Building Wealth through Investment Property by Jan Somers
Australian Investment Property made easy. Property Sauce takes the uncertainty out of property investment.We are a full-service property investment and advisory company.
Monday, 22 August 2011
Tuesday, 16 August 2011
Property Portfolio Building Step 4. Purchase a second property using the equity built up in the first property as a deposit
Tapping into equity built up in your first property is a tried and tested method for finding the deposit for your second property If you're looking to do this, you should be prepared for when your lender comes to revalue your property, the best way to get the most out of its valuation is to keep it well maintained.
"By maintaining your investment property, the value stays up to scratch and this means that you can make the most of the revaluation".
Making any changes to your financial position – such as buying a second property and getting another investment loan – offers the perfect opportunity to give your existing mortgage a health check. So, before searching the property market, take some time to reconsider your loan needs in relation to your future goals and ask yourself how well your current one is performing for you. If you're satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there is little reason for you to spend time and money refinancing with a different lender.
If you've reassessed your financial situation, however, and your mortgage is no longer working effectively for you, the next step is to decide whether you're going to refinance your current loan (while taking out a second one) with your current lender or start afresh with new one. Your first move, then, should be to analyse your cash flow and establish the right approach to your debt as an investor with two loans.
A second mortgage is going to have a significant impact on your monthly cash flow, so make sure you're in a position to service both of them by having a stable income. From the lender's point of view, the key to minimising risk as a borrower lies in your ability to earn enough income to service your first and second mortgages successfully on top of the cost of living. This not only ensures you're ready to take on a second mortgage, but it also satisfies your lender's requirements for approving the additional finances. As you're buying for investment purposes, it's essential to get your hands on a rental estimate letter from a local real estate agent. The lender requires this letter at the application stage and it's important to keep in mind that it's unlikely that your lender will take 100% of the rental income into account as part of your serviceability calculation. They generally factor in around 50–75%, depending on the property type and its location.
As you are planning to use your existing property as security to fund the deposit for the second one, bear in mind that you are putting yourself at risk of losing both if you find you can't meet the repayments.This is why it's essential to have a strong contingency plan. Depending on your ability to save, a safety buffer could come in the form of three to six months' worth of repayments and living expenses.
"By maintaining your investment property, the value stays up to scratch and this means that you can make the most of the revaluation".
Making any changes to your financial position – such as buying a second property and getting another investment loan – offers the perfect opportunity to give your existing mortgage a health check. So, before searching the property market, take some time to reconsider your loan needs in relation to your future goals and ask yourself how well your current one is performing for you. If you're satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there is little reason for you to spend time and money refinancing with a different lender.
If you've reassessed your financial situation, however, and your mortgage is no longer working effectively for you, the next step is to decide whether you're going to refinance your current loan (while taking out a second one) with your current lender or start afresh with new one. Your first move, then, should be to analyse your cash flow and establish the right approach to your debt as an investor with two loans.
A second mortgage is going to have a significant impact on your monthly cash flow, so make sure you're in a position to service both of them by having a stable income. From the lender's point of view, the key to minimising risk as a borrower lies in your ability to earn enough income to service your first and second mortgages successfully on top of the cost of living. This not only ensures you're ready to take on a second mortgage, but it also satisfies your lender's requirements for approving the additional finances. As you're buying for investment purposes, it's essential to get your hands on a rental estimate letter from a local real estate agent. The lender requires this letter at the application stage and it's important to keep in mind that it's unlikely that your lender will take 100% of the rental income into account as part of your serviceability calculation. They generally factor in around 50–75%, depending on the property type and its location.
As you are planning to use your existing property as security to fund the deposit for the second one, bear in mind that you are putting yourself at risk of losing both if you find you can't meet the repayments.This is why it's essential to have a strong contingency plan. Depending on your ability to save, a safety buffer could come in the form of three to six months' worth of repayments and living expenses.
Investors rush to fix interest rates
As market uncertainty grows, more investors and borrowers are locking in fixed term interest rates.
http://www.apimagazine.com.au/api-online/news/2011/08/investors-rush-to-fix-interest-rates
http://www.apimagazine.com.au/api-online/news/2011/08/investors-rush-to-fix-interest-rates
Thursday, 4 August 2011
Why advisers want more property advice
http://www.moneymanagement.com.au/news/why-advisers-want-more-property-advice
Investment Property Australia:Energy and vibrancy of Hunter region to withstand carbon tax hit
http://www.theaustralian.com.au/business/property/energy-and-vibrancy-of-hunter-region-to-withstand-carbon-tax-hit/story-fn9656lz-1226094029901
Sunday, 24 July 2011
Building Additional Equity in Property
Simply stated, the appreciation of equity in property is one of the easiest and most successful paths to wealth that is available to you. There are a number of ways to build additional equity in a property, some easier than others but all effective.
