I am the regular property columnist for Rex Airlines, the largest regional airline in Australia.  Here is the October edition for your reading!

Obtain finance like a professional

This month Mark Taylor talks with Stephen McClatchie on how professional property investors obtain finance from the banks

Stephen McClatchie is the Founder and Director of Loans Australia and has overseen the writing of more than $650 million dollars in mortgage finance over the last 15 years. Stephen has completed numerous academic qualifications, spoken to audiences of up to 1800 people and combines a unique blend of academic excellence and strategic financing.

Property can be a great investment, but how can people be strategic about their finance strategies?

The very first step is to assess how much you can afford to pay for the property, how much you can afford to borrow and how you are going to cover any cashflow shortfall. Your cashflow shortfall is the difference between the rental income received and the interest payable on the loan plus any other costs.  You could even consider setting up what I call a ‘buffer’ account that can be used when cashflow is tight or you want to put down a deposit on another property.

What should people do to ensure they have the best chance of being approved?

There are many things but some of the important ones are firstly, pay all your current debts on time so that you can show a positive payment record.  Secondly, don’t apply for multiple loans at once.  You may think you are playing one bank off against another but in fact multiple applications reduce your ‘credit score’ which is the banks way of determining whether or not to give you the loan. Thirdly, fully disclose any past financial difficulties and current debts to your finance broker.  Finance brokers are very good at finding lenders to suit an applicant regardless of what may have happened in the past.

How has the global economic crisis impacted those looking to obtain finance?

The impact has been enormous.  Many lenders have reduced the amount they are prepared to lend against a property.  For an investor this means they need to come up with a bigger deposit.  Since the global economic crisis many smaller lenders have left the market leaving the big 4 banks to completely dominate.  Overall there is less competition and less choice for the consumer.  Clients that easily obtained finance two years ago are now being constrained by lending policies and it is harder to get approved for a loan.  That is not to say that it’s impossible it’s just that the borrower needs to be more strategic. 

Why do lenders vary so much in how much they will lend to an individual applicant?

Each lender has their special way of assessing how much you can borrow.  They differ in how and what income can be used to pay back the loan, how they treat rental income and any tax benefits you may receive. They also differ in how they view your current debts.  As a mortgage broker I am strategic about which lender I go to for obtaining finance for the first investment property, then the second then the third.  The reasons for this are complex but it has to do with whether mortgage insurance is involved, the number of investment properties involved and the reliance on rental income. This is what I call strategic financing

To find out how Stephen can help you finance your next property sooner visit www.LoansAustralia.com.au and whilst you are there access your FREE real estate investment strategy reports.

Mark Taylor, our regular property columnist, is Managing Director of ‘Keys To Success Club’, a must-have resource for anyone serious about property. www.keystosuccessclub.com/property

Interest Rates are in the news at the moment with rates on hold for the moment.  Lots of opinion on what will happen going forward and obviously of significant interest to investors.

Let’s check out some views:

Borrowers warned: interest rates will rise | Dynamic Business

The Reserve Bank yesterday kept interest rates on hold at the 49-year low of three percent, however the central bank has advised homeowners and borrowers to be prepared for an eventual rate rise at the end of the year.

Australian Stock Market News, Share Market News, Analysis and …

As was widely expected the Reserve Bank of Australia said it would leave rates unchanged at 3.0% at its meeting in Sydney this afternoon.

Australian Interest Rates On Hold, But To Rise | HULIQ

The federal treasurer of Australia Wayne Swan says that the interest rates are currently on hold, which is great for home buyers. However, he said that the key benchmark rates will not stay low for a long time and will rise.

Interest Rates News and opinions

A Hybrid Trust is a mix between a unit trust and discretionary trust.

You borrow money in your own name to subscribe to units in
the Hybrid Trust. The interest is deductible against the rental income
distributed to you by the trust.

The issue the ATO have with a Hybrid Trust is where units are redeemed for
their face value as the property becomes positively geared. They also attack
these trusts where the units are redeemed so that any capital gains can be
distributed on a discretionary basis.

From an asset protection point of view, the increase in value of the asset
will be free from potential creditors. In the case of bankruptcy the units
held, are assets of yourself and could be redeemed for their face value.
This will generally pay out the loan and as mentioned any increase in the
properties value will remain within the trust.

In regards to costs, depending on the costs expect around $2,500 set up with ongoing fees a similar amount.

Trusts also restrict your financing abilities as some of the banks restrict trusts from accessing certain loan products.
Setting up a Hybrid Trust is not without risk from a Tax office perspective,
and is generally for people who have high income levels and are involved in high risk activities such as operating a business  and require a level of asset protection whilst maximizing tax benefits.

Fixed interests or variable interest rates?

There is a lot of media hype on locking in interest rates at the moment as the banks are rapidly increasing fixed interest rates which is creating some panic in the air.

What should you do?  As always, work out a solution that best fits you.  Here are some though starters?

- It would seem that variable rates are likely to go up

- you pay a premium for fixed interest rates, so if you lock in you are effectively going to lose in the short term and then gain in the longer term

- Fixed interest rates mortgages are less flexible than variable

- Fixed interest rates guarantee your future situation, so assist with future planning

- Don’t forget that you can split a loan between fixed and variable to hedge your bets.

- If you are going to sell in the near future then there is no point in locking in fixed interest rates

- Be aware that once it has hit the mainstream then the best opportunity has probably passed.  This does not mean you shouldn’t do anything; just don’t be a sheep without thinking about it first!

Hope this short post helps you to decide if you should lock in fixed interest rates?

Fixed Interest Rates

Property Finance conditions have been changed at St George particularly with respect to equity redraws.  This is an important change especially to investors who have an intent to take cash out of their property without selling.

According to my strategic finance broker, Loans Australia, St George have now limited the amount of redraw to $10,000 unless the money is specifically tied to an investment.  This is the case even with full doc loans

Ouch!

Is this a sign of things to come as it will radically change the investor landcape

St George – Property Finance Update