property investment finance fundamentals

20
Property Investment Finance Fundamentals

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Page 1: Property Investment Finance Fundamentals

Property Investment Finance

Fundamentals

Page 2: Property Investment Finance Fundamentals

We help investors build and manage

their property portfolios

Page 3: Property Investment Finance Fundamentals

This presentation contains general information only and does not take into

account your personal objectives, financial situation or needs.

You should consider whether the information is appropriate to you before acting on it.

Before acting on any information you should consider seeking advice from a qualified

financial adviser and / or accountant.

Page 4: Property Investment Finance Fundamentals

• 3,000 current subscribers• Mix of personal users, brokers,

buyers agents and accountants• 200,000+ members use us for

market information, calculators, investment news and updates

Real Estate Investar

Page 5: Property Investment Finance Fundamentals

In Partnership With…

Page 6: Property Investment Finance Fundamentals

1.9m Australians

1 Property

2-4 Properties5+ Properties

• Pays shortfall for 5 years+.

• Eventually sells and pays down personal debt.

• No retirement income.

• Strategy & numbers.

• Self funding portfolio.

• $100-$250k+ passive income in retirement.

• Has high income or buys every few years.

• Freehold in retirement.

• Min. retirement income.

Source ATO/ABS

3 Levels of Property Investment

Page 7: Property Investment Finance Fundamentals

1.9m Australians

1 Property1.4m73%

2-4 Properties470,000

25%

5+ Properties30,000

2%

• Pays shortfall for 5 years+.

• Eventually sells and pays down personal debt.

• No retirement income.

• Strategy & numbers.

• Self funding portfolio.

• End up freehold• $100-$250k+

passive income in retirement.

• Has high income or buys every few years.

• Freehold in retirement.

• Min. retirement income.

Source ATO/ABS

What Level are you Aiming for?

Page 8: Property Investment Finance Fundamentals

• Banks will cross collateralise everything if they can.

• Banks won’t help you maximise LVR as you grow.

• Banks have a single funder.• Often you are not dealing with the decision

maker.• It’s the banks money and they don’t care about

your problems when they want it back.

Bank or Broker, what’s the Difference?

Page 9: Property Investment Finance Fundamentals

• The Property• Equity• Cash Flow• Credit Record• Your Character

5 Barriers to Finance

Page 10: Property Investment Finance Fundamentals

• Equity;• Up to 80% LVR is easier to finance.• Above 80% LVR requires Lenders Mortgage

Insurance (LMI).• *On $500,000 loan;• 85% LVR - Add 1% ($5k)• 90% LVR - Add 1.5% ($7.5k)• 95% LVR – Add 3% ($15k)• LMI adds leverage, cost and risk.

Never Run Out of Borrowing Power Again

Page 11: Property Investment Finance Fundamentals

• Income• Target a DSR (Debt Service Ratio) of at least 1.3,

e.g.

$130 in rental income per $100 of mortgage payments for a self funding portfolio.

• Minimise consumer debt and credit card balances.

Never Run out of Borrowing Power Again

Page 12: Property Investment Finance Fundamentals

• Capital growth creates wealth, but cash flow is your oxygen while you wait for it to occur

• Balance high growth with high cash flow investing• Increase your income• Eliminate high interest debt and credit card

balances• Convert property debt to interest only• Annualise your household costs, are you getting

value?

Equity Rich and Cash Poor is a Road Block

Page 13: Property Investment Finance Fundamentals

Cross Collateralisation

1 bank.Multiple loans,

business overdrafts and

credit cards

Page 14: Property Investment Finance Fundamentals

Risks with Cross Collateralisation• Bank contracts enable them to pool

secured assets across multiple debts using an “all monies clause”

• "If you have multiple loans with one bank, they can take funds out of the one account to clear any arrears on any loan using an "account combination" clause

• Your equity can be tied up and ability to reinvest restricted

Page 15: Property Investment Finance Fundamentals

Individual Collateralisation

Loan 1 Home loan

& offset

accounts

Loan 2 Business loans &

overdraft

Loan 3Investment property #1

Loan 4 Investment property #2

Page 16: Property Investment Finance Fundamentals

Benefits of Individual Collateralisation

• Separate security for each loan - spreads your risk

• Easier to top up multiple loans for a small amount

• Easier to buy/sell/refinance• Avoids domino effect if you have

difficulty in one area• Financiers more negotiable if

they can see assets they can’t touch

Page 17: Property Investment Finance Fundamentals

The Power of the Offset Account – Example Scenario

Account 1: Mortgage –$500,000

Account 2: Debit card +$6,500

Account 3: Savings +$85,000

Account 4: Mortgage -$30,000

Summary Debt $530,000

Interest paid on $438,500Savings p.a @ 7% - $6,404

Page 18: Property Investment Finance Fundamentals

Investment Loan Payments

Investment Offset Account

In: Rental Income

SeparateOffset Account

General Spending

Home loan Account

Main Offset(Savings)

In: SalaryOut: Loan Payments

InvestmentProperty LoanAccount

Spending Money

The Money Flows

Top up if negatively gearedHome Loan Repayments

Page 19: Property Investment Finance Fundamentals

The Money Flows

• Keeps savings available, and minimises interest.

• Enables you to save or pay off debt years faster.

• Keeps loan amount at its maximum while minimising interest costs.

• Easier to access equity without refinancing.

Page 20: Property Investment Finance Fundamentals

Arrange a Free Finance Check Today at

info.realestateinvestar.com.au/finance