Banjo Smyth

Congratulations! You have almost completed your first property investment project. You have bought the property, renovated it, rented it out and now your ready to buy your next one (after a well earned rest of course). For this to become a reality you will probably need to get a revaluation on your investment property. The other option is to save for another deposit but in most cases this will take you a few years so it is much easier and quicker to refinance your investment property.

First of all you need to organize the bank to perform an investment property revaluation. The best time to do this is just before your tenants move into the property as it should be looking great after you ‘cheap renovations’ have been completed. It goes without saying that the better your property is presented the more favorable the investment property revaluation will be, so make sure you have the place looking great.

Once the investment property revaluation has been completed it is up to you to decide if you would like to refinance your investment property loan. Let me explain to you the advantages of this procedure.

Let’s pretend that you bought your property for $300,000 and after 2 months work it was revalued at $360,000 (NOTE: whilst these are very general figures they are very realistic if you have bought and renovated well). Let’s assume that you had a 90% loan so you paid a deposit of $30,000 and you have an interest only investment property loan of $270,000.

What you can now do is ask the bank to refinance your investment property at the new price of $360,000 and get access to 90% of the new investment property revaluation. What this means is that rather than having a loan of $270,000 (90% of $300,000) you now have access to a loan of 90% of $360,000 = $324,000.

So what’s the difference between $324,000 and $270,000 the payout figure of your old mortgage? $54,000. You now have access to $54,000 ‘whenever’ and for ‘whatever’ you would like without even selling your property.

The are two common questions that people normally ask when they hear about this investment property refinance strategy.

Q. Do you have to pay interest on the $54,000 if you don’t want to spend it?

A. Absolutely not, you only have to pay interest on it if you decide to spend the money.

Q. Can I use the money to buy anything, for instance a new car or a trip to Disney world?

A. Technically yes, but I definitely wouldn’t advise you not to do that - just yet.

The whole concept of this Investment Property Revaluation and Refinancing Strategy is that you use the equity of your asset to buy more assets NOT liabilities. $54,000 would be the perfect amount to use as a deposit (and legal costs) of your second investment property and that is exactly what successful investors have been doing for years and years.

If you’re a bit disappointed that you don’t get to buy your Porsche straight away then don’t worry, you can still buy your dream car but I would advise you to buy a couple of properties first. Then once you have started to create some serious equity I would insist that you treat yourself to some of life’s great luxuries. Who would have thought that refinancing your investment property could be so much fun? So what are you waiting for, its time to put the ‘5 R’s investment Property Strategy’ into action.

Renovate – Rent out – Revalue – Refinance and Repeat.

When you are leasing out your property you will be faced with two main options. You can either employ a real estate agent and let them do all the work for you - or you can rent it out yourself. There is no right of wrong answer; it simply depends on your situation.

The Positives of using a Real Estate Agent when leasing out your property.

- You will be able to completely forget about your investment property and concentrate on new and more exciting things (like figuring out how you can buy your second investment property

- Real Estate agents know what to look for in tenants and ‘should’ be able to pick a high quality tenant.

- If something goes wrong they will be there to fix it. If you live a very busy life the last thing you want to have to do is fix a leaking tap after work.

- They will handle all the paper work and rental agreements.

The Negatives of using a Real Estate Agent when leasing out your property.

- The most obvious negative is the cost. Most real estate agents will charge you a management fee of 7.7% of all rent, plus a set up fee of 5.5% of the annual rent.

- Therefore if your tenants were to move on every 2^nd year you would pay 10.4% (on average) of your annual rent to your Real Estate agent.

- So if you were renting your house for 300 per week you would pay the real estate agent $1622 per year out of your annual rental income of $15,600.

The Positives of leasing out your property yourself.

- You will save money.

- You will be able to oversee all maintenance and problems which will probably mean that you will be able to save some money on repairs (especially if you are a bit of a handy man/woman).

- You can personally choose the tenant and find someone that you think will suit the property. Don’t underestimate the ‘good’ feeling that you will get when you make somebody very happy by giving them the opportunity to live in a great house.

The Negatives of leasing out your property yourself.

