Forums / Getting Technical / Finance / Re-financing

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  • Profile photo of MichaelMichael
    Participant
    @hermz
    Join Date: 2017
    Post Count: 3

    Hi there, the loan for my residential investment property is coming up for renewal soon. I’m thinking of either selling it or refinancing it for a better cashflow return. Any advice in regards to the latter and what to look for when hiring a broker? If more specific details need please let me know.

    Cheers

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    When looking for a good broker regarding investment properties I’d check that they are actually an investor. Apart from that check client reviews and check to see if they have a wide range of lenders on their panel.

    There are plenty of good brokers on this forum that i’m sure could help.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me | Phone Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Hi Michael

    Tony is so right. Imagine using a Dentist who had read the theory books but never removed a tooth before and was pleased to tell you that he was going to “give it a go with you”.

    No seriously whilst many lenders have ramped up their investment rates their are some good sub 4% fixed rates around if you are happy to go P & I.

    Might not immediately aid your hip pocket will some start to create some equity.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of MichaelMichael
    Participant
    @hermz
    Join Date: 2017
    Post Count: 3

    Thanks Tony and Richard. I’m looking for a broker with plenty of years of good experience and think your advice Tony re engaging someone who is both investor & broker is a wise idea – thank you! I’m in a bit of a sticky situation – I bought the property 3 years ago under negative gearing…. realising this was a mistake about 6mths later. It hadn’t appreciated as originally anticipated and I actually think the market will go down a lot soon which will make matters worse. If I sell I will obviously not realise much equity and will not make up for the acquisition costs. If I keep it and refinance either Interest only or P&I (as you were suggesting Richard), even an interest rate of 3.5% it would still be negatively geared. I’m open to any other ideas you may both have
    Cheers

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Michael,
    Steve McKnight would probably say “If you wouldn’t buy it today at the price it is, why are you keeping it?” … or words to that effect.

    I don’t know your numbers but you will….. Consider :-

    1. What it will cost you per year to hold it currently (even as its value diminishes too?) – isn’t this good money going after bad?
    2. Will it cost less to hold if you were to refinance (value still likely to diminish though)
    3. Do you have any kind of theory re how much the value might drop by?
    4. If you were to sell it now, even if at a loss, this does a number of things:-
    a. It stops you bleeding money week by week,
    b. It allows you to borrow afresh for something else (i.e. your serviceability rises)
    c. It locks in your Loss, preventing it from getting bigger perhaps, and
    d. That loss can be deducted from any FUTURE Capital Gains even if in years to come (I think – but check that with your adviser).

    Re “which broker” there are several good ones on here, and their signatures often display their history. e.g. Richard Taylor notes his investing history and success in his signature – go take a look.

    Benny

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    I think step back and look at the investment first – if you could buy this property again based on it’s current price/figures would you? If not then that answers whether you should continue to hold it.

    Sometimes it’s better to pull the bandaid off, taking the short term pain but opening up your ability to make better long term decisions.

    Obviously compare this against getting the IP loan to a cost effective option – so that way you’re accurately comparing apples with applies, but as you’ve noted it’s very unlikely to get the cash flow position anywhere reasonable anytime soon, so you will want there to be strong potential capital growth to offset this.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of MichaelMichael
    Participant
    @hermz
    Join Date: 2017
    Post Count: 3

    Some great questions and suggestions Benny & Corey – thanks.
    In regards to what’s been discussed and some of the questions raised, I’m thinking of the following solution: I believe the value of the property would drop by at least 20%. If I were to bolster current equity by using some savings in an offset account to bring the equity and offset to the same value (20%), then refinance at 4% (or below) with P&I as Richard & Corey suggest, I could make the property cashflow positive. I figure if the property goes down in value with the above scenario, I would be able to keep it long term to see the value rise again in some time in the future whilst building equity at the same time through principal payments.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Michael,

    I’m thinking of the following solution: I believe the value of the property would drop by at least 20%.

    Thanks for the answers provided so far – that now leads me to a few more questions/comments that might help you to arrive at the right conclusion for YOU. You mentioned you expect at least a 20% drop, and I understand that to be a “best guess” – no shame in that. Can you share WHY you expect such a large drop?

    What I am trying to glean is whether your investment really will grow over time – here are a few examples:-
    1. If your place is in Sydney which has just had a huge run-up in prices, and a tailing off and even a small drop is quite likely in the next year or two I would think. I dunno about 20% though – that is quite large. And yes, I would expect the values in Sydney to rise again in the next boom. One caveat would be that the location of your purchase is not in an undesirable area of Sydney.

    2. If your place was purchased in a mining town where values screamed up then dropped like a stone, I wouldn’t be looking forward to very much growth into the future.

    Similar where just one employer feeds a whole town (if you have bought in a regional area) – what happens when that one employer hits hard times?

    Steve penned a recent article about checking the percentage of investors versus owners of property in your area of interest (i.e. where you bought the property). In essence, the higher percentage that OWN their house in any area is goodness. If investors own more properties than owners do, then watch out !! (This is also a typical “mining town” phenomenon – investors piled in during the good times, but then found it difficult to sell when mining companies changed their employment patterns and rental properties were no longer needed in large quantities).

    If I can find that Article, I will add a link below…..
    https://www.propertyinvesting.com/watch-out-for-this-simple-stat/

    One thing you might not have considered is “opportunity cost”. That means, by having your money locked up in this investment, it precludes you from purchasing a better deal elsewhere. Or, on the other hand, you might already know that your property IS in a good area with a really good chance of value increases into the future, and are prepared to hang on. And that’s fine too.

    In that latter case, I believe using an Offset account and doing some of those other things (re-financing, etc) should make your weekly cashflow better, enabling you to hold on to the investment. Many owners “hold on” through hard times – but then they are wanting a home, not an investment.

    Let’s see where those thoughts lead, ;)

    Benny

    • This reply was modified 1 year, 10 months ago by Profile photo of Benny Benny. Reason: Adding the link
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