1) Higher initial down payment
2) Extra principal payments
3) Shorter mortgage term
4) Property improvements
1) Higher initial down payment
The most obvious way to build additional equity is at the first opportunity making a larger down payment at the time of purchase. This extra money is immediately "banked" in the property, making it much less tempting to spend.
2) Extra principal payments
Making extra payments of principal (or just adding money to your monthly payment designated to go to principal) has a double effect on your equity. First, every dollar you send reduces your debt by the same amount. Second, reduced debt means less interest paid, which means that each month more of your payment goes to principal and less goes to interest. NOTE: Although most loans allow it, be certain that your lender will accept extra payments of principal.
3) Shorter mortgage term
If you are currently in a long term mortgage (such as 30 years) refinance and get a shorter term. These shorter mortgage terms mean that you will be paying down your principal much quicker and therefore gaining additional equity at a much faster rate.
4) Property improvements
When you improve the quality or size of your property, you also increase its value and thus your equity. Be aware, though, that although virtually all property improvement projects will bring some return, some are much more advantageous than others. For example, remodelling kitchens or bathrooms traditionally have brought a greater return than adding leisure amenities such as pools or whirlpools. To get the maximum equity enhancement, make certain that the kind of improvements you are looking to do will raise the value appreciably.
1) Higher initial down payment
2) Extra principal payments
3) Shorter mortgage term
4) Property improvements
1) Higher initial down payment
The most obvious way to build additional equity is at the first opportunity making a larger down payment at the time of purchase. This extra money is immediately "banked" in the property, making it much less tempting to spend.
2) Extra principal payments
Making extra payments of principal (or just adding money to your monthly payment designated to go to principal) has a double effect on your equity. First, every dollar you send reduces your debt by the same amount. Second, reduced debt means less interest paid, which means that each month more of your payment goes to principal and less goes to interest. NOTE: Although most loans allow it, be certain that your lender will accept extra payments of principal.
3) Shorter mortgage term
If you are currently in a long term mortgage (such as 30 years) refinance and get a shorter term. These shorter mortgage terms mean that you will be paying down your principal much quicker and therefore gaining additional equity at a much faster rate.
4) Property improvements
When you improve the quality or size of your property, you also increase its value and thus your equity. Be aware, though, that although virtually all property improvement projects will bring some return, some are much more advantageous than others. For example, remodelling kitchens or bathrooms traditionally have brought a greater return than adding leisure amenities such as pools or whirlpools. To get the maximum equity enhancement, make certain that the kind of improvements you are looking to do will raise the value appreciably.
Thursday, 21 July 2011
Property Portfolio Building Step 3. Control your expenses and build up the equity as quickly as possible
When you were preparing to buy your Investment Property, you had to analyse your income and expenses to enable you to save. Now that you are a property owner, budgeting is still important. Your mortgage is probably the largest obligation you have incurred in your life to date. Your Investment Property probably represents your largest investment – as well as your source of pride and security. Now more than ever, it’s important to stick to your budget. Planning for major purchases, budgeting for unexpected expenses and adhering to a regular savings plan will help you to be a successful property investor.
Why Budget?
• Prepare for large expenses.
• Expected expenses such as insurance payments
• Unexpected expenses such as property repairs
• Identify controllable spending.
• Keep control of your financial future.
• Encourage savings.
• Help to accomplish goals.
Some of the common sources of money problems include:
• Too little income
• Too much spending
• Drop in income
• Layoff or other temporary/permanent loss of job
• Goals not committed too.
• Illness
Setting financial goals and developing a budget that you can live with generally leads to reduced economic pressure and tension.
Financial Danger Signals
• Are you borrowing money on your credit cards to pay current bills?
• Are you charging everyday expenses or small items?
• Are you paying more than 20 percent of your take-home income for installment
purchases and credit card charges?
• Are you forced to reduce your debt payments to pay for food and housing expenses?
