Is ‘ultra-cheap’ funding on its way out?
A second big four bank has gone and hiked its fixed home loan rates for owner-occupiers. ...
In a changeable property market, it can often be difficult for investors to determine their next move.
Could they sell a property and channel their sales profits to pay off their debt, use available funds to invest again or should they simply maintain their portfolio as it stands? These are some of the many questions investors encounter as they travel on their investment journey.
Broker Troy Phillips and financial advisor Tony Caine recently told The Smart Property Investment Show that while there were a number of options available to investors, there were also a number of considerations they needed to make.
The duo encouraged investors to seek advice from qualified financial advisors, and shared their ideas on investors’ next steps with the team.
Both Mr Caine and Mr Phillips agreed that it was important for investors to first consider their long-term prospects before updating their portfolio and to determine the purpose behind each transaction.
“I think it’s important to say, ‘What's my plan in 10, 15, 20 years?’” Mr Caine explained.
“[Or] say, ‘Okay, what's a good time, what's happening in my life, to make it make sense for me to sell that property?’"
However, he added that if investors didn’t “need the cash” that it could also “make sense to retain [property] if it's going to be long term” and keep listings in their portfolio.
Setting aside core wealth
Mr Phillips told the podcast that one option for property investors who had recently sold a property was to “pack some money away” into an interest-yielding account as one’s “core wealth”.
“There’s a thing called core wealth,” he explained.
“Talk to an advisor, or someone you trust, and look at how you are going to put your core wealth away. You get to the edge of 40, 45, and you don't want to keep taking risks.”
He noted, however, that putting a portion of funds away would also allow those investors looking to add to their portfolio to do so if and when they were ready.
“You want to pack some money away… and you want to have some money where you can have a play again in the property market,” he said.
“Just have a bit of powder. When the banks start to tighten up their lending, that's when property might come back a bit. Then you can jump in again.”
Reducing debt exposure
“The world’s gone through a massive phase of deleveraging, so I think just taking a profit is never a bad thing,” added Mr Phillips.
With regard to this deleveraging, Mr Phillips told the Smart Property Investment team that investors could also “take some money off the tail” and “deleverage a bit” by using a portion of their sales profits to decrease their debt and reduce their risk exposure.
“Tip it in there, save yourself some money and improve your cash flow. That's what I'd say, a hundred per cent – that's the best deal for a property player,” he said.
Mr Phillips concluded by saying it was important for investors not to drown themselves in debt and to effectively manage their funds.
“You don't want to have that much debt, and that much risk that you're actually in a PAYG job, and you're relying on that to service your property,” he said.
“A lot of banks will give you an umbrella when it's 36 degrees… but when it's [pouring] down, they're going to leave you with a raincoat without a hat – so be very careful of the debt you carry.”
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.