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australian investment property

If you are an overseas investor and are looking into buying an Australian Investment Property then it’s good to know about some of the real strengths of the Australian Property Market. Apart from the fact that every block of land comes with a free Kangaroo and a cuddly Koala Bear (this may or may not be true :-)) what you really want to know is whether or not you are buying into a strong nation where your money is safe!
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1. Australia has Strong Population Growth

We are growing at 1.4% through a mixture or births and immigration. This means there is always an increasing demand for houses. Demand means your house will tenanted all of the time. In Sydney for example its common for there to be over 50 enquiries for a single rental property. There are cars parked up and down the street. it’s quite a sight to behold!

2. Australia’s Banks are Strong

The truth is that the locals hate our major 4 banks, CBA, Westpac, ANZ and NAB. They make billions of dollars and every year they break the profit record from the year before. However, the plain truth is that they are heavily regulated by the government and play it safe. During the Global Financial Crisis of 2008 our major banks experienced little more than a hiccup, whilst many of the banks in other parts of the world went to the wall and were bailed out by their governments to avoid major crises. There was no need for that here!

3. Australia has a very Healthy Economy

I remember when I studied economics at University and the lecturer said that 6% unemployment was full employment. In other words, everyone that wanted a job had one. At the moment we are 5.4% unemployment. This is extremely high and a statistic that many other western countries envy. The US & UK are at 7.8%. This means there is a large percentage of the population who can afford to rent your Australian Investment Property.

4. Some of our Cities have an Undersupply of Properties

Sydney is certainly an example of a city where there are more people than houses to fit them in. This is always good news for the investor because it means the rent will increase and demand for property will stay strong. Properties only usually drop in value when there is an oversupply. There are some areas of Australia where this is the case, such as the Gold Coast, however this is by far the exception and not the rule.

5. Household Debt is Relatively Low

After the GFC there is definitely a trend towards saving more and reducing our credit card debts. The large debts are mostly in the hands of those that can afford them. This is encouraging to overseas investors as it means the default rates are very low. There is a very high percentage of people who pay out their loans in full and meet every repayment. This means the possibility of there being an Australian Investment Property crash is very low.

6. Home Ownership is Standard

Every Aussie aspires to own a property. This is just the Australian way. 70% of us are paying off our homes and about half of all the houses in Australia have been paid off completely. In short this means that an Australian Investment Property will be surrounded by locals who own their houses, raising the standard of each neighbourhood and the desirability of your property.

7. Australia is a Beautiful Place

australian investment property

When I have relatives come from the UK they often tell us that we live in paradise. That living in Australia is like living on holidays permanently. It certainly is a wonderful place with friendly people, beautiful beaches and a lot of fun to be had.

If you would like some further information on anything related to Australian Investment Property or Investment Finance please click contact us. If you you would like more statistical information on Australia please visit the Australian Bureau of Statistics.

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some specific and helpful advice…

Article by James Parnwell & Jordan Cox

If you would like some further information on anything related to Investment Property or Investment Finance please contact us

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…

Please let me know if you have any questions.

how much depositSo you are looking to buy your first investment property or perhaps trying to work out whether you can afford your second. The first question is often, how much deposit do I need to buy an investment property? Let me start by explaining that there are more ways to approach this than just saving up cash! Certainly saving up cash is a very good way to  go, but it can be tough depending on your circumstances. I will cover another few ways to get together a deposit.

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How much deposit do I need in Cash to buy an Investment Property?

We need to be able to give the bank a minimum of 5% of the value of the investment property plus cover the other costs involved in purchasing a property. So what are the other costs? The main one is stamp duty, however you will need to allow for solicitors costs and few other items. Here is a scenario where we are considering buying a $400,000 property in NSW…

How much deposit do I need for a $400,000 property in NSW?

