BUYING FOR THE FIRST TIME CAN BE A DAUNTING EXPERIENCE. DEALING WITH AGENTS, MAKING AN OFFER, FINDING A SOLICITOR, VALUATIONS, BUILDING REPORTS...
FIRST HOME MORTGAGE
Buying for the first time can be a daunting experience.
Dealing with Agents, making an offer, finding a Solicitor, Valuations, Building reports….
This is where a recommended adviser can add value.
First contact us to find out what you can afford and to obtain pre approved finance. You will then know the price range that you should be looking in and will know what your mortgage repayments will be.
Next, an adviser will be able to guide you through any questions that you have regarding the whole process of buying, such as
Tenders and Auctions
Submitting an offer and what clauses to include (legal advice should always be sought before signing)
Valuation and/or builders reports and LIM Report.
When to get the Solicitor involved
We will also be able to recommend and introduce you to various professionals that you will need along the way if required. If you don’t need an introduction, we will still liaise with your Solicitor, Real estate agent and Valuer or Building Inspector to ensure a smooth and stress free process.
Once you are in your new home, we will keep in touch and will be able to help you structure the loan for maximum advantage. This could mean showing you how to reduce your loan faster and save thousands of dollars in interest. It will certainly mean reviewing your situation and giving advice whenever a fixed interest term finishes and obtaining the best possible rate for you from the bank for the new term.
Contact us to see if you qualify for no or low deposit finance. It will depend on your credit history, length and type of employment, income and a few other factors.
If you have been in KiwiSaver for at least 3 years you may be able to withdraw funds towards a deposit on your first home. Your KiwiSaver provider will produce a statement for you of your contributions to date. You can withdraw your contributions and your employers’ contributions but not any government contributions.
In addition to withdrawing yours and your employers’ contributions you may also be eligible for a one off first home buyer’s subsidy from the government. It is $1,000 for ever year that you qualify in the scheme (minimum of 3 years)
For further information on KiwiSaver visit http://www.kiwisaver.govtnz/new/benefits/home-withdrawal
PROPERTY INVESTOR – CASE STUDY
Colin in Wellington has several rental properties and when we met him he had nearly $3mil of borrowing with the ANZ. He was making principle and interest payments and was very happy with his portfolio and his overall position. However when we started to review Colin’s situation, it appeared that he was neglecting to do any other than urgent repairs and maintenance to his properties. He would have liked to have money to replace carpet and to re-decorate and to generally maintain his properties to a higher standard than he was doing. His problem? The principle payments were strangling his cash flow.
We pointed out to Colin that making principle payments was not the only way to establish equity in the properties. If he redirected the principle payments into repairs and maintenance, this would increase the value of the property and increase his rental income whilst also providing him with better tenant retention. He also realised that money spent on the property is normally tax deductible whereas principle payments are not.
With this mind, Colin converted most of his borrowing to Interest Only loans. The cash flow improvement that resulted was over $40,000 pa. This means that Colin has nearly $800 every week to spend on maintaining and improving his portfolio.
STEPPING UP TO YOUR NEXT HOME
A lot of people who want to change their homes start shopping or looking around for houses before they put their own property on the market. This is natural as they want to see what is available on the market.
Doing this poses problems when you find a property that you would love to own and want to make an offer on. The offer must be subject to the sale of your property. This is often not the most attractive offer to the vendor especially if your property is not yet listed for sale.
Some options to consider:
Try to list and sell your property prior to seriously looking at other homes. This can make you a cash buyer for your next property and puts you in a much better buying position.
Talk to us regarding applying for finance for both your existing property and the new purchase. This is sometimes viable depending on your income and other commitments. It may allow you to make an offer and purchase the new property without having to rely on the sale of your own home first. If you can negotiate a deferred settlement on the new property, you could sell your old home by the time you have to settle on your new home.
You may wish to consider keeping your old home as a rental property. This way there would be rental income to help pay for the two mortgages and you will retain an asset that will grow in value over time. With the correct advice you may be able to transfer the equity from your old home to your new one thereby making the rental property as tax efficient as possible.
Contact us now to arrange pre approval or to discuss your options.
DO YOU FEEL THAT YOU ARE NO LONGER GETTING GOOD VALUE FROM YOUR LENDER?
Do you know who is looking after you?
There are many reasons you may consider refinancing your mortgage. The main one is that some customers get to the point where they feel that it is time for a change as they no longer feel that they are getting good value from their lender. Often this comes down to lack of personal service or relationship with someone in the bank. How many times have we heard a customer say something like this “We used to deal with Bob or Julie and they were great, but they moved on and now we don’t know who is looking after us”.
