Finance hacks to help you buy more property

How you manage your money can have two consequences: it’ll either make you more money, or it won’t.

Once upon a time you bought a home, paid down the mortgage and then, the smart thing to do was to build your savings using a bank account and keep it safe until you retired.

Today there are many smarter options for you to accumulate wealth as well as the ability to use your money to make more money and cumulate a property portfolio sooner.

So, let’s look ways you can maximise your finances:

1. Avoid cross collateralising

Cross-collateralisation occurs when more than one property is used to secure either one or multiple loans and it’s an important loan structuring issue of which many property investors are not aware.

Fact is, if you use the same lender for all your properties, it’s likely your loans may have been cross collateralised and you probably don’t even realise it, but this structure may block your borrowing capacity or your ability to get finance in the future.

It’s a technique that lenders like to use to make it harder for you to finance to a better offer.

Problem with cross collateralisation arises, when you decide to sell a property, your lender may require you to pay down some debt on your other properties to maintain your approved Loan to Value Ratios.

They might also lump all of your properties together as one asset, which can have a negative impact on your available equity if one property is a poor performer. This could mean the difference between having funds to buy another property or needing to use the money just to keep your other properties afloat

All of these techniques make changing lenders difficult and keeps you in a loan that’s passed it’s used by date.

Therefore, consider using different lenders to finance each property or make sure, where possible your loans with the one lender are not cross collateralised.

If you’re unsure if your finances are set up in an optimal way, you can book a chat with Nav here.

2. The right loan type: horses for courses

One school of thought is that paying off principal as well as interest on an investment property takes you one step closer to positive cashflow and living off your rental income. Truth be told, I am a positive gearing kinda guy myself.

But, when you’re still in the asset accumulation stage of your investment journey, it can slow down or freeze your purchasing power, which means fewer years for capital growth to do its thing.

In this case, paying down your debt isn’t as important as freeing up cash to be able to maintain momentum in your property-buying phase.

Instead, put your spare cash into an offset account – the net result is that you’ll the same amount of interest as if you paid down the debt, but you’ll be able to redraw your funds if you want it.

Sure, it’s trickier to get interest only loans today, but there are still lenders on loansHub panel who are willing to offer them.

3. Offset is your best money-making bet

For investors and homeowners alike, an offset account can be a very effective tool in reducing loan interest and keeping funds separate for tax purposes.

Rather than earning interest on your savings, the balance is theoretically deducted from the loan balance, which in turn, reduces the interest charged to the loan and therefore the life of your loan.

It’s even a good idea (if you are a disciplined budget setter) to use a credit card for your day-to-day living expenses earning you some bonus points and then pay it off in full with money from your offset account before the interest-free period is up each month.

Those extra thousands of dollars sitting in your offset can have a huge impact on your repayments in the long run. It’s as good as making money.

4. Understand the importance of cash buffers

Having a “what if” cash flow buffer is a smart strategy which means you’ll be financially prepared just in case you need to cover unexpected expenses.

This will prevent you dipping into your savings or having to bump up your mortgages to cover unexpected costs.

Of course, done correctly your ‘what if’ money will still working for you by offsetting your mortgage, it looks good to lenders and it will keep you from going backwards if the unexpected arises.

Remember... property investment is a game of finance with some houses thrown in the middle meaning your financial setup can make or break your ability to add properties to your portfolio and grow your wealth.

So, getting these structures right at the outset is crucial.

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This article via Property Update does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.