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4 Common Property Investment Mistakes

Diving into the world of property investment can be both exhilarating and daunting. With the potential for considerable returns, it’s tempting to jump right in. However, it’s essential to be aware of common pitfalls and arm yourself with strategies to navigate them.

Here’s a guide to help you avoid four common mistakes when buying your first investment property.

1) Poor Cash Flow Management

Understand Initial Costs: Before even looking at properties, familiarise yourself with the initial costs associated with buying. This includes stamp duty, legal fees, and inspection costs.

Anticipate Ongoing Expenses: Owning a property isn’t just a one-time purchase. There are ongoing costs like council rates, water bills, insurance, and potential repair costs. Setting aside a contingency fund may save you from financial stress down the line.

Budgeting is Key: A detailed budget will be your roadmap. It helps you identify potential financial challenges and address them proactively. If budgeting isn’t your strong suit, consider seeking financial advice or using budgeting tools and apps.

2) Falling For Rental Guarantees

The Allure of Guarantees: On the surface, rental guarantees — where a vendor promises a specific rental income — seem attractive. But it’s crucial to dig deeper. Often, the cost of these guarantees is embedded in the property’s purchase price. This means you might be paying a premium without realising it.

Market Rate Comparison: Always compare the guaranteed rate to current market rates. If the guaranteed rate is significantly higher, be cautious. When the guarantee period ends, you might struggle to attract tenants at a similar rate.

3) Risky Off-the-Plan Purchases

Potential Savings vs. Risks: Buying off-the-plan may be more affordable than buying an existing property. However, it’s essential to be aware of the associated risks.

Delays in construction can affect your financial plans, especially if you’re paying rent or another mortgage while waiting. Another potential problem with buying off the plan is that you can run into issues with securing finance. Some lenders may offer conditional approval (finance in principle) for off-the-plan purchases before construction starts, but they won’t actually loan you the money until the property has been constructed and they have performed a valuation on the finished product.

Valuation Changes: The property market can be volatile. By the time your new property is ready, its valuation might differ from your purchase price, affecting your loan-to-value ratio and potentially increasing your loan costs.

4): Trying to Do It Alone

Understanding all the ins and outs of buying a property can be tricky. From finding the right property to suit your investment goals to securing a home loan that meets your specific needs, the process can be a bit of a minefield.

That’s where we can help. As a mortgage broker, we can do the hard yards for you, from explaining your borrowing capacity and creating a purchasing budget, to providing professional advice about the right loan product and structure for your specific financial situation and goals.

As a full service advisory business, we can assist you with your property strategy, buying the right property and the lending  – check out services

Ready to start?

If you’re keen to start your property investment journey with confidence, reach out to us. We’re here to guide and support you every step of the way.

Home loan application process explained

Are you planning to purchase your first home or investment property?

It’s an exciting time and nothing compares to the feeling of holding the keys to your very own property in your hand.

If you’re new to buying property, here’s how the home loan application process works.

Understand your borrowing power

When it comes to buying a home or investment property, the first step is to get a clear picture of your borrowing power and budget.

How much can you afford to spend on the property? What repayments can you reasonably cover?

Having a budget in mind will help you narrow down your property search and avoid overspending. Touch base with us for some preliminary insight into your borrowing capacity.

Choose a lender

Next, it’s time to see what loans are available and get a feel for the different lenders. The easiest way to do this is to have us compare the market for you.

We’ll get to know your financial situation and goals before recommending a suitable home loan.

Get pre-approved

Once you’ve decided on a lender, we’ll get the ball rolling with pre-approval on your finance.

This is when a lender agrees, in principle, to lend you a certain amount of money. It’s also referred to as ‘approval in principle’ or ‘conditional approval’.

You’ll still need full approval down the track, but getting pre-approved allows you to bid or make an offer on a property with confidence.

Gather the necessary documentation

You’ll need to supply a range of documentation to support your pre-approval application.

Requirements can differ from lender to lender, but generally speaking, they’ll typically want to check your:

  • Proof of identity
  • Proof of income and employment
  • Credit score
  • Deposit and savings history
  • Expenses
  • Assets and liabilities.

We can walk you through the paperwork and ensure nothing is missed.

Review the pre-approval offer

If the lender decides you’re a suitable candidate for a loan, they will issue you with a pre-approval letter.