We never look to refinance a customer unless there is good reason. In other words, they have to be better off as a result of the change.
If it is a discount on interest rate issue, we always go back to the customer’s lender first and give them the opportunity of matching any other rate that is offered by a competitor.
Sometimes this works and sometimes it doesn’t.
Where we do find that refinance is appropriate is where;
A new lender will provide additional finance that the existing lender wouldn’t.
Where the existing lender refuses to match an interest rate offered by a competitor.
Where the existing lender is insisting on Principle and Interest payments for property investors and a new lender will be quite happy to lend on interest only terms.
Where a property investor wants a different and separate lender for property being purchased in another entity.
Sometimes there is advantage for an investor to have more than one lender where they want to build a portfolio of property and may exceed one lenders comfort limit.
Most of the banks are offering quite generous legal contribution and cash back offers at the moment. This means that if someone does choose to refinance to a new lender the cost is largely covered.
Contact us now to discuss your situation and we can advise the best way forward for you.
PROPERTY INVESTOR – CASE STUDY
John had a lot of property in Wellington and wanted to buy more. Unfortunately for John, he didn’t know how much he could buy. When he saw a property that he was interested in, he made an offer subject to finance and crossed his fingers until he heard back from the bank… Even though the bank never said no, John had no confidence in his borrowing ability and when I met him was very reluctant to look at buying more property, even though he really wanted to.
We sat down with John for half an hour and worked out his borrowing capacity based on the equity that he had and his rental income. He was able to buy another 6 properties!
We obtained pre-approval and John was able to systematically find and buy a number of properties over the next two years and went about it with confidence.
If you would like to have a clear indication of your borrowing capacity contact us today
SECOND MORTGAGES AND PERSONAL LOANS
A second mortgage may be required if it is not possible or practical to borrow all the funds you require from the bank. This could be due to a number of situations.
Bob and Mary wanted to buy a home and didn't have a deposit because they had lost their previous home due to the collapse of their business. Now Bob has a good salary and Mary has returned to the workforce giving them a good income between them. The bank wouldn’t lend at that time more than 90% of the purchase price of the property but we were able to arrange a personal loan for the other 10% to make up the deposit.
Jeff was self employed and couldn't borrow more from his bank to renovate a property to sell it due to not having up to date financial information. A second mortgage may be all that is needed to fund the renovations and get the property sold.
As second mortgages don’t offer the same level of security to a lender, they do attract a higher rate of interest than a first mortgage and there can be upfront fees as well. However they are appropriate in some short term situations as they can be easier to obtain than normal finance.
Contact us today to see if this type of loan may be suitable for you.
FINANCE FOR SELF EMPLOYED
There are a number of issues and obstacles that have traditionally faced you as self employed when you are trying to obtain mortgage finance.
Not having financial accounts for the last two years
Not been in business long enough to meet the bank’s criteria
Your income is subject to seasonal fluctuations… and many more
Fortunately over the years some of the banks have relaxed their criteria for the self employed and there are other lenders in the market who are happy to look at lending where possible.
Having access to all banks and non bank lenders is very important when trying to source finance for self employed people. If you are self employed and want finance for property or development of any type contact us.
PROPERTY INVESTOR – CASE STUDY
A Christchurch couple that we met felt that they had reached the maximum amount of property that they were able to buy. We said that we would have a look at their situation for them. They had a number of investment properties that were financed with different banks. While they had a small to medium amount of equity with each lender, it was not enough on its own to allow them to borrow against to increase their portfolio.
We suggested that they refinance all of the different loans to one lender. This unlocked all the equity that they had spread across the banks and they were able to utilise it to increase their portfolio significantly.
While there is advantage sometimes in having more than one lender, it does pay to review your situation form time to time to ensure that it is still working for you.
Can I get a mortgage if I have bad credit?
There is no straight yes or no answer to this question.
We have often been able to obtain a loan for someone with bad credit, especially if there is a good story to accompany the issue and the applicant is otherwise a good lending prospect.
Example: Recently James was trying to buy a home on his own because the bank had said that his partner couldn’t borrow due to her default registered with Company X. The problem was that both incomes were needed to support the borrowing so the client gave up on buying the home as he couldn’t afford the mortgage on his own. We got James' partner to write an explanation regarding the default and submitted an application to the same bank who had said no. We pointed out to the bank that this was her only default and it had since been paid, she had stable employment, good income and excellent account conduct. The loan was then approved at prime interest rates!
