Knowing your limits and the market will help to expand your property portfolio.
Why do some people struggle to buy one investment property and yet others manage to own five or six? The answer isn’t simply that they have more money.
Investors who are creative in their approach to financing and who thoroughly research the important real estate indicators routinely achieve their goals faster and with less hassle.
There are several well-known ways to increase a property portfolio. You can take out an interest-only loan, buy with partners as ”tenants in common” or tap into your home equity.
All of which help free up cash flow, enabling you to make more substantial contributions to a principal place of residence or to access cash flow for other investments. Coupled with buying investment properties in the right place at the right time, these tactics have reaped financial rewards for many people.
But savvy investors take their strategies to the next level. Let’s look at some of the less-traditional approaches to more profitable property investing.
Varying your income tax
If you’re negatively geared, a good way to improve immediate cash flow is to ask your accountant to submit an income tax variation form to your payroll office.
This reduces the tax rate charged on your wages by estimating your total end-of-financial-year tax position in advance. Rather than receiving a lump sum tax refund, you receive money evenly throughout the year.
Line of credit with a global limit
This is a line of credit home loan with a ”global” or ”umbrella” limit and several sub-accounts. It gives you maximum access to your equity to optimise your investment opportunities. The loan can be operated with multiple accounts under one global limit.
Mortgage Choice spokeswoman Belinda Williamson says line of credit accounts can be attached to a credit card. ”If you earn a decent income, using a credit card for expenses should mean that most of your income stays in the loan until the credit card payment is due, which helps to reduce the loan balance.”
Targeting distressed vendors
Successful investors don’t appraise the properties on the market in an area, they try to work out why they are for sale. Paul Osborne, of the buyer’s advocate firm Secret Agent, says it’s a smart move to understand household indebtedness in specific areas to snare a bargain.
He says many households are managing to service only the interest repayments, not the principal amount, of their home loans. As a consequence, the best buying opportunities tend to be in suburbs that have high proportions of household debt.
A secondary dwelling as an investment
Building second dwellings, such as granny flats, on the land held by either an owner-occupied or an investment property has become a growing trend. These dwellings can generate extra rental income and increase the property’s future value.
They also provide depreciation benefits and must be council-approved. Lending criteria for secondary dwellings varies from lender to lender and it’s smart to monitor how such additions in an area have shifted property values.
Choose a loan tailored to your needs
Depending on your finances, lifestyle and investment portfolio, there are a range of property loans to consider. Ms Williamson recommends checking the health of your home loan at least once a year.
”You should make sure that your loans not only meet your current needs but also take your future needs into consideration,” she says. ”Make sure that you are managing your loan, rather than letting it manage you.” Always be aware that new products are entering the competitive housing finance market constantly.
Chris Tolhurst | domain.com.au