What is your loan strategy?

You’ve managed to put away enough spare cash to consider buying an investment property – now what?

Happy days, but now you need to determine what you can afford and what kind of loan you may need. So what’s your strategy?

Well you wouldn’t buy from just any online retailer without checking out review websites and making sure the company is legit, would you?

In the same way, you should always seek out professional financial advice to see what strategy suits your personal circumstances.

What we’ve learned so far about saving & debt

Chances are your savings won’t cover the entire purchase price of an investment property, but as we discovered last week taking on debt isn’t always a bad thing.

If you’ve been following the tips from the Property Couch‘s Ben Kingsley and Bryce Holdaway, you have in fact planned for this exact scenario. You’ve spent years patiently putting cash aside for that deposit on an investment property.

You now know that you can use leverage to buy an asset, in this case a property, that generates an income which comes from renting it out.

But even though you have the funds for a deposit, this isn’t like buying a regular house.

Why do you need a loan strategy?

If you plan to create a property portfolio then you will be taking on more loans, more productive debt, more often.

The challenge for property investors is learning how to approach things like getting a loan from a long-term perspective, says Holdaway.

“If you’re buying your own home, you really are concerned about the transaction that’s in front of you to get that house. But it’s really not like that if you’re building a portfolio.

“You have to think two or three loans in advance and the decisions you make today on the loan you get for this property, can negatively or positively affect what you do down the track,” he says.

The advice you get here is crucial and the right advisor will help you create a strategy to deal with all these loans, says Kingsley.

“What we’re talking about here is we don’t deal with a transactional advisor, we’re dealing with someone who can look after the strategy and tactics and think long-term ahead,” he says.

Spreading out your loans

The right advisor is a great start and the other thing to consider is which lender or lenders to use.

Most of us shop around for big purchases and loans are no different, in fact you are more likely to get a better deal for each individual loan if you seek out a different lender each time.

“So the key here is to get stand-alone lending, isn’t it?  You don’t want the banks to have security crossed everywhere so they’re in control.

“If you can get stand-alone lending for all of your borrowing, if one bank says ‘no’, you can say ‘that’s fine, I’ll go chat to the bank down the road’. But that only comes from having the structure right at the beginning and thinking two or three shots in advance,” says Holdaway.

 

For more from the Property Couch, visit thepropertycouch.com.au or subscribe to the Property Couch podcast, available on iTunes or Android.