If the bank had declined the loan there were other options where we could obtain the lending for these clients.
Many people have genuine circumstances that have led to credit issues such as illness and unemployment, relationship breakups etc.
What they need is a strong advocate to put a case to the lender.
We have access to lenders who specialise in helping people who the banks can’t help. We can also look at consolidating short term, high interest debt into lower easier monthly payments thereby helping you to avoid getting credit issues.
If you feel that bad credit may be holding you back, contact us
YOU WOULD ALWAYS GET A BUILDERS REPORT WHEN BUYING AN OLDER HOME, RIGHT?
Quality is one major aspect of ensuring that you have an asset that is rentable and easy to sell when you need to.
PROPERTY INVESTOR INFORMATION
Investing in Rental Property… a powerful way to build assets and wealth. If you are looking for help and advice on rental property, you have come to the right people. Our team specialise in financing people into rental properties. There are too many aspects of property investment to consider and discuss on one page so we will limit it to the 7 most important things that people should consider when buying property.
You should always get a builders report when buying an older home. Quality is one major aspect of ensuring that you have an asset that is rentable and easy to sell when you need to. We always recommend renovated or new properties because they have:-
Low or no maintenance
Premium rents. Tenants will pay $50-100 per week more for a nice place to live
Less tenant issues
Maximum depreciation claim on chattels
Growth potential based on replacement costs
Location. All property owners and investors understand the importance of location. Proximity to the city and hospitals, university and other major employers are demand areas for tenants. If you own a quality property in a great location that people want to rent, you will have a property that other people will want and it will be relatively easy to sell when the time comes. This provides you with a high level of security. Therefore, your target location to invest in would be in these areas.
Can we expect growth in the future? Due to media exposure over the years regarding the property market people tend to get the impression that capital growth is a thing of the past and won’t be seen in the future to the same extent.
Let’s look at the factors that contribute to growth.
Land scarcity Where there is a shortage of land, there will always be pressure on land values.
Population growth This is a major contributing factor to the increase in property values. If you have a shrinking population, there will be an oversupply of housing, weaker demand and flat or negative property prices.
In contrast if there is population growth this will create an under supply of housing, greater demand and increase in prices especially where there is already a shortage of land.
In the major metropolitan areas in NZ there is expectation of population increases over the next 20 years. Investing in these areas would be wise for people wanting capital growth as all the ingredients for growth are present.
Proximity This is a very important factor as certain parts of any town are always in more demand than others and grow at a better rate. Walking distance to the city centre or schools is always a contributing factor.
Property growth Traditionally property has doubled in value approximately every 10 years. However, it has not gone up at an even rate over 10 years. Property traditionally will have nil growth or negative growth over 5 years and rapid growth over the other 5 years. When we have a 5 year period of nil growth (which has been the case from 2007 to 2012) there could well be a period of rapid growth right around the corner.
3. Personal Control
Buy property on your own if at all possible rather than jointly with other people. This makes it less complicated and leaves you in control and:-
This is your property
You decide if you want to manage it yourself
You decide whether to appoint or change a manager
Choose the tenants yourself if you wish to
Live in it yourself if you choose to
Renovate when and if you choose to
Sell when you want to (not when others may want out)
If you choose to buy something with limited control, for example with a body corporate or serviced apartments, make sure that there is a trade off. There needs to be higher yields, better cash flow or greater potential for growth.
Property should be considered on balance. Yield is only one consideration.
So, we go for:-
location and rental demand
low maintenance, good tenants etc
If all those are present then we are happy with a 7-7.5% gross yield. Around 7% is the average interest rate over a 10 year period. A gross yield of 7.5% will cover your average interest costs and probably the fixed costs of rates and insurance. When interest rates are low there is enough left over to bank some against future interest rate increases.
Using Gross yield to determine purchase price
A quick and simple method to work out how much you should pay for a rental property is as follows.
Take the annual rent and multiply it by 14 times for a 7% return.
For example if the rent is $300 per week, this equates to $15,600 annual rent.
Multiply $15,600 by 14 and you would pay $218,400 for the property.
If you wanted an 8% return, multiply the annual rent by 12 times. This means that you want to pay just $187,000 for the property. The amount that you are prepared to pay and the yield that you are looking for will be determined by the location and condition of the property etc.
