How To Secure A Better Deal
Accepted wisdom is always right when it comes to investing in property and protecting your assets. By addressing some of the common myths you can secure yourself a better deal, writes DG Institute Founder and CEO Dominique Grubisa.
Official interest rates are at an all-time low. If you want to get your home loan rate any lower, the options are limited. You can maybe shop around or ask your current lender for a better deal. Either way, you’re only looking at a saving of a measly few basis points, right?
Think again. With the right ATO-approved tax solution, you can potentially cut your home loan rate by one or two whole percentage points, slashing your outgoings on your home mortgage. You just need to be in the know and be willing to question the status quo. By looking through the most common misconceptions around property investing and asset protection, you can often find solutions that secure you a better deal and major savings.
Here are a few common misconceptions.
Misconception 1: There’s no real way to get a significant reduction on your home loan.
You read right. There are ATO-approved tax solutions that can reduce the interest rate you pay on your home loan by multiple whole percentage points. Essentially, these solutions allow people who own a home and one or more investment properties to restructure the interest rates in a more tax effective way. So, rather than paying, say, 5.6% on your home mortgage, you might pay 2%. Your investment property interest rates and payments would, in turn, go up.
The rationale behind the concept is that investment properties represent good debt. They are an investment that will hopefully appreciate over time, and the interest payments you make on them are tax deductible. Your home on the other hand represents so-called bad debt. It puts a roof over your head, but the interest payments are dead money.
At the DG Institute we are a licensed provider of Loan Controller, an ATO-approved product that works in this way.
Misconception 2: Millennials can’t afford to invest in property.
Younger Australians are often given a bad rap for spending their money on smashed avocado and overseas holidays rather than investing in real estate.
But the truth is they face a far higher barrier to entering the property market than their parents or grandparents did. Where a typical Australian home could be bought for around twice the median household income in the early 1980s, today a full five years’ worth of income is required. In major cities such as Sydney, the figure can be closer to 13 years.
Now, there’s a modern way for both young people and anyone else with a modest budget to invest in property. Crowd-funded investment involves opening up property developments and investments to multiple investors, with each securing a small share of any rental income or sales profits generated. Entry level investments often range from as little as $100 to $5,000, allowing small-time investors to get a foot on the property ladder and then incrementally grow their real estate interests.
This practice is now rapidly growing in the property sector, partly because bank lending has tightened and would-be developers are looking at alternatives to raise capital. In practical terms, the concept involves an entrepreneur or developer pooling finance from smaller investors to pay mortgages secured on properties or to finance development. Crowd-funded projects can include residential and commercial developments and the ‘fixing and flipping’ of distressed property.
Misconception 3: You can’t safeguard your assets.
Recent figures have shown that personal bankruptcies are at an eight-year high, with more than 32,000 Australians being declared bankrupt in the last financial year. In most cases, these are decent hard-working people who never expected to run into financial trouble but ended up unable to pay their debts.
One of the biggest challenges that people face in protecting the assets is that everyone from property investors to mum-and-dad home owners typically tends to hold the title of the properties they own in their own names. This means that their significant equity in property (the part that they own, free of the mortgage to the bank) is totally exposed to creditors in times of crisis. Anyone pursuing the property owner can try to seize their wealth by registering a caveat on the title to the property they own.
Trusts are a great way of addressing this problem. An effectively structured trust will allow you to prevent creditors, the government and lawyers from touching your most important assets in the event of you facing financial hardship. If set up correctly, there will also be no requirement for you to remove people from any title or change ownership to a different entity. Be sure to shop around. Not all trusts are equal.
Misconception 4: You should stay out of property right now.
Many people are despairing over falling house prices in the eastern states. Investors who a year or two ago were able to buy a property and sit back and watch the capital gains roll in have seen that revenue stream dry up. But as financial wizard Warren Buffet advises, ‘wise investors are fearful when others are greedy – and greedy when others are fearful’. There are plenty of great deals to be had in this market if you can source finance and creatively add value to property deals.
One strategy, for example, is for developers to form joint ventures with property vendors. The home owner might supply the property for the deal while the developer supplies the expertise and sources finance for the construction phase. This lessens the risk and upfront capital for the developer while giving the owner a share of the development’s profits. A true win-win. Another smart tactic that developers can use in the current market is taking out options on properties. This allows them to secure desirable sites by paying a relatively small option fee to the owner. This way they can get all their ducks in a row, securing finance, a DA and investors, all without the need for a major initial capital outlay.
Remember. Accepted wisdom can be wrong and it pays to question everything you hear about property. Be persistent, dig deep and you’ll put yourself in the best possible position to profit in the current market.
To find out if you are eligible to apply for the Loan Controller, watch this free webinar.
ABOUT THE AUTHOR:
Dominique Grubisa BA (Hons) LLB, LLM is the CEO and founder of the DG Institute, a wealth management education service specialising in making property investment possible for all Australians.
As a former barrister and practising solicitor, Dominique has an extensive legal background with more than two decades of experience as a property investor and developer. She also holds an ASIC credit licence and a real estate agent's licence. Dominique is the 'go-to expert' when it comes to developing property in order to increase its value, along with buying distressed properties and acquiring and developing residential properties deep below market value.