The Best Home Loan for Property Investors

by | May 26, 2021

Deciding on the right loan structure as a property investor, is a little bit like choosing the right outfit on a first date. It depends on what stage of life you’re at!

If you’re new to the game, something a little daring might work best. Later on, you might want to play it safe.

It’s the same for property investment and the stage you’re at reflecting how risky or safe your loan structure needs to be.

Here we weigh up the pros and cons of principle and interest loans vs interest only loans for property investors.

 

UNDERSTANDING DIFFERENT TYPES OF DEBT

Any type of loan is a type of debt. Debt can make people nervous. If you want to be successful as a property investor it’s important you know the difference between good or rich debt, and bad or poor debt.  

Poor or bad debt, is just that – BAD! 

Bad debt is borrowing money from a lender to buy something that immediately loses value and has no prospect of earning you an income. 

Bad debt is spent on things like new cars, jet skis, motorbikes, furniture. Expensive to buy, these items lose value as soon as you make the purchase. They never resell for more, or even the same, as what you paid, and it’s impossible to generate an income you can live on from them.

Rich debt is using other people’s money (usually the bank’s) to buy an asset. An asset puts money in your pocket. An investment property puts money in your pocket via rent. As an asset, an investment property has an added bonus in that it also benefits you with some tax effectiveness and efficiency that can also put money in your pocket. A jet ski doesn’t do that!

As a property investor you need to get comfortable with debt. There is nothing wrong with debt as long as it’s rich debt and not poor debt. You just need to know the difference.

 

WHEN INTEREST-ONLY LOANS ARE THE RIGHT CHOICE

During the acquisition phase of your property investor journey, your primary aim is to purchase the right properties, not to pay down your debt. Embracing debt can take a while to get used to, but you need to think about the long game and what you’re trying to achieve, i.e. many properties, all creating wealth.

If you can get an interest-only loan in your acquisition phase, this is 100% what you should do. Why?

Because interest-only loans give you flexibility with cash and that flexibility allow you to move on to the next property faster. Having access to spare cash is vital in your acquisition phase, which can last for years. If you’re paying every last cent you have to pay down your principle, where is the next deposit amount going to come from when you want to buy a second, third or fourth investment property?

If your comfort-zone demands some visible debt reduction – or at least the potential of it – instead of a principle and interest loan, opt for an offset account. 

The advantage of an off-set account is that you can put any extra money into that offset and make extra payments if and when you want, but you retain access to that cash. 

If you opt for a principle and interest loan and you suddenly need money, you have to apply to the bank to redraw that money – and there’s no guarantee they’ll say yes. An off-set account gives you the comfort of seeing some “savings” without losing control of the money.

 

WHEN A PRINCIPLE AND INTEREST LOAN MAKE SENSE

When you move from your acquisition phase, into your holding phase, and finally into your consolidation phase of property investment, it might be time to change your loan structure.

Unless you have a significant income, it’s hard to pay off debt while borrowing money to buy three or five investment properties. But once you’re happy with your portfolio, a principle and interest loan can help you start to pay down your debt, while still reaping the rewards from your investment incomes.

No matter what style of loan you choose, the most important thing is that you are able to service that loan while achieving your goals. 

LOAN STRATEGY IS FUNDAMENTAL 

Having a long-term plan around your loan strategy will be important to your overall success as an investor. 

Let the experts at Positive Real Estate teach you about how to calculate your loan repayments while you’re still investing at one of our free property investing seminars

Sign up for one of our information and education events, where you’ll be equipped with the tools, resources and support to thrive, and not fall behind on your path to financial freedom – whatever that may look like for you. 

Book your spot now and find out what you need to know about the current market landscape and how you can make it work for the ultimate wealth creation opportunities. 

 

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Turning $80k into $800k

Turning $80k into $800k

Welcome to the first episode of Property Investor Tales – Stories From The Front Yard!

Each week I get to speak to property investors from around Australia about their investing journeys. As the head of coaching at Positive Real Estate, I’ve been fortunate to connect with thousands of investors who have a story to tell. My hope is that from these incredible investors, your own investing journey is made that little bit easier. 

Abe Pasilidis is my guest today and he has an inspiring story to tell. I won’t give too much away but listen out for an $80k investment has turned into $800k, plus a hilarious story of property management gone wrong (when you DIY). 

Enjoy this conversation with Abe!

Once you’ve listened to this episode, I’d love it you hit the subscribe button  so you get notified every time a new episode drops. 

As you can guess I love hearing people’s property investor tales so if you’d like to share yours then please get in touch with me via email at  propertyinvestortales@positivementor.com.au You can watch all of these podcasts over on YouTube at Positive Mentor or at positivementor.com.au
Today, I am talking about some key lessons I learned from Dr. Andrew Wilson, a housing economist and a funny bloke. He is a member of the Chartered Surveyors Community, a wealth of knowledge, and a voice of reason when it comes to real estate investment. I’ve adapted his predictions into my strategies and share them with you today!

The Biggest Lie of Investing Revealed

The Biggest Lie of Investing Revealed

You have been lied to… by you! Today we are talking about the biggest lie you have been telling yourself about real estate investment and your wealth creation journey. Want to know what it is? I could just TELL you, but then you wouldn’t learn. It’s embedded in this podcast – feel free to DM me when you think you’ve found it!

Today, I am talking about some key lessons I learned from Dr. Andrew Wilson, a housing economist and a funny bloke. He is a member of the Chartered Surveyors Community, a wealth of knowledge, and a voice of reason when it comes to real estate investment. I’ve adapted his predictions into my strategies and share them with you today!

20 Investing Lessons from COVID-19

20 Investing Lessons from COVID-19

What do you need to know about corona economics? We have learned a lot of lessons through investing during the pandemic, and I want to highlight some of those today. I have a list of 20 however I don’t think I’ll get through them all! I want you to walk away from this episode understanding what happens when real estate markets transform and what will happen if we don’t take advantage of the lessons that are right in front of us.

A Property Investors Guide To Guaranteed Rental Increases

A Property Investors Guide To Guaranteed Rental Increases

Rent is your weekly or monthly incomes from your property. And it’s an income you don’t work for. It’s the absolute key to good cash flow and passive income, so it’s essential you are able to keep raising your rents at regular intervals. But, what makes it possible for property investors to do this?

My Real Estate Pet Hates

My Real Estate Pet Hates

This episode is about all of the things in the real estate community that piss me off. From investors consulting clickbait on social media to predatorial real estate agents giving themselves fake awards, we are going to talk about everything that is wrong with the real estate industry that you need to know about as a property investor. Hopefully, after listening to this you will be able to avoid some of the most common pitfalls that property investors fall into during their wealth-building journey.

Why Do You Want to be Financially Free?

Why Do You Want to be Financially Free?

Will you survive the emotional roller coaster that is property investing? It takes time, money and commitment to create a portfolio, but sadly most who start out don’t make it, why? Well, let’s Wealth Coffee Chat!

The Only Time You Should Sell An Investment Property

The Only Time You Should Sell An Investment Property

The golden rule of property investing is to buy well and NEVER SELL. However, there are always exceptions to the rule… Firstly, let’s look at why you would keep an investment property? If you buy a great piece of real estate, in the right location, it will always create a passive income for you, so there will be no reason to sell it.