HI everyone,
I am a newish investor who now has the money to invest in my first property. I am probably going to buy an investment property and develop it similar to John and Rhonda do from Catherwood Investments (through their CASEY system). Also I have brought Steve’s Due Dilegence kit. But I am still left with questions like:
(1) Is there a system/ check list to make sure i invest in the right Suburb? How do you know what what is the right area to invest in
(2) What questions do I need to ask myself to take an educated risk and invest in the right area?
(3) Is there some Due Dilegence pack I can buy to understand what area to invest in?I also have questions in relation to a second mortgage and they are:
(1) How does a Second Mortgage work? Can it be used to borrow more than 95%?
(5) Does anyone have a second mortgage at the moment? How is it going?
(6) What are the downfalls of a second mortgageThe other question I have is in relation to interst rate changes and it affecting the buying decision of an investor. For those who are experienced investors, does the interest rate going up, stop you from buying a property.
I would love to here from experienced investors on their thoughts on any of the questions.
Thanks in advanced
Jason
A second mortgage is merely what the name suggests. A second mortgage is taken over your property. You will find it extremely difficult getting a second mortgage over 95%. In any case, if you can service, you can get 97%, 100% and even 106% finance on a first mortgage.
Downside of a second is the high cost and not many lenders will do it.
Interest rate changes should be considered with any investment. If they go up, you do your numbers. If you are still satisfied with the return, it should not stop you.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksHi Mortgage Advisor,
How are you able to borrow more than 95% of the property value on a first mortgage.
I was under the impression (working for a major bank myself) the maximum you can borrow is 95%.
Do other lenders do more?
thanks
Jason
Yes, you can borrow 95% plus capitalise the mortgage insurance to 97%. You can borrow 97% straight up. You can take 100% finance or you can get up to 106%. 100% attracts higher interest rates than normal with 106% higher again.
Some lenders used to do even higher.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksI wouldn’t suggest you invest in property until you know the answers to some of these questions back to front.
You don’t need to buy a Due Diligence Pack – due diligence is the process of researching an area/investment and while someone can flog you a list of variables to consider, they will not be specific to your situation.
I’m not familiar with the CASEY system, so please forgive me if my answer is out of line with it.
Before you start asking “what area?” you need to know why you are investing. We all have different strategies that tie in with our personal needs/goals/comfort zones.
For some people, positive cash flow is of primary importance. A person may not have enough of a normal income to take advantage of tax benefits that a cash flow negative property would offer someone in a higher income bracket. Or they may simply not think it wise to rely only on speculative capital growth expectations.
Another person (perhaps with a hihger taxable income) may be more interested in capital gains, and willing to pay money out of pocket on a regular basis to make up shortfalls in the rental income. They will be able to get good tax deductions for these expenses.
A third person may be interested in renovating or developing property.
A fourth person might be interested in wraps, lease to buy options, or flips.
Where you choose to invest will have something to do with your strategy.
(What questions do I need to ask myself to take an educated risk and invest in the right area?The emphasis here is on educated risk. The fact that you’re asking this question would suggest that you haven’t taken the time to adequtely educate yourself on property. Read some property books, read the posts on this forum, read Australian Property Investor magazine… educate yourself.
In regard to borrowing 105% etc on a mortgage, a lender is more likely to do this if you are renovating etc and have a justifiable reason to need more than the property cost. They will only do it if you can service the loan with room to spare. It can also be used for a “no money down” technique, so you incorporate your buying costs into the loan itself.
HI Luci and thanks for you reply…
To say that I might not be “educated” enough is not quite correct.
I have read tons of books on property investment and attended heaps of seminars(John Burley, Steve etc). In fact, I think, while we always need to educate ourselves and I don’t know every thing, I think it is time I took action and stop procrastinating.
As you may know any investment has an element of risk, but it’s your job as an investor to eliminate the risk or understand the risk before investing. This is why I am trying to find out about the area I am going to invest in.
To understand the risk you need to do your due diligence. The Casey system is one developed by John and Rondah Donjerkovic who were one of Steve McKnight’s “MAPpers”. They are property investors.
You also mentioned you need to be aware of what is your strategy. Thanks for this; I am very aware of my strategy because I have investment goals and long-term goals in mind before deciding my strategy. In a nutshell, I want to Buy, Develop and On-sell for capital gains.
About being able to invest more than 95% of the property value, I would suggest there wouldn’t be many lenders that would do this. Does anyone know of non-bank lenders that do more than 95% or have let someone borrow more than the value of the security?
I suppose the reason I have posed those questions in my original post, is because of what’s just happened in the suburb of Koo-Wee-Rup in Victoria. They use to have a paper mill there, until recently. As you can image it was a growing town. When the closed the Paper Mill down, it now pretty much has become a town you wouldn’t want to invest in now. I want to do my Due diligence on the suburb as well as the property itself. Can anyone help? Does anyone make sure of the suburb they are investing in before investing?
Thanks again Luci, you’ve have helped me clarify what I am doing…
It is always important to look at the area you are buying in. If a town has no employment, it will be difficult to make any money there.
As for your finance questions, they were answered above. You could also have a read of…
http://www.mortgagepackaging.com.au/tma/tools_and_calculators/TMA_Low_Deposit_Lending.doc
As for the lenders’ names, I would much rather see you speak with a mortgage adviser / broker than try doing it yourself. It can get very expensive very quickly if you make the wrong move at these high borrowing levels and I don’t like your chances of being successful to purchase in a country town that lost its industry borrowing at such high LVRs.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links
You must be logged in to reply to this topic. If you don't have an account, you can register here.
