lenders can be difficult and expensive with the associated exit fees.
4. Take advantage of interest only loans
A popular loan type for investors are interest only loans. They are limited in duration but as the name suggests when active only the interest owed is required to be repaid, but you can still contribute to the principal if you wish. It’s a great way to improve your borrowing capacity and enjoy lower repayments during this period.
5. Refinance regularly
Lenders are constantly changing their interest rates and releasing new products. So if you have stuck with the same loan for a few years it may no longer be the best option for you. It’s recommend that you review your home loan every two years to see if there is a better solution for you strategy available.
If you would like to know whether you have the right investment loan for your strategy contact us today and one of our friendly team will assess your situation.