Buying is just a small part of residential propertyinvestmentBy Cameron McEvoyMonday, 28 May 2012In my view there are three stages for property investors: research and due diligence, then the offerand purchase process, and last of all the ongoing management and capital maximisation of theinvestment property. What I find interesting, and what I am writing about today, is how differentpeople place varying hours of their time into these stages, and how this can be a cause for concern forthe less informed among us. So lets look at each of these stages and get a feel for what is involved inthem:Research and due diligence. This is where you must first identify your objectives. By this I meanyou ask yourself the “big” questions about your broader life objectives, such as: What are my long-term life goals? How much money do I need to retire on? What kind of investment risk profile do I have? Is property investment for me? Do I have the time, dedication, and longevity of commitment to stick to it?And then hone in to get to the “little” questions, about the specifics of what youre looking for in aninvestment property, such as: Apartment, townhouse, or house? Off the plan, or pre-existing? Do I want to live near my investment to keep an eye on it? Or am I OK for it to be interstate or international? Do I want a “set-and-forget” approach, or something more hands on and high demand (but with greater potential for capital gain)?With the above assessed you then need to commence market research (assessing suburbs andproperty types and measuring them against hard metrics, trends, data, etc), due diligence (lots oftime spent here, crunching numbers, working out long-term holding costs, capital trends and so on).Once this is done you will then be armed with all your spreadsheets and formulae to hit thepavement and inspect. You actually wont need to inspect that many properties, because youllalready have done all the research leading you up to know exactly what you want.The difference and net effect of this is like comparing two children who each have saved up pocketmoney for a chocolate bar. The first doesnt know what he wants and goes into the shop and isinundated with too much choice. He rapidly and nervously picks a random sweet, not knowing if helllike it or not, simply because there were a mass of other kids buying out all different kinds of candybars and he didnt want to miss out. He ends up with a Snickers bar, only to open it, take a bite, andrealises he is in fact allergic to peanuts. The other child has already figured all that out; she knowsexactly what she is allergic to, what tastes good, and what will satisfy her taste. She also knows thatthe bar she likes is very popular. When the shop opens at 9am, she charges in with all the other kidsbut takes a fraction of the time, buys the candy bar shed preselected when she was already at home,and enjoys every bite.2) Making an offer and purchasing. This is where would-be buyers go through the offerprocess, negotiate the deal, have their investment property “team” (Mortgage broker, lender,solicitor/conveyancer, accountant, financial planner, tax depreciator, strata officer, and mostimportantly, mentor) on hand, ready to hit the “green-means-go!” button once the offer is accepted.
3) Ongoing property management and capital maximisation There are many things thatwill keep you busy when it comes to this area, with each one of these requiring a chapter to coverthem better. So Ill just list the main ones: Finding a reputable managing agent Tenants moving out and sourcing quality new ones Attendance of strata meetings, building maintenance, and occasional council disputes Improvements, renovations, maintenance, repairs Tax depreciation and annual tax and income managementGetting the most out of your investment property is vital. This is because the return you see fromyour property can vary hugely, due to a list of unforseen changes to your life. For example, yourpersonal income changes. Few working Australians actually earn the precise same amount of incomeeach year. This needs to be taken into consideration in your overall tax assessment. And what if youdont work or study for a year? Lose your job? Or get a big $50,000 salary increase? This alone willchange the dynamic of your investments potential to net you solid returns.Notice how little I wrote about stage two, compared with the other two stages? This should tell yousomething about the amount of time you invest in each stage. When I acquire properties I tend tospend my time investment (remember “time is money” in any investment or business undertaking)in the other stages, so my time schedule looks more like this:Versus less informed investors whose time distribution looks more like this:
As you can see, the “buying” stage should actually be the least time-consuming part of the overallinvestment process! Sounds weird to say it, right?So, while some investment property gurus are fast to tout the “you make your profit when you buy,not sell” mantra as a rationale to dedicating so much time to buying process, what they actually meanis that the profit is made in the research revelations leading up to the purchase of your property.Prior research/due diligence should take up the bulk of your time, followed by ongoing management,which can take 10, 20, 30, or even 40 years if your strategy is a more long-term “buy-and-hold” one.Certainly something to keep in mind when preparing to purchase.Watch this space; next time Ill put the ”offer acceptance and purchase” process under microscopeand list most of the hoops youll need to jump through, one by one, when purchasing the propertyitself. This might help to relax you and take some of the stress away that we all face when goingthrough the buying stage.Why mortgage holders should talk to their lenders andconsider refinancing: Cameron McEvoyBy Cameron McEvoyThursday, 19 July 2012I want to begin by saying this: I do not house any hostility towards lenders. In fact, I’ve written manytimes in the past about how lenders can be your best friend when it comes to starting out fresh inyour property investment career. Let’s be honest; if you’re like most new investors out there, youdon’t have suitcases of cash just lying around, ready to buy real estate with, so lenders can absolutelybe the “determining force” in your decision to get into property investment. If no one will lend youmoney, well, your pipe dreams can be quickly flushed.All of that aside, lenders are simply a means to an end. Providing that you find a lender that offersthe best rate and features relevant to you, they are all pretty much the same. For many years, lendershad, quite cunningly and cleverly, marketed themselves as more of an authority over you. They didthis by using a certain kind of language when discussing and corresponding in paperwork the natureof their products. Basically, they made it seem like you were locked in forever to their mortgageproducts. One way they did this was to charge excessive and complicated “break fees” should youever look to shop around and move to a different financier.
