Ever wondered what separates successful property investors from highly successful property investors?
Well contrary to popular opinion, it’s not a simple case of buying at some exact moment in time to best ride out the housing market highs and lows.
And most who manage to create genuine financial freedom through real estate don’t necessarily possess Warren Buffett’s extensive investment knowledge.
They’re everyday investors like you and me.
Investors who’ve discovered how to strategically develop a property portfolio using their existing resources, along with any capital and relevant expertise they can safely leverage along the way, such as structuring tips from a good mortgage broker and accountant.
So how do they do it?
How do savvy investors avoid being ‘average’, unlike the majority of Australians who try to build a retirement fund through property, but only ever end up purchasing one asset in their lifetime?
How do they build a veritable cash machine of property investments, leveraging into a new high-growth acquisition every one to two years?
Here are the top 3 indispensable strategies employed by savvy property investors that, when applied to your own investment journey, will take you to the top of the property ladder…
1. Structuring your investments to reduce debt and save BIG on loans
Tempted by a cheaper interest rate?
You wouldn’t be alone. So were the other 90-odd percent of investors who never made it past one property, because they mistakenly emphasized saving a few dollars worth of interest in the early days.
Focusing on a ‘cheap’ loan, rather than optimal structuring of their property portfolio based on a carefully thought out investment strategy, set them up to fail before leaving the starter blocks.
Generally the lower the rate you’re tempted to take, the lower the list of product features you’ll benefit from, and the more likely you are to restrict any future investment power you might otherwise have enjoyed.
The key is to prioritise…
- Flexibility… so you can keep buying high growth assets.
- Cash flow… so you can sustain your growing asset base for years to come.
- Control… so you say how and where your assets work for you, not the banks.
Case in point…
The good news is, you can save big money on your property investment loans without having to sacrifice any features or flexibility, just by knowing a few structuring tricks of the trade.
Consider, for this example, go-getter investment couple Lauren and Scott, who decide to leverage the equity in their home to acquire an investment property.
They currently owe $500,000 on their home, which is worth $850,000, giving them $350,000 total equity.
They decide to draw down $100,000 worth of equity, leaving them in a comfortable LVR position on their home loan at around 70% – a smart move given this is non-tax deductible debt.
They use $70,000 for a deposit and acquisition costs, and as the new investment loan will be tax deductible, they split this into a separate, stand-alone product.
Their lender offers them a very appealing rate reduction of 1.0% for the first five years on their new mortgage, with the proviso that they only borrow up to 80%, meaning they could purchase a property for around $300,000.
(Factoring in the $70,000 they have for a 20% deposit of $60,000, plus $10,000 for purchase costs.)
The couple, under the advice of their mortgage broker, decide to make their equity extend further however, planning to purchase an asset in a location that’s historically outpaced the averages in terms of capital growth.
They forego the cheaper rate deal in favour of extending their LVR to 90% and and are now able to spend potentially $550,000… this enables our client to increase the options on the investment purchase and…
Increase their purchasing power!
Now Lauren and Scott can afford a $550,000 property ($50,000 deposit plus $20,000 purchasing costs), meaning the opportunity to secure a far more productive addition to their portfolio.
They use the extra $30,000 to establish a rainy day cash flow buffer in an offset account attached to their non-tax deductible home loan, effectively reducing their home loan balance from $500,000 to $470,000 and saving significant interest over time.
Of course the new loan attracts a charge for Lender’s Mortgage Insurance (LMI), but the couple can claim lenders mortgage insurance as an expense under the tax law noted here, so this can offset the cost in some cases.
The most important factor in this entire equation?
The clients have immediately made three MASSIVE changes to their future:
1) Potential for increased capital gain over two high growth properties rather than one ‘average’ asset.
Let’s say the property worth $550,000 attracts average per annum growth of 7%, while the $550,000 house nets them an average 10% per annum.
It would take the cheaper asset ten years to equal the value of today’s more expensive property. While the $500,000 acquisition will have more than doubled in value, to just over $1 million in that same decade.
Makes that initial investment in LMI fees seem like chump change, doesn’t it?
2) Instant additional equity to utilise over the growth of each property, providing them with even more options as they grow their portfolio.
3) Reduced lending risks by utilising appropriate structures to avoid being tied in with one bank.
So why don’t more Australians benefit from this type of optimal investment and portfolio structuring?
Because they don’t have the industry insight and extensive knowledge of how banks work.
They don’t have access to the little known ‘tricks of the trade’ when it comes to creating a successful investment strategy.
People like Lauren and Scott know that building a property portfolio takes more than money. They understand that you also need to leverage knowledge and experience wherever possible and actively…
2. Seek out expert financial advice.
Behind every successful investor stands an equally savvy team of experts providing guidance and industry insight.
