Finance matters…for property investment success
Financing the acquisition of an investment property can be as complex as identifying the optimal asset for your portfolio.
Understandably, many beginning investors feel overwhelmed when faced with the prospect of arranging finance. Usually they already have a mortgage on their own home and working out the best product for that was hard enough.
Add more properties to the mix and it becomes about, not just the best possible loan product, but also the best possible loan structure to support and nurture your growing portfolio.
If you fail to appropriately plan how and where you’ll secure sufficient funding with which to grow your portfolio, you’re more likely to end up in messy structures that can inhibit access to your growing equity and in turn, impede the progress of your future fund.
For those who start investing later in life and don’t have the leisure of time on their side, this scenario can be particularly problematic.
When debt can equal wealth
Do you know that the right loan structure can actually boost your property investment income significantly?
That’s because property is a commodity that can be leveraged. Over time, as your asset base grows in value, you can add to it with more high growth assets, which will also grow in value (doubling every seven to ten years on average for well purchased property).
But if you tie up your assets in cross-securitised structures, you jeopardise your leveraging power. To what degree depends on how entangled you become with a particular lender.
Here are some of the things you need to be most aware of when structuring your property investment finance…
Your goals and investment plan
Anything you do with regard to finance should align with your long-term objectives and investment strategy, with the aim being to arrive safely at your retirement destination with minimum risk and maximum return.
For instance, if your objective is to accumulate a portfolio of say, six plus properties then you have to finance your very first investment accordingly.
Your financial position
Make sure you can maintain any finance structure within your investment comfort zone, ensuring that your assets are under your control at all times.
Lumping your properties together in one financial basket gives the bank ultimate power over your portfolio, as well as your family home.
On the other hand, if your properties are individually financed, you can choose how and when to leverage your asset base, in the most effective way to ensure future financial freedom.
Consider the cost of restructuring
While you can certainly attempt to work your way out of a less than desirable loan structure, this is a process that will come at a price.
Consider fixed rate mortgages, which some investors favour for their ability to provide additional cashflow security. Should you choose to exit a fixed term early, you’ll be hit with considerable termination fees based on calculations around the gap between fixed and variable rate products on offer at the time.
The same applies to refinancing. To untie complicated loan structures, the banks will want to revalue your properties and charge you various exit and establishment fees to set up new structures.
Finance can be the property investor’s friend or foe. Get the structure right and you will reap the optimum rewards of your investment endeavours for many years to come, get it wrong and you stand to magnify your risk exposure significantly.
Professional advice when it matters most
One of the advantages Majestic Property gives our property investor clients is access to an experienced team who can assist at every step of the way.
With years of industry expertise and our vast network of lender connections, we can work with you to establish the optimal loan portfolio for your specific needs, taking account of your current circumstances and future objectives.
To find out more about enhancing your property investment financial management so that your debt delivers better long-term wealth outcomes, please Click HERE to visit our dedicated finance website.