- The main negative is the ‘time’ factor. If you live a very busy lifestyle it can be annoying if you are constantly getting phone calls from your tenants.

- You will need to organize your own rental agreement and lodge a bond. This is much easier than it sounds and all the relevant information is readily available on the internet.

The Answer?

It really comes down to deciding what is more important, your money or your time?

If you do lease out your property yourself I think the best way to look at it is to think that you are employing yourself. If we use the above example you would basically being paid $1622 per year to be your own real estate agent. If that sounds like a pretty good deal then I would have no hesitation in recommending that you lease out your property yourself. Best of luck.

When it comes to investment property renovations the question I always get asked is - “how much work should I do”? The answer to this question will change dramatically depending on each person and their current situation. Are you the kind of person that loves DIY (do it yourself) home renovations? Do you love researching cheap renovation ideas? Or does the thought of a month’s DIY home renovation make you feel sick? Only you can answer these questions but believe me there are huge advantages of doing minor renovations let alone a full month’s work on a property

So let’s assume that you have 2-5 weeks to complete your DIY renovations, what is a realistic goal to try and achieve? To a certain extent this will depend on your budget but you would be surprised at how much you can get done if you find some good cheap renovation ideas. My DIY renovation budget is the same for every project I do - I like to call it the “Spend as little as possible” budget! Below is a list of the most obvious and important things that you should look at when attempting a cheap DIY renovation.

Interior Painting

A fresh coat of paint is the easiest way to make a house feel new again. The great thing about painting is that everyone can do it and it’s such a rewarding job. I love watching the house slowly get transformed as each new wall is painted and best of all if you do it yourself it shouldn’t be too expensive.

RENOVATION TIP: If you’re going to paint the house beige don’t even bother! Property investors always make the mistake or choosing plain and boring colors. Paint the house as if you were going to be living in it. If you’re feeling really adventurous you could even include a feature wall.

Floors

Replacing the existing flooring is another way to make your property feel brand new. You can either replace the carpet or in some houses you can polish the floor boards that are under the carpet.

RENOVATION TIP: This is one part of the DIY renovation process that I would recommend hiring somebody to it for you (floor polishing &carpets). The professionals do such a quick, good and cheap job that it’s hard to make an argument for doing it yourself. To save some money you can rip out the old carpet and left over staples before the professional come.

Bathroom & Kitchen

These two rooms are very important when it comes to renovating your investment property. If you do have some money in your budget then the Bathroom & Kitchen are a pretty good place to spend it. How much work you do here is up to the individual but I would recommend trying to get both of these areas clean, modern and usable.

RENOVATION TIP: Rather than re-tiling you can use Tile Paint to great effect. I have used ‘White Knight’ tile paint over the top of outdated 80’s tiles and the results have been outstanding.

Fittings

Replacing old Light fittings, door handles and cupboard fittings is a great DIY renovation idea. It is a very easy and cheap way to create a more ‘modern feel’ in your Investment property.

RENOVATION TIP: Look at the expensive designer brands and then find good quality imitations that are a quarter of the price.

Garden

One full day in the garden and you can make a big difference to overall appearance of a house. Pull out some weeds, trim some branches, mow the lawns, sweep the driveway and suddenly your property is looking pretty good. You might be saying “Since when is sweeping the driveway considered DIY home renovation”? Well I don’t care what you ‘call it’ – Gardening, DIY, Renovations, Cleaning – the fact is that putting a day or two’s work into your garden will definitely make your house more attractive to potential renters and bank valuers.

RENOVATION TIP: This is a great part of the DIY renovation to get some help from family and friends with. Everyone has done some gardening at some stage and you can even turn it into a bbq event. This will make it more fun and easy as the whole family can come.

Exterior Painting / Render

This might not be your first priority but it will drastically improve the first impressions that people have of your house. If your property is a weather board then a few coats of paint is a great idea or if it’s a Brick house then rendering your property can make a massive difference. Render can turn an old and ugly brick house into a modern a beautiful place in a few days.

RENOVATION TIP: DIY rendering is an incredibly cheap way to improve the value of your house. It can be messy and laborious but the results are fabulous.

