DPN’s Director of Finance has 20 years experience in finance and banking. He knows mortgages inside and out with particular interest in systems and processes.
David Khalil is DPN’s Director of Finance. An enthusiastic property investor himself, here are his tips on how to invest wisely and what to watch out for.
Affordability is key
Do your numbers, make sure you can afford the payments. You may want to cocktail your repayments and have a mix of fixed and variable interest rates, you have to do the maths. Take into account all tax deductions, maintenance costs and repayments. DPN can help you understand these numbers with our financial modelling.
There’s a lovely saying: “anyone who lends me money is my friend”. But make sure their product suits you and gives you as much wiggle room and leeway as possible. Get as much equity out as you can, when you can. Don’t be afraid to leverage the value of your property. Equity increases your firing power as a borrower to be ready to advance on emerging opportunities.
Look for a property investment loan that offers flexibility
Think carefully about how you structure your loan. Interest only loans allow you greater scope to borrow more but you also want the option to pay down the principle if you can. You should certainly re-evaluate your loan every few years and see if it’s still working for you.
Invest wisely and know what to watch out for.
Extra income you make from a positively geared property should go straight back into debt reduction.
Debt reduction is the priority
Reducing the amount of debt you have should always be a main concern. You’ll want to pay down personal debt first, (ie. credit cards, personal loans) then move on to minimising your mortgage. While we shouldn’t be afraid of carrying debt we should also look to clear it at any opportunity. So any extra income you make from a positively geared property should go straight back into debt reduction. Remember that personal debt will also impact on your capacity to borrow and buy more properties.
Build a buffer
Get out as much equity as you can for cash flow shortages or emergency money. Always ask what is the absolute worst that can happen – then make sure you’re prepared for that. For example, if interest rates were to go up, what will you have in reserve to cope with it?
Seize opportunities to expand your portfolio
If you can buy another property then do it. What’s available today may not be available tomorrow. This is the key to expansion. Your long-term goal should be wealth creation and to achieve that you’ll need to build up a portfolio. So if a property becomes available in a growth area and it works with your sums, don’t hesitate to pick it up.
Land is the most sought after real estate commodity.
If you can, always buy land
It’s been shown that land is always the most sought after real estate commodity. So go for buying either a block of vacant land, or a house on land over apartments. The value of land has steadily gone up throughout the entire history of property in Australia. On the other hand, apartment blocks and townhouses have swung wildly up and down, depending on factors like oversupply of stock or a saturated rental market. Land is where it’s at.
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Take the long view
Wealth creation through property investment is a tried and true method, if played correctly. It works best as a medium to long term investment. As the years roll by you’re accumulating untaxed capital growth as well as positive rental yields. This then allows you to use equity to buy more investment properties and build up a portfolio. But you shouldn’t gear your strategies toward buying and selling quickly and trying to make a swift profit. You’ll reap the most rewards from property as a much longer term investment, and therefore you need to plan your risk management strategy and finances accordingly.
No one market is the same
There are as many property markets as there suburbs in Australia. Not every suburb goes up and down at the same time. Some suburbs may be bullet proof and vibrant, while the suburb next door is drowning in oversupply of stock and a flagging local economy. So do your research. Never assume that there is a general movement across the board with property, there simply isn’t.