These are the people who will help you to construct your future fund with minimum risk and maximum reward.
A highly experienced mortgage broker who understands the intricacies of property investment structures can be your greatest ally as you seek to build a profitable property portfolio.
Equally crucial to your team is a good accountant/financial advisor who understands how to best use property to create an effective retirement income.
Both of these industry professionals can provide a wealth of advice on the best types of acquisition and finance structures, specific to your own investment objectives, strategy and personal circumstances and risk profile.
Not to mention the substantial savings an accountant can make you at tax time, helping to keep your cash flowing consistently for many years to come.
A good accountant can save you tens of thousands (even hundreds of thousands!) in the long term, offsetting your personal tax bill with legitimate (and often lucrative) investment related claims and deductions.
But not all ‘experts’ are the same.
How to find a ‘good one’
Thankfully, Mortgage Corp have taken the hard work out of finding a reliable accountant, establishing our own internal network of advisers we can call on to assist in the optimal structuring of your portfolio.
Likewise, we have extensive experience when it comes to the exacting needs of property investment related borrowing, meaning you have the backing of a professional team that understands and is looking out for your best interests.
Never underestimate the role a good accountant and mortgage broker can play in assisting you during the accumulation phase of your property investment journey, particularly when they’re working side by side.
Just like building the best finance structures, establishing the best possible advisory team can see you reach the pinnacle of the property ladder sooner.
Then the question becomes…how do you effectively manage all those high growth investment properties?
3. Engage a reliable property manager
Many investors are tempted to undertake DIY property management, believing it will save them a few dollars.
But attempting to do everything on your own can quickly jeopardise your portfolio’s bottom line.
Engaging a professional property manager will free you up to focus on the big picture for your property portfolio, not the details – where the devil can lie.
While suitably qualified and experienced property managers make it look easy, managing tenancy agreements comes with a lot of regulatory responsibilities that you and I are often blissfully unaware of.
A good property manager can help determine the appropriate market rent for your investment, find good tenants to live in your investment, keep an eye on annual increases to optimise cash flow and minimise vacancies to keep that all-important income rolling in.
Choosing your team of experts
Here are our top 7 tips to identify the types of suitably qualified and experienced industry professionals you’ll want on your team.
- Ask what areas they specialise in. Logically, you want someone who knows their stuff when it comes to properly structuring and managing a high growth property investment portfolio.
- Check their qualifications. Are they registered with the appropriate governing body or institute that regulates and oversees their profession?
- Make sure they’re accessible and willing to answer any questions you might have when looking to acquire a new addition to your portfolio.
- Are they really interested in helping you, or just trying to line their own pockets? If they haven’t bothered getting to know your current circumstances and attempted to ascertain your needs, but are already suggesting an investment ‘sure thing’ you need to be wary.
- Can they provide client referrals? What type of feedback is circulating about them on social media and the Internet? (To hear from Mortgage Corp customer, click here.)
- What are their fees and charges? Are they prepared to execute a letter of engagement that clearly outlines their obligations to you and vice versa?
- When in doubt, ask friends and family or an investment mentor to recommend someone they’ve had successful dealings with.
So there you have it! The top 3 things every savvy property investor does to reach financial freedom.
Let’s recap. They…
- Have a strategy to minimise their debt burden and maximise tax benefits. In order to achieve this they…
- Seek out expert advice in the form of a good accountant and mortgage broker with experience in optimal investment and loan structuring. And finally, they…
- Engage a reliable property manager to free up time for more profitable ventures, like building a wealth generating property portfolio.
The result? A financial strategy that saves you time and money!
Determining how all the pieces will come together in order to form a profitable portfolio at the beginning of your investment journey can save you substantial time and money down the track, when it matters most.
Get it right and you’ll reduce your risk exposure in terms of things like loss of rental income, while shoring up sufficient cashflow to give your investment maximum longevity through boosted tax and mortgage savings.
For investors who underestimate the importance of investment and financial structuring however, the consequences can be dire.
Do you want to be one of the few savvy investors, who makes it to the top of the property ladder and achieves the type of financial success that sees you enjoy the retirement of your dreams?
We could help you get on the right path. Our ‘inside knowledge’ of how lenders operate means we can strategically target lenders and loan products that are best suited for your unique circumstances.
Importantly, we know what optimal loan-structuring look likes and how to build a property portfolio that suits the different needs of each and every client. Because no two financial plans are ever really the same.
Contact Mortgage Corp today, to find out how we can increase your borrowing clout and in turn, your investment bottom line.