Remember that pre-approvals are not a definite guarantee that you’ll get a home loan. You’ll still need to meet the conditions stipulated by the lender.

Pre-approval shouldn’t cost anything. There’s also no obligation to take out a full home loan with that lender.

Typically, pre-approvals are valid for three months.

Find a property and make an offer

After pre-approval comes the fun part – house hunting. Once the right property comes along, it’s time to make an offer.

You’ll need to decide at this point whether to stick with the lender that gave you pre-approval or shop around for another home loan.

Complete a full mortgage application

The final step is to complete the full home loan application for unconditional approval.

If you decide to go through the same lender that gave you pre-approval, most of the documentation will probably have already been completed. We’ll walk you through any other requirements needed.

As part of your application, your lender will likely get an independent valuation of the property. This helps them determine the risk involved in lending you the money.

If all goes well and your mortgage application is approved, the lender will send you an unconditional loan approval letter. It’s a good idea to have your solicitor or conveyancer review everything to make sure it’s in order before you sign the loan documents.

Settlement

Finally, it’s time for settlement. At this point, the lender will certify that your documents are in order and advance the home loan.

Your legal and financial representatives will meet with the seller’s representatives to swap documents and lodge the transfer of title. Stamp duty is usually paid at the same time as settlement.

Then the property is all yours!

Ready to buy?

As a first-time buyer, getting your head around the home loan application process can be daunting. That’s where we come in.

Mortgage brokers may take the stress out of applying for a home loan. We have access to a wide range of lenders and understand which home loans might work for your specific financial circumstances and goals.

Let’s chat about your property purchasing plans. Get in touch today.

Tips for buying sight unseen

There’s no doubt about it. Buying sight unseen – that is, purchasing a property without viewing it in person – can be risky.

What if it has a strange smell when you finally do enter the property?

What if it’s a little darker than how it appeared in the advertisement photos?

What if the neighbour has a junkyard encroaching on your doorstep or there’s a huge electrical tower outside?

These are all valid concerns, but despite this, some property hunters are still diving in with a sight-unseen regional or interstate purchase. Why?

One common reason is that low levels of new listings is creating fierce competition between buyers in some markets, and savvy investors know that when an opportunity arises, sometimes you just need to jump.

So, how do you mitigate risk when buying sight unseen? Here are some tips.

Know your ‘why’ and do your research

Investors usually buy for either capital growth potential or for cash flow. What is your driver? This will ultimately affect the type of property you buy.

If capital growth is the end goal, consider:

  • Population changes – Is the area expected to grow? Are more jobs likely to become available and attract more people to the area?
  • Supply and demand – Is there a strong demand for housing in the area? A lack of supply and strong demand could be a recipe for price growth.
  • Lifestyle appeal – Is it a place where people want to live? Is it a ‘leafy’ suburb, for example, or near the beach? Is the area being gentrified with new properties and amenities?
  • Statistical indicators – Consider the historical capital growth. What are the vacancy rates like? Are vendors discounting?
  • Infrastructure and amenities – Are there any planned infrastructure improvements or zoning changes that could affect capital growth? Is there good access to amenities like transport links and schools?

If you are buying purely for cash flow, you’ll want to find a property with a high yield. With this strategy, the rental income will likely cover the costs associated with owning the property.

Our Sydney Buyers Agents have transacted over 2000 properties since we first set up our business in 2005 – this is what they do best, day in and day out. Check out Buyers Agents Services

With over 176 Google 5 star reviews (and counting) – we like to think we are doing great things for our clients hence the great reviews … check out our Google reviews here…

Do an inspection  

If there’s one thing that the pandemic taught us, it’s that you can do more than you think remotely.

With so many online resources available, it’s possible to find your next real estate investment, do extensive research online, get a feel for the neighbourhood on Google maps, and even do an inspection – all from your computer, iPad or smartphone.

These days most real estate agents will happily do a virtual walkthrough with you via a video call. However, if you can get someone to physically inspect the property on your behalf, that’s always preferrable.

It could be a family member or friend whose judgement you trust. Otherwise, you may consider hiring a buyer’s agent. They can do inspections, offer advice and bid on your behalf at auction.

As with any property purchase, don’t forget to get building and pest inspections.

Get a valuation

An official valuation is a great way to get a true indication of a property’s value and to make sure you’re not overpaying.

