Property investors seek to grow portfolios with multiple properties, but what happens when they get limited access to financing after the first purchase?
First-time buyers often enjoy the assistance of first home buyers loan and other benefits, but those who are on the path of growing their portfolio may have a more limited set of options in terms of financing.
Still, homeloanexperts.com.au’s Otto Dargan said that it could be possible to continue growing one’s property portfolio with little to no deposit.
In fact, the home loan expert encouraged investors to maximise loans, incentives and grants in order to be able to grow their portfolio quickly and ultimately thrive in the ever-changing landscape of property investment.
“When I purchased my first investment property, I felt like I was running after a speeding train. The more I saved, the more house prices increased,” he highlighted.
“Many investors today will miss the boat if they don’t act quickly.”
Some of the incentives and assistance available to investors with little to no deposit money are:
Some of the states offer grants for people who buy or build a new property.
The valuer is unlikely to take the same conservative approach that they take with developer cashbacks, thereby effectively reducing the size of the deposit of those who will avail of the grant.
Developers and builders often offer cashback or other special incentives that investors can use as part of their deposit.
However, the valuation may be reduced by banks depending on the size of the kickback.
“Banks often consider the real purchase price to be the purchase price less the kickback and they reduce the loan accordingly,” Mr Dargan explained.
If the investor’s parents own a property in Australia, they can provide a limited guarantee for their mortgage – meaning, the investor can borrow 105 per cent of the purchase price with no deposit and even have the lenders mortgage insurance waived.
However, in some cases, such as if the parents are retired or already holding a loan on their own property, banks may reject the application for a guarantor loan.
Apart from letting the investor borrow 95 per cent of the purchase price, some lenders may also let them borrow an additional small unsecured loan worth $15,000 to $20,000 for additional costs such as stamp duty.
In order to enjoy this benefit, the investor must have saved up at least 5 per cent of the purchase price.
According to Mr Dargan: “You can borrow 95 per cent for a home, yet only 90 per cent for an investment property so this works well for people who intend to live in their property and rent it out one day in the future.”
Refinancing existing properties and releasing equity to use as a deposit for the next purchase is a strategy that many investors are already implementing.
Since different banks have different valuers and different valuers have different opinions, a good mortgage broker can help determine which lender would be able to provide the best value simply by ordering valuations upfront.
With enough research, investors can find lenders who will allow them to refinance to 95 per cent loan-to-value ratio, provided that they have a good credit record.