property investment finance fundamentals

Property Investment Finance

Fundamentals

We help investors build and manage

their property portfolios

This presentation contains general information only and does not take into

account your personal objectives, financial situation or needs.

You should consider whether the information is appropriate to you before acting on it.

Before acting on any information you should consider seeking advice from a qualified

financial adviser and / or accountant.

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Real Estate Investar

In Partnership With…

1.9m Australians

1 Property

2-4 Properties5+ Properties

• Pays shortfall for 5 years+.

• Eventually sells and pays down personal debt.

• No retirement income.

• Strategy & numbers.

• Self funding portfolio.

• $100-$250k+ passive income in retirement.

• Has high income or buys every few years.

• Freehold in retirement.

• Min. retirement income.

Source ATO/ABS

3 Levels of Property Investment

1.9m Australians

1 Property1.4m73%

2-4 Properties470,000

25%

5+ Properties30,000

2%

• Pays shortfall for 5 years+.

• Eventually sells and pays down personal debt.

• No retirement income.

• Strategy & numbers.

• Self funding portfolio.

• End up freehold• $100-$250k+

passive income in retirement.

• Has high income or buys every few years.

• Freehold in retirement.

• Min. retirement income.

Source ATO/ABS

What Level are you Aiming for?

• Banks will cross collateralise everything if they can.

• Banks won’t help you maximise LVR as you grow.

• Banks have a single funder.• Often you are not dealing with the decision

maker.• It’s the banks money and they don’t care about

your problems when they want it back.

Bank or Broker, what’s the Difference?

• The Property• Equity• Cash Flow• Credit Record• Your Character

5 Barriers to Finance

• Equity;• Up to 80% LVR is easier to finance.• Above 80% LVR requires Lenders Mortgage

Insurance (LMI).• *On $500,000 loan;• 85% LVR - Add 1% ($5k)• 90% LVR - Add 1.5% ($7.5k)• 95% LVR – Add 3% ($15k)• LMI adds leverage, cost and risk.

Never Run Out of Borrowing Power Again

• Income• Target a DSR (Debt Service Ratio) of at least 1.3,

e.g.

$130 in rental income per $100 of mortgage payments for a self funding portfolio.

• Minimise consumer debt and credit card balances.

Never Run out of Borrowing Power Again

• Capital growth creates wealth, but cash flow is your oxygen while you wait for it to occur

• Balance high growth with high cash flow investing• Increase your income• Eliminate high interest debt and credit card

balances• Convert property debt to interest only• Annualise your household costs, are you getting

value?

Equity Rich and Cash Poor is a Road Block

Cross Collateralisation

1 bank.Multiple loans,

business overdrafts and

credit cards

Risks with Cross Collateralisation• Bank contracts enable them to pool

secured assets across multiple debts using an “all monies clause”

• "If you have multiple loans with one bank, they can take funds out of the one account to clear any arrears on any loan using an "account combination" clause

• Your equity can be tied up and ability to reinvest restricted

Individual Collateralisation

Loan 1 Home loan

& offset

accounts

Loan 2 Business loans &

overdraft

Loan 3Investment property #1

Loan 4 Investment property #2

Benefits of Individual Collateralisation

• Separate security for each loan - spreads your risk

• Easier to top up multiple loans for a small amount

• Easier to buy/sell/refinance• Avoids domino effect if you have

difficulty in one area• Financiers more negotiable if

they can see assets they can’t touch

The Power of the Offset Account – Example Scenario

Account 1: Mortgage –$500,000

Account 2: Debit card +$6,500

Account 3: Savings +$85,000

Account 4: Mortgage -$30,000

Summary Debt $530,000

Interest paid on $438,500Savings p.a @ 7% - $6,404

Investment Loan Payments

Investment Offset Account

In: Rental Income

SeparateOffset Account

General Spending

Home loan Account

Main Offset(Savings)

In: SalaryOut: Loan Payments

InvestmentProperty LoanAccount

Spending Money

The Money Flows

Top up if negatively gearedHome Loan Repayments

The Money Flows

• Keeps savings available, and minimises interest.

• Enables you to save or pay off debt years faster.

• Keeps loan amount at its maximum while minimising interest costs.

• Easier to access equity without refinancing.

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