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Before you get into your next property deal, you need to make sure your finances are structured correctly and your budget complements your strategy.
Blogger: Helen Collier-Kogtevs, Real Wealth Australia
I always say that before you even think about researching your next property deal, you need to have all of your finance “ducks in a row”, so to speak.
It pays to get your funding organised well before you begin shopping, or you might end up sorely disappointed when you miss out on a prime property investment because you miscalculated your borrowing capacity.
To give yourself the best chance of a smooth and hassle-free finance journey, I recommend you do the following five things.
1. Know your budget. It’s crucial that you know what your borrowing power is before you begin shopping for property. Also, understand that it changes every time interest rates move up or down, so if rates change, ask your broker to recalculate your borrowing power.
2. Have your deposit ready. Before making an offer or going to auction on a property, be sure that you have ample funds on hand to use as the deposit.
3. Stress test the mortgage. When you’re calculating the repayments you can afford, use a higher interest rate than the one you’re bank gives you; I always recommend 2% above the current standard variable. This is basically a “stress test” on the mortgage and gives you peace of mind that you can still afford the loan repayments if rates go up.
4. Triple check lending policies. Your mortgage broker will advise you of the best lender to suit your needs, but remember that lending policies change frequently. Some lenders have high-risk attitudes towards certain property types such as mining towns, regional locations, high density complexes and studios smaller than 50m2. If your potential investment falls into one of these categories, run it past your broker so they can secure the best finance fit.
5. Create a solid financial strategy. By this I mean, when you’re structuring your finances on your new investment, make sure they complement your existing budget. For instance, you’ll want pay off your owner occupied mortgage or credit card debts faster than your investment loan, so make sure this is reflected in your financial strategy.
Until next time, happy investing.