Download - Property Investment Finance Fundamentals
Property Investment Finance
Fundamentals
We help investors build and manage
their property portfolios
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.
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Real Estate Investar
In Partnership With…
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
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?
• 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?
• The Property• Equity• Cash Flow• Credit Record• Your Character
5 Barriers to Finance
• 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
• 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
• 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
Cross Collateralisation
1 bank.Multiple loans,
business overdrafts and
credit cards
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
Individual Collateralisation
Loan 1 Home loan
& offset
accounts
Loan 2 Business loans &
overdraft
Loan 3Investment property #1
Loan 4 Investment property #2
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
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
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
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.
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