Hopefully there is something here for everyone. So my answer to the question “how much work should I do on my investment property”? Do as much as you can whilst spending as little as possible. In the perfect world you would complete all the ideas that I have mentioned in about month and for under a budget of $10,000. Is this a realistic DIY renovation goal? Yes I believe it is very achievable, especially if you (or someone you know) have a few ‘handy man’ skills. Remember that renovating you investment property should be fun and exciting. Best of luck

Congratulations! You have bought your first house and now you’re simply waiting for the property settlement period to end. So what should you do? Sit around and be happy with yourself? Definitely not! Now is the perfect time to organize everything that needs to be done to the property before you start paying the mortgage.

The best thing about the Property settlement period is that you will be so excited that it will be a joy to ‘plan out’ what you are going to do. Make a list of all the revamps/renovations that you would like to achieve and see if there is anything that you can arrange before settlement occurs. For instance if you are going to get the floors polished, why don’t you get some quotes and set an actual date for the selected workers to start. Tradesmen are so busy these days that you often need to book them a few months in advance anyway. If you contact the Real Estate agent they will be more than happy to give you access to your property for any number of reasons. Don’t think that you can’t visit the house during the property settlement period. Just call the Real Estate agent and they should always be able to help you out.

Whether you are planning on doing some renovations or renting the property straight away it is vital that you use the property settlement period to your advantage. The last thing you want is to be paying the mortgage whilst you wait for a tradesman to polish your floors or whilst your looking for a tenant. If you use the property settlement period wisely and effectively everything that follows will be ten times easier – and remember

“by failing to prepare, you are preparing to fail”

Benjamin Franklin

Steer clear of emotional bidders and keep your eye open for motivated sellers.

When you are purchasing anything it’s obvious that you want to pay as little as possible for it. When it comes to buying houses there are two main factors that will alter the price – If you can take advantage of these two ideas you will learn how to buy property at a great price.

1. Steer clear of emotional bidders and people who are making their decisions with their heart. When people/families buy residential property there can be emotional factors that cause them to pay more than the value of the house. For instance they might be in a rush to find a property as they have already sold their previous house, or they might be living with their in-laws in between houses and desperate to find their own place. The husband might fall in love with the garden and be prepared to do anything to get buy or vice versa. Believe me you do NOT want to compete with these people, one of the great advantages you have as a property Investor is that you shouldn’t be emotional. Walk away from the property and find another one that will end up being a better deal. If you want to know how to buy property for way more than its worth then simply find an emotional buyer and you will see how its done.

2. If you can find a motivated seller you may be able to buy the property at a great price. What do I mean by a ‘motivated seller’? Simply someone who wants to get rid of their house quickly. For instance a divorced couple or someone who has been transferred to a new location and wants to sell their place before they buy a new one. Always remember that the ‘conditions’ of your offer can be just as important as the price. For instance if you know that the seller is desperate to get rid of the house then it would be a great idea to offer a very short settlement. You would be surprised at how often lower offers get accepted because of the conditions that are attached with the offer. I hope these two ideas can help you to learn how to buy property at a great price. Good luck and happy bidding.

Once you have found a property that you would like to buy you need to think about how you’re going to go about actually acquiring it.  Depending on how the property is listed you will need to bid at an auction or put a written offer into the real estate agent.

Let’s have a look at some tips on ‘how to buy a house at auction’.

Before you even think about trying to buy a house at auction it is vital that you have witnessed several other auctions take place.  I would recommend dedicating one Saturday to simply go to as many auctions as you can.  Go to www.realestate.com.au and search for upcoming actions around your desired area.  Then plan out your days schedule.  In most areas you should be able to see at least 3-7 in one day.  This shouldn’t be a chore or a hassle, believe me there is nothing more entertaining than an auction (I’m surprised there isn’t a reality TV show about it yet).  It has all the ingredients of great entertainment – suspense, excitement, joy and sadness, be careful because you might actually become addicted to going to them!