If you’re purchasing sight unseen, it’s worth considering paying the money for a valuation for peace of mind.

Speak to a property manager

Once you buy an investment property, you’ll likely get a property manager to take care of it for you. Why not consider enlisting their help sooner rather than later?

If you’re buying sight unseen, they can provide market insights and help answer any questions you may have.

Ready to get started?

Keeping an open mind to opportunities that aren’t necessarily in your own backyard can pay off, as long as you do your research and due diligence.

If you’re considering buying an interstate or regional property sight unseen, it’s important to have your finance in order.

Speak to us about organising pre-approval, so that you’re ready to go when the right property comes along. Get in touch today. 

You are welcome to have a look at our website to get an understanding of our full service offering – https://stratgroup.com.au/services/ 

Understand What You Can Borrow

When you’re applying for a loan, it may be tempting just to speak to the financial institution you already bank with. The mortgage market remains highly competitive and it pays to seek alternatives.

Better still, consider using the services of a mortgage broker. A good mortgage broker has access to a panel of lenders and knows their lending application processes.

This will save you time and money and give you the best chance of getting the best possible loan when you need it. They will also be able to advise you on which loan is right for you, given your own personal circumstances.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Big Banks Royal Commission Jitters

Australia’s big four banks continue to manage multiple challenges including falling house prices, a regulatory backlash sparked by the royal commission, and higher funding costs.

A further challenge is that international funding costs have been creeping up in recent months – a trend likely to cost banks hundreds of millions if they are not passed on to customers.

Issues raised by the royal commission will make it much harder for major banks to raise their interest rates independently of the Reserve Bank. At some stage, however, an economic decision will need to be made.

How are you placed should interest rates rise sooner rather than later?

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Property Market Update

The Australian property market is a restless one that can see things heat up and cool down in a matter of months, and with everyone trying to get a slice of a property market worth $7.5 trillion it pays to keep up to date.

Whether you are a first-time property owner, or you own multiple properties, obtaining sound professional advice, before investing in property, is essential. Wealth creation through property can prove to be a prudent strategy.

Research shows investors who have a close relationship with a qualified professional will be richer than those who do not have that close relationship.

Contact Strategic Investor Group today to review your individual financial circumstances.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

The Interest Rate Dilemma

The Reserve Bank has left the official cash rate on hold at its fifth meeting of the year, marking a record 22 months without a change.

RBA Governor Philip Lowe said housing credit growth had slowed over the past year, especially to investors.

“APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high,”.

“While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline.”

Will the Banks be able to manage margins or increase mortgage interest rates to offset rising international borrowing costs?

Seek professional advice today regarding your existing or proposed lending requirements.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Bank limitations create opportunities for non-bank lenders

Since the GFC, bank capital levels and the number of bank regulations have skyrocketed. The unquestionable thrust of Basel III has been for banks to massively increase capital, reduce leverage, limit risk-taking behaviour, and adhere to a far more stringent set of banking regulations.

The fallout from the Royal Commission will undoubtedly see a further reduction in risk-taking appetite and yet more regulatory burden placed on the banks.

In Australia, the non-bank lending market is growing rapidly but is still relatively small, with many players fighting for scale. We expect this trend to continue.

It is important to research the market and understand your options when considering how to fund your next property purchase.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

The Financial Landscape Has Changed Forever

It is important to understand how much you’re able to borrow prior to committing to any financial transaction. With the recent evolution of the lending landscape don’t make the mistake of assuming you will automatically obtain finance.

Seek professional advice regarding loan structure and strategy at the outset.

Changes by the Banks in relation to loan term, repayment type, satisfactory security and affordability has redefined the loan approval process.

Whether you are seeking to enter the Residential or Commercial Property Market it is critical that you seek professional advice today.

Strategic Investor Group will crunch the numbers and provide you with the best options, based on your overall financial position, and individual personal circumstances.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

What will be the economic effect of the Banking Royal Commission?

We are already seeing the impact with individuals and company’s ability to access Bank loans becoming extremely difficult.

With the loan approval process requiring applicants to evidence the ability to service their borrowings at twice the actual interest rate, have the recent regulatory changes created a barrier for genuine borrowers.

Prudent lending principles are required, however, have the regulators gone too far, and will these actions have a flow-on effect for future economic growth?

Understand your individual position by speaking to a professional today.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group