The industry watchdogs, and eventually government bodies, cottoned on to these tactics andestablished legislation to remove all of these break fees, effectively making it much easier to switchyour mortgage to a better/cheaper product in the marketplace. So you know (and it goes withoutsaying, you need to double-check this yourself should you actually be looking at breaking amortgaging product), banks cannot charge their exit fees anymore, however you will always have topay the government processing fees – usually a couple of hundred dollars only – to get out of amortgage.There was initial fear that as a result, lenders would recoup these losses by charging heavier entrancefees into new mortgage products; however this has not really happened as yet, at least to extremes.The beauty of the removal of break fees meant that the marketplace has become more competitive,and lenders now actually have to fight their competition to get a slice of your potential custom.For any would-be switchers out there, my advice is to do up a spreadsheet and calculate all the coststo switch out from one product into a new one. If the savings in one year’s interest repayments at thenew lender’s rate is greater than double the cost to switch, it is an exercise worth doing.When approaching lenders as a property investor – even if it is your first property – you shouldalways make clear mention of your growth potential and desire to hold a large portfolio. Although itwon’t win you any brownie points in terms of qualification and verification for mortgage products,mentioning your growth plan to them will certainly make them earmark you on their computersystems! No jokes – I’ve seen lenders who literally input an asterisk against someone’s details, whichis pretty much code for “keep an eye on this one; he could be a repeat customer!” I would encourageeveryone to do this when buying their first property, even if you only intend on buying a home tooccupy and never an investment property.It is therefore important to remind a lender at times just how valuable you can be as a potential“repeat customer”. Having a great mortgage broker working for you can help with this – they are ableto leverage – and effectively vouch for – your future portfolio growth expansion/potential and usethis as a bargaining chip to negotiate better product offerings back to you, but I strongly believe thatit is always important to have a direct and solid relationship with your lender(s).All of this is especially important when considering the times we’re living in. Finance is edgingfurther and further down, and interest rates could fall to all-time lows. Lenders know this. Theyunderstand how the cheaper rates in market will truly change the dynamic for everyone. In fact, Iattribute the recent increase in lender marketing campaigns, which heavily promote “switch to us”themes in their tactics as a response to this trend. For example, UBank from NAB has released anonline home loan product offering a variable rate of 5.62%, one of the cheapest currently on offer inthe market. But the bank is very quick to point out the product is only available to new customersand switchers from other lenders. Existing customers cannot get access to this product.So as the market – investors and owner-occupiers alike – respond to cheaper finance productshitting the market, consumer confidence may begin to return. This could mean that would-be buyers,who previously held the mantra “the entire global market is too unstable; now is the worst time totake a risk” change to a mindset of “the global market might not be so stable, but darn it, rates areprobably not going to be this cheap again anytime soon, so I should give this a second look”.I’d love to hear from the community about experiences in mortgage switching – was it easy? Werethere in fact hidden costs (whether it is a government cost, lender cost, or other kind of cost)? Anddid the old and new lenders make the process easy or hard? Also, when leaving your lender, wasthere a last-dash attempt to keep your custom, or did it let you go easily?
Cameron is a property investor and maintains a blog, Property Spectator.Best regards, Linda J. Debello Licensee, LJ Gilland Real Estate Pty Ltd Tel: (07) 3263 6085 | Mobile: 0409 995 578 www.ljgrealestate.com.auContact me: ljgilland My latest post:RP Data Research Blog – Vacant land market weakest in more than a decade Subject: RP Data Research Blog – Vacant land market weakest in more than a decade RP Data R... Read more | My blog Get this email app! My latest G+: Google+ user 109450906744731991579 has not made any posts public. My G+ - Posts - Add to Circles - 15:36 Apr-28 Get this email app! Please consider your environmental responsibility. Before printing this e-mail message, ask yourself whether you really need a hard copy.Confidential Email:- The information in this message is intended for the recipient named on this email. If you are not that recipient,please do not read, copy, distribute or act upon the message as the information it contains may be privileged. If you have receivedthis message in error, please notify us immediately by return email. Thank you for your co-operation.