In all seriousness it is very important to see how they work because when it comes to your turn you want to at least believe that you know what’s going on.  When I go to an auction I always like to pretend that I’m going to buy the house.  I will give myself a realistic budget and then whilst the auction is going try to imagine when I would make my first bid and see if I couldn’t have won the property.  If you’re good at using your imagination a I would highly recommend using this strategy as it allows you to feel a little nervous and get an idea of how tense you will be when the real thing comes along.  Just make sure you don’t ACTUALLY make a bid – that could be quite embarrassing!

Another thing to study when ‘auction watching’ is to see who ends up winning and how they went about it.  When there is a competitive auction with a number of bidders the winner nearly always leaves their run to the last minute, or they might do something unusual like raise the bid by $5,000 when everyone else is only raising by $1,000.  A good bidder will give the IMPRESSION that they will pay ANYTHING for the property but when the price goes over their budget they will simply walk away.  Bidding at actions is a very stressful job and If you feel like it would stress you out too much then I would recommend finding somebody who has some experience and getting them to bid on your behalf.

The other way you might buy a property is by putting in a written offer.  This has its advantages and disadvantages.  You will generally have more time to think about how much you’re prepared to offer – but this is not always a good thing.  Remember not to fall in love with a place, think about the numbers and settle on a price that you would be very happy to buy the place at.  How high you’re offer is will depend greatly on how many of people are interested in the property.  The real estate agent will always tell you that there are ‘lots’ of interested buyers but it is generally pretty easy to get a realistic idea of how many people you are competing against.  If there is very little interest then you can obviously start low and try to portray the idea that ‘If I was to buy the property at this price I would be happy otherwise it’s not exactly what I’m looking for’.  If there really are other interested buyers then it’s important to think about what you offer.  It needs to be high enough that they will take you serious and will keep you updated as to other offers.  Always remember to keep your bid to a level that you would be delighted to buy the property at.  The last thing you want is to get a call from the Real Estate agent saying congratulations and think to yourself ‘oh dear, did I really want to pay that much for the property’.

In Chapter 1 (The Plan – How, What & Where?) we spoke about how you should buy in an area that is predicted to have high capital growth but is also accessible from your place of residence (if you are planning on doing some minor renovations).  We also learnt that buying an ‘average’ house in that area is vital in order to get accurate valuations and to make it easy to lease.  So now that you know ‘Where & What’ you’re looking for, let’s concentrate on some strategies to make finding your perfect Investment Property easier and Stress Free!

So where is the best place to start?  Where else but the

internet?  The internet has changed our lives in many ways and when it comes to Property investing this is definitely the

case.  It will save you hours and hours of time.  The first thing to do is to sign up to some of the internet Real Estate sites.  Simply search ‘real estate’ and you will find them.  My personal favorite is www.realestate.com.au but there are many others that are very informative.  When searching for properties you can really customize what you’re looking for and if you have followed my instructions from chapters 1& 2 it will take you no time at all to bring up a list of suitable properties.

Lets pretend you have decided that your ‘Perfect Investment Property’ is  –
- Located in St Kilda
- A 2 bedroom unit
- And your mortgage broker has arranged pre approval for a $350,000 loan

You simply enter all of these details in and you will be faced with a list of properties that fit this description.  How easy is that?

So now that you have a great big list of potential properties its time to contact the Real Estate Agents.  What I’m going to say next might cause you to fall of your chair but believe me – if you want to become a successful investor this statement is true

‘I love Real Estate Agents with all my heart because they are my Best Friend’

Ok, well maybe that’s a little bit overboard but if you can become friends (or at least acquaintances) with some Real Estate Agents you will have a massive advantage over the average home buyer.  You will get first access to properties when they come onto the market.  Plus, Agents are paid by commission and therefore it is in their interest to sell properties as quickly as possible.  Therefore they love Professional Investors because they make quick decisions.  Now I can hear you saying “but I’m not a professional investor’.  I promise you that it won’t take too much effort to trick the average agent into believing you are VERY professional.  Firstly why don’t you turn up with a clipboard and excel spreadsheet.  Ask some questions about the asking price and the predicted rent (making some notes as you go of course.)  Play the part of a Professional Investor – who knows you might even end up believing it yourself!

