I’ve had a number of clients talking Investment Property these past few weeks, which has had me reflect on how I buy and the meaning of life. As Mortgage Brokers we get used to seeing lots of deals and far too much money. I’m guilty of liking my own product.
If I applied one rule to how I buy property it is simply that you make money when you sign the contract. It sounds too simple, yet I reckon 95% of investors don’t do it.
In terms of the type of property I buy, I’m less particular. My basic rules are to buy 20% below market value combined with a yield against cost of at least 6% but ideally higher. We keep some and we trade some. The ones we trade usually have the lower yields and a premium price because they appeal to homeowners. The ones we keep usually involve multiple income properties and an element of building and or subdividing to create value.
I’ve had good cash flow for a while and long may that continue. My problem has been building equity, especially as my home has been reasonably leveraged. As such my property focus has been on capital gain and then leveraging the newly created equity and/or paying off the family home.
I also tend to partner up with other investors who bring other resources or skills to the table. It works well. With my income I can service a substantial amount of debt but I don’t necessarily have the capital for deposits and development. My main business partner has significant capital but doesn’t have strong verifiable income. We complement each other’s resources. I manage the money and sales and he manages the projects.
From a risk perspective my main focus has been on diversifying my income streams. Relying on one business for income is too risky. We have built two client service businesses – squirrel and first home makeovers.
Even on the property side we’ve got it split between trades (for cash flow), holds, and then developments. Everything compliments each other. I try and build steady cash flow through the businesses by reinvesting profits and continually building the brands. When it comes to property we try and turnover trades fairly quickly for cash flow and invest that cash flow into bigger projects. We always have an exit strategy and we don’t like holding development properties (that don’t earn income) for very long.
From a lender perspective I have my main relationship with ANZ Commercial. However, across the businesses we have started to spread that risk a bit more. However, as a Business owner the reality is that it’s not necessarily that easy to work with a new lender.
With interest rates just about all of ours are on floating rates. I have one chunk on a fixed rate of 6.85%, which was right at the time and I don’t kick myself about that one with rates still so low. You win some you lose some and it’s the long game that’s important. However, I am looking to fix a decent chunk of it for 4 or 5 years below 5.95% in the near future. Locking in my cash flow at these rates makes good sense.
The former General Manager at ANZ National Bank, JB has brought is broad depth of experience in the banking industry to Squirrel, which is his own company. JB has directly managed over $30 billion of mortgages and deposits and is a regular commentator on the mortgage market in the press and on TV. JB has a BCA from Victoria University and has undertaken post graduate study at University of London. He’s easy going most of the time, except when it comes to his calculator (he’s pretty neurotic with it).