In this post we want to show you how to buy more property, whether you currently own an investment property or just your own home you can structure you finances in such a way that you can buy more property. For those of you who don’t yet own property you should visit our post “20 ways to save your deposit fast”
NOTE: I am not a financial adviser and this post does not contain financial advice. Just tips to help you assess your situation and take action. Every situation is different and you should see a professional for financial advice.
Assess Your Current Financial Situation And Set Your Goals
First thing is first. We need to assess your current financial situation and set your goals for exactly what you want to achieve.
How much money do you currently need to survive (include negatively geared property expenses on top of living expenses). Are you happy in your job, or are you wanting to become financially free so you can finish up in the corporate world?
Set your goal. Maybe it’s $60,000/year in positive cash flow, maybe it’s $1,000,000 in equity or in the bank. You decide on your goal based on your situation.
How far away are you from your goal? Set a timeline to achieve your goal. Maybe 5 years, maybe 10 years. You always need a timeline to drive you towards success.
See How Much Equity You Have Access To
Look at your current list of properties. What is the value of these properties and how much do you owe on each of these properties?
If you haven’t had them valued recently then it may be worthwhile to get your lender to revalue the property so you have an accurate representation of the equity you have access to.
Usually you can only gain access to 80% of the value of the property in loans. So if you have a property where the loan is $300,000 that is now worth $500,000 you have $200,000 in equity in that property. But you could only borrow $100,000 in order to maintain that 80% loan to value ratio.
So take into account the equity you have access to, not the total equity on the property.
See How Much Money You Can Borrow
Speak to your bank or mortgage broker and find out how much you can borrow for your next property. It’s hard to know how to buy more property when you don’t know what properties you can and can’t afford so this step is really important
Banks will tend to assess your borrowing limits based on your current situation. It will be difficult to predict what they will lend to you in the future.
If you can find a lender than takes into account 80% of the rental income (instead of 3-4% of the purchase price of the property) then as rents go up your serviceability with that lender will also go up.
Many lenders assess rental income based on the value of your property. I have seen lenders allowing only 3-4% rental yield. If you have a property with an 8% rental yield this structure will hinder not help you.
It may be worth borrowing your equity and parking it in an offset account or obtain a line of credit for the equity with your bank. This way you will have access to your money as soon as your find a good property without fumbling around trying to access your equity.
Go Searching and Don’t Just Look Next Door
Now that you know how much equity you have (that will effectively be your deposit) and how much the bank will lend you then it is time to go out searching for property.
But don’t just look at every single property in your price range. Remember the goals you set above? Look for properties that will get you closer to your goals.
If this means looking in a town, city or suburb away from your house then maybe this is what you might have to do to achieve your goals.
Search online, run the numbers on multiple properties (use our property calculators if you need help) and talk to real estate agents. Research the area and then find out if there are properties that suit your needs. Then when you find one make an offer and consider buying it.
The most important part about how to buy more property: Get out there looking and buying! If you don’t look and buy you will never own more properties.
Increase Your Cash Flow So You Can Increase Your Lending
There are two major things banks look at when lending you money.
1. Loan to value ratio – This is how much money you are putting up. They want to lower their risk so if you can’t pay your loan they can get all their money back. Generally this needs to be at least 80% LVR (you put in 20%) to avoid extra fees
2. Your serviceability – This is your ability to repay the loan. Your accessible cash flow that can be used for loan repayments.
By increasing your cash flow you will also increase your ability to service your loans. You can do this in a number of ways
A. Increase your income – Get a pay rise or higher paying job
B. Create a side income – Create a side business and earn some extra income on the side
C. Increase rental income – Increase the rental income of your properties. Make sure your lender will recognize this. If they don’t, consider a new lender.
D. Lower mortgage repayments – Interest only loans, and getting a better interest rate are two ways to lower your mortgage repayments.
Add Value To Your Properties
Look for ways to add value to your properties. Here are a few potential ideas for adding value:
– Adding a room
– Dual occupancy
– Street appeal
– Increased rental yield
Add value and get your property revalued by your lender. The more equity you have the great the chance that the banks will lend you more money for more properties.
For more information go to http://cashflowinvestor.com.au/addvalue
Get Your Property Revalued Regularly
Most people let their properties sit for years before they get them revalued. This can often stop you from buying more property because the lenders won’t recognize equity unless they get an accurate valuation.
Most lenders let your revalue each year or after renovations. Consider getting this done so you can leverage your equity and buy more real estate.
Here a just a couple of bonus tips to add to what we have already talked about in regards to growing your investment portfolio.
Consider Building A Relationship With A Lender
Many people advise you to split your loans across different lenders. A different loan with a different lender for every single property. This can be a very effective strategy to stop your properties being cross collaterised.
However, once you own so much property that you find it hard to get lending it may be time to look at developing a relationship with one lender. Show them your portfolio and your plans to repay the loan and your strategies for repaying the loans even if things don’t go to plan.
If you are already a successful investor then many lending institutions will want to lend you money. You just have to find them and build the relationship.
Don’t Be Afraid To Sell To Free Up Equity For Better Use
If you bought a dud or a property is underperforming don’t be afraid to sell it. Selling a property can free up capital that can be better used in other investments.
You will never get every investment right, learn to decipher which properties are under performing and look to replace them with better performing properties.
Consider Interest Only Loans
Consider interest only loans as a part of your investment strategy. They increase your cash flow by lowering your repayments.
This can make it easier for you to service more loans, can give you more money to invest and means that your properties can become positively geared quicker than if they were on a principle and interest loan. That means money IN your pocket each week, and that sounds like a good deal to me.
Once rents increase you can always change to a principle and interest loan later. Or you can use an offset account to pay down your debt but keep your repayments low…and give you instant access to your money if you need it.
Increase Rents To Keep Up With The Market
Many investors don’t increase their rental price out of fear of not being able to find an investor. Instead of reacting out of fear and leaving your rent low (and losing a lot of potential income) try the below technique.
1. Assess the market – Speak to agent and look at vacancy rates. Or buy a property magazine and check the vacancy stats at the back of the magazine
2. Find your current market rate – Ask agents and look at what properties are currently going for and work out what you think you could get
3. Seriously consider increasing your rents – Then if you can’t rent out your property you can always lower the rents again. In most cases you will have no trouble renting it at the increased value.
DON’T FORGET: This post is NOT financial advice. Always seek advice from a professional before making any investment decisions.