Property Investor Tips
Avoid being a property casualty
Posted on Wednesday, September 02 2009 at 8:31 PM
Property mentor Nick Lockhart from mrd has created a pre-purchase checklist of what property investors need to know to ensure they won't become casualties of the real estate market. An edited version of the checklist is provided below.
Borrowing capacity
1. I understand the way my finance needs to be prepared including whether or not to refinance existing loans.
2. I know what LVR (loan-to-value ratio) I’m choosing and what my strategy will be for handling a slightly lower bank valuation.
3. I’m aware that valuations may be five per cent to seven per cent below contract price.
4. I understand the costs and benefits of mortgage insurance.
5. I understand that banks don’t loan against furniture packages, if applicable.
Holding capacity
1. I know what my holding costs will be.
2. I have received a cash flow analysis example.
3. I understand my cash flow management options and structures.
Mental toughness
1. I have all the information I need to feel comfortable with my purchase.
2. I understand the strategy being used to create wealth.
3. I have seen a ‘personalised retirement options plan’ example
4. I have read and understand all parts of the property report.
5. I understand what’s included and excluded in the contract.
Finance requirements
1. If a deposit is required I can fund this from security (i.e. cash or equity) as I’m aware I’m unable to borrow against the property until settlement.
2. If acceptable, I understand whether the use of a deposit bond would deliver a benefit to me.
Leasing
1. I understand what’s involved in appointing a property manager.
2. I understand how I can manage a vacancy if it occurs at settlement or any other time.
The tax process
1. I know if I’m able to complete a variation form with the Tax Office and reduce the amount of tax taken out of my pay rather than wait until the end of the financial year.
2. I know what the ownership split should be if purchasing in more than one name.
3. I understand what is meant by ‘joint tenants’ and ‘tenants in common’.
The contract process
1. I understand the timeline of the contract process and what my obligations are along the way.
Off-the-plan purchases
1. I realise banks won’t give an unconditional approval on ‘off-the-plan’ purchases. They’ll only give a three-month conditional approval subject to an on-completion valuation.
2. Conditional finance approval is an indication of how a lender would have viewed my loan application had settlement been within three months.
3. I understand that significant changes I make during the off-the-plan time, such as changing jobs or a major purchase, could result in me not qualifying for finance at the time it’s required.
4. I understand that valuations are generally better on a finished product due to the physical bricks and mortar as well as the progress the market has made during the time of construction.
5. I understand inspection of the building is not possible before the contract becomes unconditional.
Legalities
I understand the advantage of using an independent solicitor or conveyancer.
Relationships
If applicable, my partner understands all of the above and is equally committed to purchasing an investment property.
Source: investmentmentor.com.au
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