5% Deposit $20,000.00
Stamp Duty $13,490.00
Mortgage Registration $102.00
Land Transfer Registration $204.00
Solicitors Fees / Misc. $2,000.00
Total Deposit Needed $35,796.00

 

How much is the Lenders Mortgage Insurance?

If you put in less than a 20% deposit you will need to pay Lenders Mortgage Insurance (LMI). Whilst this can be quite expensive it is often necessary for people to pay this in order to get into the market. For the above example the LMI would be about $12,000. The more deposit you put in, the lower the LMI becomes. However, the good news is that you put most if not all of this on top of your loan, so it’s not money you need to save up!

How much deposit do I need for a brand new $400,000 property in NSW?

If $35,796 sounds like a hell of a lot of money to save, you might be right! However, there are some government grants around from time to time.

At the moment for example in NSW there is a $5,000 incentive for anyone who is buying a brand new property. The grant is clearly designed to stimulate the construction of new houses. Follow this link for more detailed information. http://www.osr.nsw.gov.au/benefits/grant_scheme/

5% Deposit $20,000.00
Stamp Duty $13,490.00
Mortgage Registration $102.00
Land Transfer Registration $204.00
Solicitors Fees / Misc. $2,000.00
Grant -$5,000.00
Total Deposit Needed $30,796.00

What about the FHOG?

There is also the First Home Owners Grant (FHOG) which currently gives $15,000 to a first home buyer. Clearly, this is for people who are planning to live in the house. However, the law states that you need to live in the house for 6 months commencing within the first 12 months that you own the property. So some people buy their first property, get the $15,000 plus the $5,000 for it being a new property, live in the house for 6 months then convert it into an investment property.

Are there any other incentives out there to help me reduce my deposit?

I am in contact with builders who are currently happy to pay the balance of the Stamp Duty as an incentive to purchase with them. This means for the following example they kick in a further $8,490. I should point out that these offers come and go, however if you contact me I can put you in contact with builders who have different incentives going most of the time.

Property Price $400,000.00
5% Deposit $20,000.00
Stamp Duty $13,490.00
Mortgage Registration $102.00
Land Transfer Registration $204.00
Solicitors Fees / Misc. $2,000.00
Grant -$5,000.00
Builders Incentive -$8,490.00
Total Deposit Needed $22,306.00

 

Hopefully that is starting to sound a lot better!

How much deposit do I need if I don’t have cash?

If you don’t have cash, then you need equity! Equity is essentially some value in another residential property. For example, if you have a house worth $400,000 and a loan for $200,000 you will have $200,000 in equity. Now, you can’t borrow all of this, however, you could take out a loan of $100,000 against your existing property and use it as the deposit for your next property. Making sense? If not, shoot me an email and I will call you to explain!

How much deposit do I need if I don’t have cash or equity?

The next option is to look at a guarantor type situation. This would mean you need to use the equity from your parents property or another family members property to borrow the necessary deposit. Many parents are happy to help get their kids started in property and will let them use equity in their own home to get started.

Lenders are prepared to do this in some cases, so it is probably best if you contact me and I can help you with this scenario specifically!

What do I do if I don’t have cash, equity or a guarantor?

Well my friend, you need to marry into money or get a savings plan!

how much deposit investment property

Opportunities Everywhere!

I am in contact with many builders and developers so there are always loads of opportunities and incentives to help people like yourself get started. If you would like more information just click contact us and I’d be happy to chat with you!

Article by James Parnwell

Disclaimer:

This article is not designed to provide personal financial or investment advice. The information provided is general in nature and does not take into account your particular investment objectives, financial situation or investment needs. We recommend that you speak to your financial Adviser or Accountant before you make any further decision.

 

Investment Finance: Can I Get Finance?

July 12, 2012 4:43 pm
posted by James Parnwell

investment finance

In order to qualify for a mortgage for your first investment property you need to have an income and a deposit. Investment finance sounds simple, doesn’t it? Well, sometimes it is and sometimes it isn’t.