So now that you know what your basic plan is, it’s time to start getting a little serious and put some structure into your actions.  The first thing you need to do is to get ‘pre approval’ for a loan.  In other words you need to find a lender that suits your needs and get them to agree ‘in writing’ to lend you a certain amount of money to buy a Property.  I remember when I bought my first property feeling completely over my head when it came to getting my finance into place.  I had so many questions – most of which I managed to answer by trial and error.  I will try to give you a detailed overview of all the question, problems and answers that I have encountered with getting finance.

Q.  Why do I need to get ‘pre approval’ of a loan?

A. You don’t NEED to get pre approval but I highly recommend you DO for a number of reasons.
-  Pre-approval will let you to know EXACTLY how much your budget is and therefore allow you to exclude properties that are out of your price range.  This can save you valuable time.
-  If you are competing against other buyers then having ‘pre-approval’ will definitely give you a big head start and allow you to take advantage of Vendors who are looking for a quick sale.  Think about it – If you were the vendor and two people both offered you $350k for your house BUT one of them had ‘pre-approval’ whilst the other didn’t.  Who would you choose?  It’s a no brainer, there are even times when you offer $1k -$30k less than somebody else and they still choose you.  Why? Because for one reason or another  the vendor needs to sell straight away and they can’t wait to find out if the other offer will be approved.
- Keep STRESS to an absolute Minimum.  There is nothing worse than having your offer accepted and then having to wait for the bank to make their decision.  This is especially the case if you haven’t got a home loan before or are self employed.

Q.   Should I use a Mortgage Broker?

A. Yes, a good mortgage broker should save you thousands of dollars and help you get a loan easily.  If you are buying your first property then you will appreciate as much help as you can get.  Mortgage brokers deal with banks every single day and they should know how to get you a loan and more importantly WHAT loan to get.  Have you noticed that there are a million different loan options these days?  A good mortgage broker will know which one suits your situation and save you lots of time and money.  Always do your own research but if you find someone who you trust you should have no problems.  Best of all you don’t even have to pay them; the bank will do that on your behalf.  So really there is no reason NOT to use one.  Just remember find a Broker who you trust and get along with.

Q.  What sort of loan should I get, and what does Interest only mean?

A. The best person to advise you on this is your broker but generally speaking Investors only ever use Interest only loans.  What this means is that they will never own the house outright, instead they make smaller repayments that only cover the interest bill.  This can be a crazy idea to get your ‘head around’ at first but the reason is quite simple.  The lower your repayments are on your property the less restricted your cash flow is, therefore you have more excess money to help finance your next investment property.  The logical question is – but if you never pay off the house how can you make any money?  As we learnt in Chapter 1, you can still access the equity in your property without selling or completely paying off the house (see chapter 9 for more details).   It’s also worth mentioning that the Interest component of an Investment loan IS tax deductible whilst the principle repayments are NOT, just another reason why Professional investors always use Interest only loans.

Q.  Should I fix my Interest rate or leave it variable?

A. I have a basic rule or recommendation when it comes to this question.  When you first see banks raise their long term fixed rates you know it is time fix your loan.  Using this rule and some common sense you should be able to work out what’s best for you.

Q.  How much do I need to save for a deposit?

A. Once again it depends on your situation and circumstances.  A ‘normal’ property loan would include a 20% deposit but professional investors will always try and pay as little deposit as possible.  So, would I recommend getting a 95% loan?  With caution and common sense, yes I would - BUT every situation is different and I obviously wouldn’t recommend for someone who is earning $20,000 a year to get a 100% loan for a $500,000 property.  Use your common sense whilst doing everything possible to make it happen for you.  The worst feeling in the world is when you have saved a decent deposit but decide to wait another 6 months to save that extra little bit only to find out that house prices have risen and your deposit is now effectively worth less than it was 6 months ago.

Ok, so you have decided that you want to buy an Investment property but you’re probably finding it hard to know where to begin.

Should I buy an old house?  Should I buy a new house?  Should I renovate? Should I buy a block of land and build a house? What does ‘off the plan’ mean?

