Should you get debt to show the bank that you can manage your finances?
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Should you get debt to show the bank that you can manage your finances?

By Bianca Dabu
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One of the first problems that Victor Kumar and his wife faced as they went on to start their property investment journey is getting their first loan.

The couple, who came to Australia in 1997 as migrants, soon found out that “bricks and mortar” is the best way to make money in their new home country, and they quickly set out to engage in the business of creating wealth through property. However, it did not come easy for them because they didn’t have any proof of credit history to show the bank.

Victor shared: “They turned around and said, ‘We can’t lend you money even though you’ve shown good savings history because you actually don’t have any credit history with us…’ One of the things I did was I persevered. I kept asking the question ‘How can I get a loan?’ ”

Smart Property Investment’s Vivienne Kelly said that many budding property investors often come across the problem of not having any history of borrowing, particularly if they lived at home their entire lives and that have avoided getting a credit card to help them save.

“A lot of people are also gifted deposit[ors] and think that that’s enough to get started, but then, they go to the banks and the banks are sort of turning them away because they don’t have any evidence that they are going to pay the loan back,” she said.

Understandably, banks would hesitate to lend money to people who are unable to prove that they can pay back a loan or that they are financially responsible, but should one actually accumulate debt to be guaranteed a loan? Before getting into property investment, Victor never even applied for a credit card, but this small change paved the way for his success in building a multi-property portfolio with assets spread across Australia.

“The easiest thing I would suggest is get[ting] a small-limit credit card… and religiously pay it off each month, run your expenses through that. That will build some level of credit history as well,” he said.

However, his word of caution for property investors: “You got to be careful [and make sure] that you’re actually paying the debt off. It’s very easy to get debt in this country these days and, of course, it’s always substantially hard because we are always enticed by all these ads of ‘No interest repayments for 2 years’ and so forth.”

Right now, Victor and his wife are happily managing a property portfolio with a loan-to-value ratio of around 75 per cent, with all of the properties tenanted. For them, the secret to success is simply knowing the outcome that you want at the end of your journey and persevering to achieve the goals you have set for yourself.

“Think things through first. Get more focused as to what you’re trying to achieve rather than [thinking] ‘I want to buy 10 properties [or] 50 properties.’ Don’t focus on the number. Focus on the outcome and focus on the end cash flow. Give yourself a time frame,” he concluded.

Tune in to Victor Kumar’s episode on The Smart Property Investment Show find out how hard work, perseverance, education, and a dogged never-give-up attitude set Victor Kumar on a path to success. 

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Bianca Dabu

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Should you get debt to show the bank that you can manage your finances?
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