The Capital Properties Pinnacle Program – Property Investor Review
Capital Properties’ 7 step process to successful property investment recognises that in order to master our trade craft, it’s vital for property investors to continuously review where we’re at and what our current, short-term and long-term objectives are.
On the go? Here’s 30 seconds of take outs:
- Capital Properties assets and liability (A&L) template will help you summarise your financial situation.
- You can work out your net asset amount by subtracting total liabilities from total assets.
- It’s vital for any property investor to identify a goal, commit to it and then implement it.
- Work with your finance team to review current interest rates and any new lending policies.
- Secure a desktop valuation or a full valuation through your current lender.
- Assess your options based on the equity / loan ratio which is called a ‘loan to value ratio’ (LVR).
- Read on to learn about refinancing, equity release and borrowing capacity and discover our investor tips and tools.
Keep reading >>
Where are we at now?
To start the review process it’s a good to quickly summarise your current financial situation. The easiest and most effective way to do this is to use an assets and liability (A&L) template.
An A&L is a simple template that outlines all of your liabilities, e.g. current property debt levels, credit card debts, personal loans, HECS debts, including any variable or fixed interest rates. Also, include the value per week of renting and child maintenance costs (if you have kids obviously).
Then it’s just a matter of outlining any assets you may have. For example, you should include the current value(s) of your investment property or properties and/or your principal place of residence. Also include any savings, shares, current superannuation amount and your current salary before tax per annum.
If you’re unsure of your current property value(s) you can request a free CoreLogic Desktop Valuation Estimate1 and receive it within 24 hours! Through Capital Properties’ network partners we are also able to provide free desktop valuations from many of the major Australian Banks. These can be then used for security purposes.2 All you need to do is provide us with your property address and contact details here.
Once you’ve noted your liabilities and assets, you’ll then be able to work out your net asset amount by subtracting total liabilities from total assets. (Assets minus liabilities = net assets)
Where are we going?
It’s essential to re-assess your goals on a regular basis. A few times a year I chat with clients who tell me they’re “content” or even “fat, dumb and happy”! When I hear them speak like that, I know they’ve lost touch with their ‘why’ or ‘vision’ or at the very least, it’s fading fast! Not having a goal will create hesitancy, and the normal response to hesitancy is to fall back. That’s not a great position to be in for successful investment. And having a goal is still only half of the story. The power of any idea is only ever in its IMPLEMENTATION.
There’s a great quote that comes to mind by W.H. Murray: “Until one is committed, there is hesitancy, the chance to draw back… there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help that would never otherwise have occurred. A whole stream of events issues from the decision, raising in ones favour all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way… I learned a deep respect for one of Goethe’s couplets: Whatever you can do, or dream you can do, begin it. Boldness has genius, power and magic in it. Begin it now.”
The key take-away? Always remember – ACTIVITY BRINGS RESULTS!
#Investor Tip: Review loans & secure credit at the top of the market | Run current borrowing capacity
Once you speak to your finance team ask them to order either a bank desktop valuation or a full valuation through your current lender.
This is also a good time to discuss your current interest rates and any new lending policies. Finance and lending are competitive so there may be better options out there than what you’ve currently got.
Once your valuation comes back, you’ll be able to assess your options based on the equity / loan ratio which is called a ‘loan to value ratio’ (LVR). We talk more about LVRs in the blog “The one property after the other myth”.
Generally speaking, to make refinancing worthwhile you’ll need a minimum of 20% equity or more to refinance in order to avoid lenders mortgage insurance (LMI)3 which may have been paid on the initial loan.
For equity release to work you’ll require your LVR to be a minimum 60-70% because you’ll want to (again) avoid the LMI increase to an 80% LVR.
Present Value (PV): $500,000
Present Debt (PD): $300,000
L.V.R = $300,000 / $500,000 *100
L.V.R = 60%
Credit increase to an 80% L.V.R
New loan: 80% * PV $500,000 = $400,000 – PD $300,000
Equity Release: $100,000
Typically, the best idea is to secure your equity release at the peak of the cycle. This is actually a difficult thing to do, as no one has a crystal ball to know when that will be. Check out the Herron Todd White website (property valuer). They do a great snapshot of the market each month and can give the Defence Force property investor some key insights.
Investor Tool: Heron Todd White Property Clock month-in-review
While you’re chatting with the finance broker you might as well get them to run your maximum borrowing capacity. They’ll have most of your updated details at this stage and this can give you some key insights to your next steps with your property investment strategy.
If you you’re feeling like you’re settling into the “fat, dumb and happy” scenario give us a call to see how we can help you review your goals and move forward. Because if you’re not moving forwards, you’re going backwards right?
Co-Author: Chris Raymond | Unconditional Finance
[email protected] | www.unconditionalfinance.com.au
- What is a CoreLogic Desktop Valuation Estimate? CoreLogic is the number one property data company in Australia and a highly trusted source of quality property data. Nearly all real estate transactions are recorded through the RP Data app on the CoreLogic website. This enables CoreLogic to provide a vast record of sales history and a variety of different reports. Many of the major banks use RP Data for their desktop valuations for security purposes.
- When the term “Security Purposes” is talked about from a lending and banking perspective, it refers to when a bank does a valuation on a real estate asset for the purpose of lending / finance. The “asset” is the security.
- Lenders mortgage insurance is sometimes called an ‘early entry fee’ because instead of paying a 20% deposit, it allows a property buyer to use a smaller saved cash deposit and borrow a larger loan amount from the lender. Deposits of more than 20% negate lenders mortgage insurance.