Apr 11
 

After 20 years of arranging finance for clients in Australia and having worked through the turbulent times of the last couple of years it is obvious to me that the days of the Multi-Property Investor being able to grow a portfolio of over 10 properties in a short space of time is behind us.

While this is a lengthy sentence it speaks volumes about the changing face of Property Investment.

Why would I write a sentence like this? Well in my business I have a large number of Multi-Property Investors who are looking to add more. Today it is certainly not as easy as it was before. It takes patience and planning. I am finetuning my view on how to plan your borrowing approach to be able to secure the necessary finance for a growing portfolio of property.

While it is being reported that Australia is expecting some tremendous growth in property values we have a definite lag in our incomes to be able to service an increasing debt load to finance the opportunities. Nor have we the lenders with the product options available to meet this demand.

Sure 1 in 7 taxpaying Australians own at least one investment property. Our shortage of housing across the country is meaning that many recognise that they would like to buy more property, do they have the ability to borrow for these opportunities.

Let’s pause here to clarify that I am not trying to portray a doom and gloom picture.

Rather Planning in Property investment requires some very clear advice. Advice that might be to buy another investment property every two years for the next ten years and then to diversify into other modes of property investment like some minor redevelopment (splitting a large house block into two smaller ones is a good example).

While this is a great strategy the practicalities of how to finance these was easy to plan for up till the advent of the global financial crisis. Now however a lot of the finance products that were used before to achieve this have been either withdrawn completely or policies have restricted their effectiveness.

This means that is vital to have a ongoing relationship with a trusted Mortgage Broker who understand your situation and understands your future goals. Firstly you need to know they listen to you and also you can here from them when they are working for you to source the appropriate lending options to meet your ongoing needs and goals.

In the current lending climate your future plans need to have a degree of flexibility to be able to adjust to the variables associated with accessing finance for your goals as planned.

I listen, clarify and then make suggestions as to the approach to financing your property investment plan. Ian Franklin


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Mar 11

This morning I mentioned about the 5 Location Keys. I thought I should expand on them for you.

  1. Shops
  2. Schools
  3. Transport
  4. Café’s
  5. Demand over Supply

    When considering a property purchase you will put different weights on each of these depending upon your motives, your price point and your target market. For example a property near a university may be targeted for a student so the question of nearby schools for the children of tenants would obviously not be as important as Shops, Transport, or Café’s.

    Key no. 5 requires a little explanation. Demand over Supply looks at the relative demand for property over the available supply and how that could possibly change into the future. If you were to buy in an area where there is a lot of land to be developed in the future years then this may impact on your capital growth as the supply of new stock is higher than for existing properties being re-sold.

    In these areas you may need to consider the length of time you would need to hold this property to achieve a comparative level of capital growth.

    When I talk to my investment clients I discuss how the property measures up in these key areas and how it meets the clients’ objectives. Ian Franklin


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    Feb 12

    A lender considers the loan against 7 hurdles:

    3 the Borrower influences:

    1. Structure – how the loan is to be set up for the client
    2. Servicing – how much they can borrow in relation to income
    3. Security – how much deposit they have and what type of property are they buying

    4 the Lender controls:

    1. Product – price, policy and procedure will vary according to product
    2. Price – the interest rate payable on the loan
    3. Policy – what the lender allows them and their clients to do
    4. Procedure – how the lender will do things

    Structure

    Does the borrower need a fixed rate, a split loan, to pay interest only repayments or perhaps principal & interest repayments?

    Servicing

    Can the client afford the repayments based on the Lender’s Assessment Rate (which is usually 1.5 to 2% above the market rate)?

    Security

    What type of property are the borrowers buying? Where is it? Is the purchase price a true reflection of the market?

    Product

    What type of loan does the lender offer? Is it what the client needs and/or fits their desired structure etc?

    Price

    What is the interest rate? What are the fees and charges ascertainable?

    Policy

    Do the Lender’s policies accept the borrowers’ situation and preferences?

    Procedure

    How will the loan be processed? Will it be done in time?

    My business is to ensure that every client I see can cross all seven hurdles with the lenders I offer as options.

    The hurdle I consider to be the highest priority is Structure as this is where I must understand the clients’ needs and goals. If I don’t listen to the borrowers here they will never become clients as I will have not met their needs.

    This hurdle is not given high enough priority by the majority of Lenders and Brokers because you can get a deal set by just considering the other six, however your client will ultimately be lost because you haven’t verified that the product meets their needs or helps them achieve their goals. Ian Franklin


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    Jan 8

    I spent some time this morning talking with two accountants. We were discussing the various issues facing business currently, it is interesting to note that there are definitely commonalities with property investors in that there is a vital need for detailed planning both for existing business’s/investors and those looking at there first foray into a business or property investment venture.

    There is an old saying that rings true in our Post Global Financial Crisis world more than ever before: Failure to Plan is a Plan to Fail.

    Whenever I sit down with a client in business or a Property Investor; and no matter what there levels of experience the first thing I want to know is about there Plans; their plans include their needs and goals. You talk to anyone they all have needs and goals; and all professional services providers seeks to understand this (at least they should). Whether it’s a Solicitor looking after a family law matter or a Financial Planner looking to assist you with your Life Insurance needs; they all need to know the clients’ needs and goals.

    Planning is vital to your success in Property Investment, whether it is your family home or you have progressed to developing property you need to be able to articulate your needs and goals. You also need to be sure that any of the Professional Services people you engage have clearly understood those needs and goals.

    Have a plan, understand your own needs and goals, seek out professionals who know they need to understand you before they start offering their assistance. Ian Franklin


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