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What you need to know when it comes to Investment Finance:

Income

The beauty of an investment property is that you get a second form of income, Rent! However, you need a basic income to get you started. If you have a job, then a couple of payslips is often all you need to verify your income. If you are self employed, then you will need two years tax returns for yourself and your company if you have one, plus two years of financials for your company. You will destroy a rain forest in the process of providing those documents. Not impossible, just a bit more involved.

As an investor you will also get tax breaks to assist you in your repayments, this is almost like a third income stream. Let me illustrate this for you…

Suppose we have a young guy, living at home who earns $50,000 per year and has no debts. If he were to apply for a mortgage for a house that he planned to live in, the maximum he could apply for would be approx. $320,000. However, if he was to look at purchasing an investment property that earnt him $400 a week in rent he could borrow up to $500,000 in investment finance.

The point is that young people can get into the market earlier than they first thought if they want to buy an investment property.

Deposit

Our friend who just realised he could borrow $500,000 is limited by another factor. He needs to have a deposit. You see, the bank is very interested in you investing something into this property. If you don’t put any of your hard earned cash into it, then often it feels like a bit of a fairy tale. It’s these loans that often fall over. So he will need a minimum 5% deposit. or in this case $25,000 plus costs.

This can be saved up over time, it can be given to you (by some very lovely parents perhaps) as long as it stays in your account for three months or your parents/family can go guarantor for you.

So what are these costs? The biggest cost is definitely stamp duty. On a $500,000 property the stamp duty could be as much as $18,500. The other costs include that of a conveyancer plus any other incidental fees such as pest and building inspections etc… It’s best to have about $2,000 available.

Sounds like a lot? Yes it is, however, there are a lot of grants going around for people who buy brand new properties. The government is very interested in stimulating the building industry and is prepared to make things easier for you to get started.

Credit History

The third and final part of investment finance is in regards to your credit history. If you have ever had some problems with paying your phone bill or credit card then it would be worth enquiring about your credit history. If you made a payment two days late then you have nothing to fear, but if you got very late on something and received several notices then there is a change you received a default. This can make borrowing difficult, not always impossible, but certainly more difficult.

Article by James Parnwell

If you would like some further information on anything related to Investment Property or Investment Finance please click contact us

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some specific and helpful advice…

interest ratesI have spent quite a bit of time explaining my rationale about predicting whether or not interest rates are going down in the near future. You can read my reasons here. Essentially it revolves around which direction fixed rates are heading. It’s a little simplistic, however given that I don’t have time to analyse the worlds economies and the staff at the banks do it for a living I am going to continue riding their coat tails. So, are interest rates going down next week? read more

Interest Rates Going Down?

 

I think we are going to see rates stay put. A few of the lenders have their 1, 2 & 3 year fixed mortgage rates set at 5.99% Given that they have their discounted variable rates around 6.05% I think they are assuming things are probably going to stay still.

 

That’s my guess, we will see what happens! There is another question worth asking here. Should you fix now or not and what are the right reasons to fix your loan?  Have a read of these articles if these questions relate to you!

Article by James Parnwell

 

If you would like some further information on anything related to Investment Property or Investment Finance please contact us

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…

mortgage rateLots of the major lenders have their fixed interest mortgage rate set at 5.99% for 1, 2 and 3 years. This seems very enticing. But should you fix? read more

Should You Fix Your Mortgage Rate?

This is a highly personal question and depends on your risk profile, your current circumstances and your goals. However, 5.99% is quite a low mortgage rate historically, so it will well worth considering. I could possible even get you a lower mortgage rate with some lenders who are keen to get into the fixed rate market. If you would like more information please feel free to click contact us and I will have a more in-depth discussion with you.

Article by James Parnwell

ps. Please note that the above interest rates are only valid at the time of writing and can change at any time!

If you would like some further information on anything related to Investment Property or Investment Finance please contact us

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…