All are great options but I’m going to focus our attention on what I believe is the best and most ‘accessible’ option that any ordinary person can use to fast track their Property Portfolio.

I like to call it the ‘5 R’s Strategy’
It revolves around buying an existing property at or under market value.  Then you simply follow the 5 R’s.

Revamp
The idea is to buy a property that is ‘structurally sound’ but in need of some cosmetic repairs.  I won’t go into too much detail here but you would be amazed at how much value you can add to your property by doing a few minor things.  Whether you polish the floorboards, paint the walls or even just replace some light fittings you can literally add thousands of dollars to the value of your property.  In Chapter 7 (Revamp/Renovations) we will discuss how much (or how little) you should do depending on your circumstances.

Rent
Simply rent your property out and start letting your tenants pay the mortgage.  Chapter 8 (Leasing out your property) will cover the pros and cons of doing this yourself or going through a Real Estate agent

Revalue, Refinance & Repeat
This is the most exciting part of the strategy that ordinary people don’t realize is possible.  If you have ‘Revamped’ your property correctly it will now be worth more than what you paid for it.  What most people don’t understand is that they can actually get instant access to this money.  Simply get your property revalued - then refinance your loan and use this extra equity you have created as the deposit for your next property.  WARNING - Make sure you don’t refinance and then use the money to buy a plasma TV or go on holiday.  Leave that stuff until after your 2nd or 3rd property.  Don’t worry if the idea of refinancing is a little confusing – Chapter 9 (Revalue, Refinance & Repeat) will go into it in much more detail

So now that you know roughly what your plan is you need to decide Where and What to buy?

Let’s start with Where?  What area should you buy your first Investment property?
This is a very important question but please don’t let it be too important.  What I mean is that lots of people get so stressed out about where they should buy, that they end up doing nothing at all.  There are plenty of websites and companies that can give you great information and research about predicted ‘high growth’ areas which can make you hundreds of thousands of dollars down the track.  So definitely take advantage of the resources that are out there.  Another aspect to consider is that if you are going to be spending some time revamping & renovating your property then it would be silly to buy in an area that was a 7 hour drive away.   So do your research and use your common sense.  Most importantly don’t stress too much and try to enjoy the research – It should be fun.

Now the question is What?
This depends entirely on what area you decided to buy in.  You always want to buy a property that is somewhere around ‘the average’ or ‘typical’ property in that area.  Why?  Simply because you want everything to be as easy as possible.  Imagine trying to rent out a brand new mansion in a lower socio-economic area.  You will find it very hard to find a tenant who will have enough money to pay the high rent of a mansion , yet be happy to live in that area.  Also when you are getting your property revalued the banks use ‘comparitable sales’ to decide how much your property is worth.  In other words they look at similar properties in your area and what price they have recently been sold for – If there are no comparitable sales the banks become very reluctant to give you a favorable valuation.

So I would recommend trying to establish what sort of rental properties are the most popular in your chosen area and start focusing your attention on that sort of property.  Anything from a 1 bedroom unit to a family home can be a fantastic investment, just make sure you get the right place in the right area.

So that’s the basic plan of attack, next we need to look at how we can get a bank loan so we can actually buy the property.  We will cover this in Chapter 2. - Getting Your Finance Pre-Approved

How to Buy Your First Investment Property

-A step by step guide-

This is an easy to follow, step by step guide to buying your first investment property. I have split the somewhat daunting task of buying your first property into 9 chapters. Each Chapter will walk you through the process in a simple and easy to follow format. Beginning your Property Portfolio should be a happy and fun experience that you look forward to. Too many people are too scared to take any action simply because they don’t understand how easy it can be. I hope you enjoy this guide and it helps you take your first steps towards financial freedom.

INDEX

1. The Plan – How, What & Where?
2. Get your Finance Pre-Approved
3. Finding the Perfect Investment Property
4. Purchasing the Property
5. How to Buy at a Great Price
6. Waiting for Settlement
7. Revamp/Renovations
8. Leasing out your property
9. Revalue, Refinance and Repeat