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.