The Female Investor. Kate Hill
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be in your everyday transaction account either, beckoning you enticingly.
Ideally, they could be in an account where those savings can work harder for you, too — perhaps in an offset account, if you already have a mortgage, to lower your interest rate repayments, or simply in an interest‐earning one that can add some extra dollars to the balance without you doing anything else.
4. MONEY‐MAKERS
Another way to help supercharge your savings is to simply earn more money, perhaps from a part‐time gig for a period of time.
Maybe instead of ordering from a food delivery service, you work for them from time to time instead? There's a huge number of options out there these days.
Another strategy to help you save more money could be creating personal challenges, such as not eating out for two weeks, or signing up for Dry July or similar, which will likely end up being good for your liver as well as your purse!
5. GETTING TO GRIPS WITH GRANTS
There are usually a variety of different first home owner grants on the table, which can help to shave thousands off purchasing costs (such as by reduced stamp duty fees in Australia), as well as funds that you can potentially use towards a deposit. Of course, there is no such thing as free money, so these sorts of grants often come with a number of criteria that must be met.
In Australia, these types of grants are usually administered by your state government, so it's best to do your research on its official website when reading up on what is currently available — they do tend to change quite regularly.
THE LOWDOWN ON LOANS
Mortgage or property loan pre‐approvals have become more and more popular over the years — and for very good reason. Back in the ‘old days' many buyers usually didn't even bother talking to a mortgage broker or their bank until they had put an offer on a property and were frantically trying to get their finances in order to finalise the deal. Sounds stressful, right? It was!
In hot market conditions and when buying at auction, a loan pre‐approval is non‐negotiable to ensure that you are ‘purchase ready' and can make an offer or a bid with confidence, knowing that you have the funds to back up your bravado.
However, we also recommend loan pre‐approvals for first‐time buyers and anyone re‐entering the property market. This will not only help reduce stress when buying, but also set the budget for your potential property purchase. Plus, it can make the difference between being the successful buyer or not when there is far more demand than supply in a market.
HOT TIP
Don't go too crazy on the pre‐approval front. Applying for multiple pre‐approvals and multiple times can negatively impact your credit score. Keep in mind also that sometimes the banks won't issue pre‐approvals like they used to because they may be short‐staffed — like during the COVID‐19 pandemic — or their policies are changing every other day. This can be challenging, so always talk to your trusted mortgage broker about the best strategy for you before marching into the nearest bank.
The number of people using mortgage brokers has skyrocketed over the past couple of decades — for very good reason, if you ask us.
Most professional mortgage brokers have access to a large number of lenders who may fit your individual financial requirements.
They can also be on your team throughout your property investment journey.
Now we're not saying there is anything wrong with big banks, because your mortgage broker may find that one of the major lenders is right for you.
What we're saying is that going direct to a bank will probably not provide you with all of the options available to you. A mortgage broker, on the other hand, will have knowledge about, and access to, lenders who are the perfect fit for someone who might be self‐employed, a single parent, or who has a smallish deposit.
When it comes to successful property investment, experience counts. Work with a finance expert who has runs on the board, and who preferably also knows about property investment — we're thinking, for example, a QPIA.
There is a saying in the industry that property investment is as much a game about finance as it is about real estate, because without the funds to buy, well, you can't do anything at all, can you?
I CAN BORROW HOW MUCH?
Anyone who has been investing for as long as we both have can tell a story about the time a bank was going to lend them $1.7 million when they only asked for $700 000, or the time that they wouldn't give them anything at all, even though their numbers were fine (thanks, COVID‐19 pandemic). The reality of the situation is that the lending environment can, and does, turn on a dime because of a bunch of factors too lengthy to list here.
One month you may qualify for a loan and the next you may not, because of levers being pulled at the top of the food chain to speed up, or slow down, lending. This can depend on what's happening in the economy, or whether local property markets are deemed too hot to handle (like Sydney back in 2017).
Loan pre‐approvals generally only have a limited shelf life because of this relative fluidity of the lending environment, as well as your own personal financial circumstances.
Borrowing capacity is the amount of funds that a lender is prepared to offer you to finance a property, depending on your income, expenses, deposit size and a bunch of other variables best left to the finance experts to explain to you in more detail.
So we recommend meeting with a mortgage broker at the start of your journey — you can then understand how much your likely borrowing capacity will be if you were to purchase sooner rather than later.
A mortgage broker can also help you determine the size of deposit you will likely need to qualify for finance in a particular property price bracket.
HOT TIP
You can decide to borrow less than the bank will lend you. Just because they're throwing $1 million at you, doesn't mean you should spend it!
Having these conversations early can help set you on the right path to save funds for a deposit. It will also ensure your finances are squeaky clean when it comes time to apply for finance by doing things such as reducing the number of credit and store cards, and paying down or paying off personal loans — these can all negatively impact your borrowing capacity.
If you are re‐entering the market after a period — perhaps following a relationship breakdown or the death of a partner — and already own a property, then a broker will also be able to help you understand how much equity you may have available to recycle into another property. We're going to talk about this element in chapter 6.
WHAT IS EQUITY?
Equity is the difference between the current value of a property and its outstanding mortgage, minus about 20 per cent of the value, which the lender likes to retain as a safety net.
For example, a property valued at $800 000 with a mortgage of $400 000 may have about $260 000 in equity that could be used to purchase another real estate asset.