Always remember the two mains considerations are
Yield versus cash flow
Too many investors get caught up with the yield of a property. They are better to focus on cash flow. The gross yield of one property may be better than another. However if there are vacancies and maintenance costs on the first property this could detract from the overall viability of the property and make it worse than the one that had a lower gross yield. We do a cash flow analysis on each property taking into consideration factors such as, vacancy, interest, costs such as rates, insurance, property management, body corporate fees and repairs and maintenance etc. We then allow for chattels depreciation and tax rates to show how the property will perform before and after tax.
5. Tax effectiveness
Tax must also be looked at on balance. Make sure that you sit down with an accountant and ensure that your structure is correct prior to buying a property. There have been a lot of changes in the last few years and a good accountant is more important now than ever. Contact us today for an accountant introduction.
6. Cost versus Valuation
Some people are always looking for immediate equity in a property. In other words they look to buy a property for less than its market value. If you are prepared to undertake renovations to a property you can often buy well and build in equity through the renovation. We are not too concerned with this for the average property investor as we like to take a long term approach and believe that equity is achieved as property increase in value over time.
7. Exit Strategy
Start with the end in mind. There is an old saying in real estate that is not well enough known “Very often people make their money on property when they buy, not when they sell.” This is very true. If you buy a good quality property, in good rental demand locations, when the time comes to sell someone will want to buy the property for the same reasons that you did. Buy well and hold onto it for the long term.
PROPERTY INVESTOR – CASE STUDY
Peter is a property investor / property manager who has a large number of rental properties and chose to have all his loans on a variable interest rate. He did this as he wanted to be able to reduce debt when it suited him and also to repay loans if he sold a property. He felt that a variable or floating rate gave him the most flexibility and suited his needs. He was correct; however there were a couple of mistakes that Peter was making.
There was no need to have his total amount of borrowing on variable, so we left an amount that he was likely to pay off in the next year or so on floating and fixed the rest. This limited his exposure to the amount that could go up if rates increased and also reduced his interest costs as the fixed rates were less than he was paying on floating.
Peter’s bank was charging him the full carded or retail variable rate. We were able to approach the bank and negotiated a .50% discount which made a significant difference to his payments.
Between the reduced floating rate and the amount that we fixed on lower rates, Peter saved over $28,000 of interest costs in the first year alone. He will continue to save each year for the next few years as we obtained for him fixed rates for up to 4 years, some of which were around the 5% mark.
PROPERTY INVESTOR FINANCE
There are a number of ways to finance the purchase of a rental property. The most common way that works for the majority of people is to use the equity that they have in their family home to finance the new property.
Rob and Julie had a home in Wellington that had a market value of $520,000. Their mortgage was $220,000. They wished to buy a rental property valued at $400,000 and didn’t think they had enough for a deposit to buy it.
While it is true that they had no cash, they had a deposit already in their home equity. We applied to the bank to borrow the full purchase price of $400,000. This meant that their two properties had a combined value of $920,000. When their existing mortgage of $220k was added to the new one of $400k, the total borrowing was $620,000. $620k borrowed against $920k of property gives a loan to value ratio (LVR) of 67%. Banks are very comfortable to lend to this level assuming that personal income and rental income combined are sufficient to service the borrowing.
Investment Property Split Mortgage
If Rob and Julie wanted to have an investment property mortgage separate from their own home mortgage by using a second lender this can be achieved very easily. It is simply a matter of increasing the loan with the first lender to cover a 40% deposit and then borrowing the other 60% from a different lender.
We would go to Rob and Julie’s bank and borrow $160,000 for the deposit. We would then go to another bank and ask for the $240,000 to make up the purchase price of $400,000. Both loans would be tax deductible (even though the small one is secured against their owned occupied dwelling) as they were both taken out to buy the rental property.
Financing the Investment Property
There is some debate regarding the type of loan that should be used to finance an investment property. There is no hard and fast rule but most property investors observe the following strategy:-
If they have debt on their owner occupied property they concentrate on paying this off first. This means that they have an Interest only loan on their rental property and make all principle payments onto their home loan. This is because the home loan is paid from after tax earnings and is effectively more expensive than the tax deductible interest costs of an investment loan.
When the home loan is paid off investors often then choose to make principle payments on their investment loans. Other investors who don’t have owner occupied debt often choose from the outset to have principle and interest loans so that the debt on the rental property is paid off over time.
Some investors (regardless of whether they have owner occupied debt) choose to always have interest only loans. This is because they have chosen to invest over time for capital growth and intend to sell the property for profit at a future date.
This approach also allows the owner to have funds to invest into upgrading and maintaining the property. Such investments are often tax deductible (compared to principle payments which are not) and also helps retain tenants and market level rents.
To work out what is the most appropriate approach for your personal circumstances contact us today.