We speak with George Antonas, our 'coffee aficionado' and NSW Finance Manager in our Sydney Investloan branch.
We thought we'd ask him about the current finance climate and his advice.
What has changed since you started working in the finance industry?
A lot - policy, regulation and compliance! When I first started, we could have loans formally approved in 24 hours, including lenders mortgage approval!
Banks today are being made accountable and so are mortgage brokers. When I first started, the market was still adjusting to having mortgage brokers whereas today, the majority of loans are being written by a broker.
Top 3 pieces of advice for someone interested in property investment today?
Buy land, timing is key so base your decisions on numbers.
Understanding the cost per square metre of land, affordability, cashflow and tax deductibility.
Investments should not be based on pretty colours and what we “think” is a good investment. Keeping close to capital cities is where the infrastructure and population is, which drives growth!
Top 3 no-nos when it comes to borrowing?
Using the same bank on your home as your investment properties, avoid cross collateralisation & P&I repayments on investment loans. Using different banks you spread the risk and by spreading the risk, you can borrow more money. Also, by having all properties ‘stand alone’, its easier and cheaper to refinance or to draw equity.
Cross collateralisation is where you have all properties under the “one umbrella”, all properties are used to secure the loans and in most cases, the bank will take more security than needed. Having different lenders allows clear transparency on how the loans are set up including the bank valuation result!
P&I is recommended on home loan because it reduces the loan. Remember, there are two types of debt: good and bad. Its simple: bad debt is a home loan or non-deductible debt. Good debt is investment debt that is tax deductible!
How would you adapt your financial structure to purchase at maximum capacity?
Monitor and reduce living expenses, use separate lenders and in some cases, lock in your interest rate. Like a home loan health check, a yearly budget should be encouraged, we use the tool 'Moneysmart' that helps our clients save and budget. With some changes in 3 months, this could significantly improve your borrowing capacity!
I’ve given the same advice on fixing for the last 20+ years: fixing is about peace of mind and knowing your repayments, not trying to beat the market. So, if you can, lock in close to or lower than the current variable you can budget it off, as interest expense is the biggest cost of a property. All you need to do is keep the property rented and with tax benefits the property should be cash flow positive.
In an ideal world, what would be the best plan of action to purchase 4 or more properties – from scratch?
Purchase as quickly as possible and when the banks say yes…
With all the noise around the banks, it is important to use lenders with higher borrowing capacities whilst in “acquisition phase”, as investors. Timing is everything, don’t wait until there is a run on property and the markets are hot, the key is to get in before the markets move so that you maximise your growth.
Using a stand-alone finance structure is key that allows access to growth with the ability to duplicate. The wrong structure will hinder your ability, slow down this process and could take years to recover. In summary, use the right finance structure, buy growth asset in land, right location, timing in capital cities where there is population growth and infrastructure, you can’t go wrong!