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8 Common investor home loan mistakes

By Jasmine Cottan, Lendi.com.au

Promoted by Lendi.

If you’re planning on winning big in real estate, start by learning from the mistakes that even the most experienced property investors sometimes make.

Many property investors dream of rising to the top of the real estate world, but only a handful of people are successful. If you’re planning on winning big in real estate, start by learning from the mistakes that even the most experienced property investors sometimes make. Here’s our rundown of the most common investing mistakes and what you can do to avoid them.

Not shopping around for lenders

If you are already a home owner, it’s common to only shop for an investment loan with your current lender under the assumption that since you already have a home loan with this lender, you might get a better deal on an investment loan. This is one of the biggest mistakes an investor can make. Shopping around for more competitive investor rates doesn’t take long and might save you thousands in the long run. You can save time by doing it all online, Lendi searches hundreds of loans from over 30 major and non-bank lenders around Australia to find the right option for your situation in just 30 seconds.

Forgetting to review your credit score

Before you apply for any loan, check your credit file. Obtain a free copy from a credit reporting agency and if your score is less than excellent, spend at least 3 months settling up your credit cards and paying any other debts on time. If your score doesn’t improve, some specialist lenders will consider borrowers with poor credit history.

Making decisions with your heart over your head

This is a common blunder that investors should avoid at all costs. Inexperienced investors will often let their emotions cloud their judgement and affect crucial financial decisions. Make analytical decisions and spend time reviewing the potential financially gain from each specific investment.

Overlooking the extra criteria for investment loans

Investment home loans can often require larger deposits and incur higher interest rates in comparison to owner-occupier home loans. It’s important to be aware of the criteria surrounding investment loans before you begin shopping for a property. As an investor, you’ll need to be financially prepared to meet these requirements so it’s a good idea to shop around as there are a number of competitive rates available.  

Choosing the wrong suburb

Familiarising yourself with the property market takes time. Before you make any commitments, thoroughly research the area not just the property you’re interested in investing, but the comparable sale prices of that suburb. Look into future planning developments and proximity to public amenities, as the property value of your future investment is dependent on these features.

Buying the wrong kind of property

Don’t be impulsive when purchasing your property. It is important to recognise your market and buy accordingly. For example, you wouldn’t purchase a tiny studio apartment in an area with a population of mainly families. Many investors choose to avoid investing in properties like student housing or serviced apartments as they often come with stricter lending criteria and pose more of a risk to a lender.

Overlooking suburb density

Have you got your eye on a unit in a suburb with a lot of development activity? Review the suburb carefully and look out for areas experiencing massive reconstruction. Lenders are often wary of these areas, some will cap lending in these suburbs and demand at least a 30% deposit from buyers. High-density areas present a higher risk to lending institutes and buyers because of the potential supply over demand. Remember, if there are not enough tenants to occupy the residential buildings, the value of your investment property will decrease significantly.

Buying a property that's too small

Buying a studio in a sought after suburb may seem like a deal but some lenders may refuse to approve loans for properties smaller than 40 square metres. Due to their limited living space, lenders fear the properties won’t be as marketable as others or could potentially remain vacant for extended periods of time leaving the investor unable to make their repayments.  

How much can you save with a better loan?

Find investment loans from over 30 major and non-bank lenders around Australia with Lendi.

Find a better investment loan today.

AUTHOR:

Jasmine Cottan is a content writer at Lendi.com.au, Australia’s largest online home loan platform. Lendi makes it simple to get a better investment property loan online.

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The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

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Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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New data from Mortgage Choice shows that property buyers continue to choose variable rate home loan products, as demand for fixed rate home loans fell for the eighth consecutive month. 

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According to the company’s latest national home loan approval data, variable rate home loans accounted for over 82 per cent of all home loans written throughout May 2018 — up over 2 per cent from the month prior, and almost 7 per cent higher than the 12-month average.

Mortgage Choice CEO, Susan Mitchell, said this trend will continue as borrowers develop apathy towards the RBA’s stagnant cash rate.

“Indeed, we continue to see borrowers opt for the flexible nature of variable rate home loans which may offer a redraw facility, offset accounts and the ability to make extra repayments. These features are not typically associated with fixed rate loans.

“While a fixed rate product provides repayment certainty, variable home loan rates have been relatively stable for a prolonged period of time giving borrowers little incentive to fix.”

This week’s Housing Finance data from the Australian Bureau of Statistics found that 52,116 home loans were approved throughout April, down 1.4 per cent from the previous month.

Ms Mitchell said she is unsurprised that the value of investment loans dipped — falling 0.9 of a percentage point to $10.7 billion in April.

She said this could reflect tighter lending standards and serviceability policies.

“However, May data may show an increase in investment loans following APRA lifting the cap on investor loan growth at the end of April,” said Ms Mitchell.

Ms Mitchell also noted that the number of first home buyer commitments as a percentage of total owner-occupied housing finance commitments rose to 17.6 per cent in April 2018, from 13.7 per cent in January 2018.

“This increase is significant and first home buyers seem to be propping up the market.”

Ms Mitchell said she expected home loan demand would be maintained.

“[Due to] a combination of factors, such as historically low interest rates, easing property prices and access to FHOGs.”

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Buyer ‘apathy’ behind mortgage preferences
object(stdClass)#1201 (52) {
  ["id"]=>
  string(5) "18158"
  ["title"]=>
  string(57) "The benefits of investing in a decreasing property market"
  ["alias"]=>
  string(57) "the-benefits-of-investing-in-a-decreasing-property-market"
  ["introtext"]=>
  string(150) "

The Australian property market is arguably in a softening phase, and this can have both positive and negative effects for property investors.

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In this episode of the Smart Property Investment show, Real Estate Gym’s Tom Panos joins host Phil Tarrant to discuss how investors can take advantage of this decreasing market by leveraging off of the reduced urgency in the sales process.  He also discusses the importance of researching up to date sales data before investing and looks at the state of the Australian property market as a whole.

With many property investors also selling property throughout their journey Tom reveals the best months to buy property in Australia, shares his thoughts on why an auction is not always the best method of sale and how as a purchasing decision it can lead to over-paying.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

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The benefits of investing in a decreasing property market

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