• Are any of this month’s bills coming in before you have paid last month’s bills?
• Are you unable to save money for anticipated annual and occasional expenses; i.e.,
insurance premiums, car repairs?
• Are you borrowing more money before existing debts are paid?
• Do your charge account balances grow each month?
If your answer is yes for any one of the above questions you should take a closer look at
your budget.
Six Steps for Successful Budgeting
1. Evaluate your income and expenses.
• Know what you are dealing with – how much money is available.
2. Set your goals.
• It is easier to stick to a budget if you have a goal.
3. Develop your spending plan.
• This will chart your direction month by month.
• In order for your plan to work – your budget must be realistic and reasonable.
4. Stick to your plan.
• Realise that there are outside enticements that can derail a good spending plan,
but you need to be willing to make necessary adjustments as they arise.
5. Identify your needs versus wants.
• Shopping wisely can keep you on track with your budget.
6. Keep a record of your spending.
• Tracking spending can keep you on target with your budget.
Remember the saying: “Rome wasn’t built in a day”? Well, your financial situation is not likely to change overnight either. It may take some time to achieve your goals but you will get there if you are willing to put in the effort.
Building Equity in Property
The financial advantage of property ownership is that if you pay down your mortgage over time you build up equity. Your equity is defined as the difference between the appraised value of your property and the amount you owe on the mortgage. Because you have financed your investment property your initial equity may be limited to the amount of the cash investment you made as a down payment. In the early years of owning your investment property your equity will depend mainly on local market values. Gradually your mortgage payments (if you are paying principal and interest) will reduce the principal balance of the mortgage. Over time as the amount of your loan balance decreases, the equity available to you will steadily increase. This should also be the case if you pay interest only on your mortgage, because historically the value of residential property has increased over time. The other way to add equity is to make extra payments to your mortgage
Why Budget?
• Prepare for large expenses.
• Expected expenses such as insurance payments
• Unexpected expenses such as property repairs
• Identify controllable spending.
• Keep control of your financial future.
• Encourage savings.
• Help to accomplish goals.
Some of the common sources of money problems include:
• Too little income
• Too much spending
• Drop in income
• Layoff or other temporary/permanent loss of job
• Goals not committed too.
• Illness
Setting financial goals and developing a budget that you can live with generally leads to reduced economic pressure and tension.
Financial Danger Signals
• Are you borrowing money on your credit cards to pay current bills?
• Are you charging everyday expenses or small items?
• Are you paying more than 20 percent of your take-home income for installment
purchases and credit card charges?
• Are you forced to reduce your debt payments to pay for food and housing expenses?
• Are any of this month’s bills coming in before you have paid last month’s bills?
• Are you unable to save money for anticipated annual and occasional expenses; i.e.,
insurance premiums, car repairs?
• Are you borrowing more money before existing debts are paid?
• Do your charge account balances grow each month?
If your answer is yes for any one of the above questions you should take a closer look at
your budget.
Six Steps for Successful Budgeting
1. Evaluate your income and expenses.
• Know what you are dealing with – how much money is available.
2. Set your goals.
• It is easier to stick to a budget if you have a goal.
3. Develop your spending plan.
• This will chart your direction month by month.
• In order for your plan to work – your budget must be realistic and reasonable.
4. Stick to your plan.
• Realise that there are outside enticements that can derail a good spending plan,
but you need to be willing to make necessary adjustments as they arise.
5. Identify your needs versus wants.
• Shopping wisely can keep you on track with your budget.
6. Keep a record of your spending.
• Tracking spending can keep you on target with your budget.
Remember the saying: “Rome wasn’t built in a day”? Well, your financial situation is not likely to change overnight either. It may take some time to achieve your goals but you will get there if you are willing to put in the effort.
Building Equity in Property
The financial advantage of property ownership is that if you pay down your mortgage over time you build up equity. Your equity is defined as the difference between the appraised value of your property and the amount you owe on the mortgage. Because you have financed your investment property your initial equity may be limited to the amount of the cash investment you made as a down payment. In the early years of owning your investment property your equity will depend mainly on local market values. Gradually your mortgage payments (if you are paying principal and interest) will reduce the principal balance of the mortgage. Over time as the amount of your loan balance decreases, the equity available to you will steadily increase. This should also be the case if you pay interest only on your mortgage, because historically the value of residential property has increased over time. The other way to add equity is to make extra payments to your mortgage
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