The Best Home Loan for Property Investors
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.
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Considering that all major Australian cities are coastal, and most of the richest neighbourhoods are beachside, the growing threat of severe weather incidents due to global warming throws a serious spanner in the works when considering where to buy and invest. If you’re a climate change sceptic, we’re not here to judge. But that position isn’t going to help you if the institutions you rely on to protect your assets won’t have a bar of your $3 million beachfront house.
Rules are an important part of life. And rules in most cases, are really just another word for common sense. They give us a clear framework around many important aspects of life, so it’s no surprise when it comes to selling your investment property, there’s a number of rules you need to follow in order to get the best result.
If you want to know when to sell an investment property, or even if selling an investment property is a good idea, all you have to do is read the rules.
Most of us were raised with the idea that debt is bad. Debt drags you down. Rich people are never in debt.
While that may have been true for our great grandparents, it’s no longer the case. Debt is one of the keys that can unlock future wealth as a property investor. The more good debt you have, the more income you can create.
But, before you go out and put yourself $1 million in the hole, let’s talk about the right kinds of debt. The debt that’s going to lead to success, not ruin. This is called…
I’m sure you’ve heard – data is the new currency. It’s the next big thing for business and it will be a catalyst for driving the world forward over the next few years. Learning how to harness the power of data in property investing, will be a secret weapon all investors can use to create more wealth. So, what is data? It’s information, insights and predictions that property investors can use to help them make smart property purchases.
After a lot of bad news over the past 12 months – thanks a lot COVID-19 – it’s nice to be able to kick off 2021 with some good news. There’s going to be a lending boom which, if you have your property investment strategy in place, is going to make your life a whole lot easier so you can build your property portfolio faster and cheaper.
Like a fine wine, the value of property gets better over time. Traditionally, the more time you have an investment property, the higher the value will rise.
However, unlike your favourite Shiraz, property values can go up and down, and up again.
Getting to know how, why and who is valuing your property can help us understand what property to invest in.
There are three ways to value a property – and three very different people doing the valuing.
What are your Big Rocks this year? What are your Big Rocks for your property investing journey?
If you’re scratching your head and wondering if you’ve accidentally stumbled across a blog for construction workers, bear with me.
Big Rocks is a concept often used in business or life coaching to essentially describe your priorities. The theory is, if you don’t have clear priorities, or if you have too many, chances are you’ll let smaller issues distract you and ultimately fail in your goals.
Historically real estate has always been a good place to put your cash. It’s an asset you can feel and touch – unlike stocks or shares – which makes investors feel safe. And, in the right place and time, property can grow in value while you sleep, meaning as an investor you don’t have to do much to increase your personal wealth. But as investors, how can we better predict the next hot spots for real estate investment so we can get in at the right price? How do we know the best places to buy that are guaranteed to grow in capital value, return regular rent increases and ensure future personal wealth?
According to the Australian Bureau of Statistics, 99 per cent of property investors in Australia fail. In this instance, the definition of failure is failing to buy three or more properties. Failure is easy. It takes very little effort to be bad at something. Success is something you have to work for, something that takes time and effort. But if you’re willing to put in the hard yards, we know you can succeed. We know because we’ve helped thousands of Australians buy property that’s yielded millions of dollars of income. To understand how to succeed, we need to know why so many fail. People fail because …
Part of being a successful property investor is being able to stay across a lot of moving parts. From analysing the value of different areas or types of property, to understanding inflation and different kinds of loan structures. It’s information overload and at times can feel overwhelming.
Information overload can lead to something we call “analysis paralysis” meaning, with so many decisions to make, you can’t make any.