Tips For Making Money Through Property

Property remains one of the safest investments available for people looking to increase their wealth, but that doesn’t mean it’s simple. Making money in property is more than just purchasing an apartment and waiting for the rent to come in.

Property investment requires shrewd planning, an acute awareness of your budget, capabilities and expectations, and an understanding of how the market is moving. Before you make an investment in property you need to have an awareness of what you’re actually trying to achieve and how this fits in with your financial goals.

Before you dip your toe into the lucrative property market, understand the forces at play and several tricks you can use to increase your chance of success. Here are some best practice tips for making money in property.

Follow the market

It’s important to know the temperature of the pool, before you dive in. The manner in which the real estate market is performing will have a drastic impact on the results you can expect to achieve with your foray into real estate, and the type of investment that represents the most effective use of your time and money. Different markets offer different buying and selling opportunities, and it’s important to understand what these options are and how they fit in with your investment goals. Because of this, a risk conscious approach is generally the most effective one. While markets generally correct themselves in same way or another, a risk conscious approach will make sure you’re prepared for rising interest rates and dips in consumer sentiment.

Long-term investments

Long-term investments provide canny, patient investors with a great opportunity to secure their future. Investments of this nature usually require a substantial capital outlay to begin with, but the returns can be quite significant, particularly if you have the awareness to buy at the right time and the patience to wait for the right time to sell. The focus for long-term investments must be on cash flow. Acquire the property below market value, make the appropriate repairs and as the market starts to improve draw the rent from tenants or sell for a profit. A long-term investment requires good timing and patience, but it can turn out to be a real cash cow.

Fix and flips

If you think you’re better suited to a more gung-ho approach to real estate investment, perhaps it might be time to try your hand at a few fix and flips. Acquire a property below the market value, fix any obvious problems and even consider making some of your own renovations. The key to success with a fix and flip is being aware of your budget, capabilities and expectations. Are the costs involved going to outweigh the benefits? Some properties may require major renovations that might be beyond your DIY capabilities. Costs can spiral out of control, particularly if you need to get a few contractors in to get your property up to snuff. As long as you’re aware of your costs and how these fit in with what your expectations are in regards to profit, there’s a lot of money to be made with fix and flips, and this can be a very rewarding way to make money out of a property investment.

Real estate investment trusts

This is a great option for people looking to make their money work for them, without having to worry about the ups and downs of the stock market. Real estate investment trusts, or REITs as they are commonly known, are huge funds that make significant real estate investments on behalf of members. Dividends and profits from these investments are passed back on to shareholders, so if you see an opening in the real estate market but don’t have time to do the legwork, REITs represent a pretty good option. You might not stand to make as much as you would with an individual investment, but sometimes it helps to have someone who knows what they’re doing in charge, particularly in times of consumer unrest and great market turbulence.

Using your personal residence to enter the market

The actual house you’re living in at the moment might prove to be the best way to dive into the sometimes choppy waters of the real estate market. If you’ve invested in a property during a buyer’s market, and lived there for two years or so, there’s every chance that you could sell it when the market corrects itself and walk away with a sizeable tax-free profit. Buying into the market outright can be quite a difficult task, but if you already own a property you’ve already got your foot in the door.

Raw land

If you’re willing to play the long game, you may also consider investing in raw land, particularly in areas projected to experience growth in future years. Often this will require a significant initial outlay and may require a few year’s work, but if you put the planning and effort in, when all’s said and done you stand to achieve a sizable return. As with long term investments, it is crucial to understand your budget, capabilities and expectations. You may feel as though a DIY approach might be a good way to save some money, but there are certainly some jobs that are best left to a contractor. At the very least you’ll save yourself a significant headache.

Effect of inflation

Inflation may not be a big part of your day-to-day thinking, but when it comes down to investing in property it can make a huge difference. Admittedly there’s not a huge amount you can do about this, but be mindful of the position of the dollar when you’re putting money down for your investment. It may not be as valuable as you thought it’d be, but at the same time, there’s every opportunity you may be able to get a little more out of your investment if the dollar is performing in the right way.

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Get Best Mortgage Home Loan Deal

Today is undoubtedly the best time for Australian’s to apply for a mortgage, prices between lenders have never been so competitive and borrowers can really push the screws to get rock bottoms rates. Thanks to the rise of several mortgage managers over the last two decades, interest margins have dropped from 4% (back in the 90s) to 1.5-2% that are common today.

Lenders are fighting for clients so much that David Morgan, the chief executive of Westpac labelled several low cost mortgage deals as “irrational”. While it may be true that some lenders are luring borrowers in with rock bottom deals, not every lender is following suit. Some prefer to sit on their hands until the customer asks for special rates, which makes sense from a business point of view.

Remember, the goal of the borrower is to receive the lowest rates possible, while the lender wishes to give them as little discount as they can possibly get away with.

Note: Due to the intense competition in the markets, borrowers have the ball in their court and the harder they push, the better deals they are going to receive.

Research the lenders

Research seems to be a common theme in our articles and for good reason, with it homeowners and investors can save much more. Borrowers should be researching several lenders to see who are offering the best rates, features and flexibility. This way they can walk into bank A and explain that Bank B is offering a 0.75% discount, and what can they do to improve on that deal. Other ways to conduct research include:

Mortgage brokers : Aside from checking rates with several lenders, getting information from mortgage brokers is never a bad idea. Borrowers should look for brokers who specialise in markets based on their needs, some will be extremely knowledgeable in professional markets while having a lack of understanding for low doc loans. We advise going to at few different brokers as it’s impossible for one to know all the best rates with so many offers constantly changing.

Word of mouth: Friends, family or work colleagues can be another resource of information. Perhaps someone has just gone through the whole process of looking for the best mortgage deal and can provide a lot of the brunt work on where to look, how to negotiate and what to realistically expect.

Don’t expect the moon and the stars

When searching for a mortgage, we see the borrower asking for everything including the kitchen sink. Rock bottom interest rates, free redraws, no application fees, Internet banking and 24/7 customer support all come at an expense to the lender. The average cost to lenders is about $1,000 when setting up a new mortgage for clients, so unless lending large sums of money ($500,000+) don’t expect too much wiggle room on certain aspects of the loan.

Borrowers need to think logically when comparing loans between lenders to have room for negotiations. For example, asking banks to match rates from a lender in another state that offers no realistic banking features (due to location) is pretty pointless and negotiations can often hit a brick wall. However, if location or in-branch features are not deemed important to the borrower, then happily compare the two lenders together.

Bigger the lender the bigger the discount

Smaller banks and lenders are known as ‘intermediaries’ or the ‘middle man’. As a consequence, some will not have the ability to lower their interests rates regardless of what other lenders offer, it’s company policy. Smaller lenders typically have greater costs resulting in borrowers having less bargaining power. As the subheading reads, the bigger the lender, the bigger the discount (usually).

Offer the ultimatum

Borrowers should know by now that just because they have been with their bank for decades, doesn’t mean they are entitled to extra services, special discounts or anything else of this sort. Winning new customers for banks is a difficult process and very costly, most would much rather waiver a few fees than to lose a customer forever. Knowing this key piece of information, borrowers should take advantage and threaten to leave to another lender if they cannot match or offer a better deal.

What we don’t suggest is to carelessly throw the idea of leaving unless being genuinely serious, as banks may sometimes call the bluff. Borrowers who are happy with their current lender because they provide great support, features and a fantastic service should recognise these services cost a bit more money and other low-cost lenders may fall short on.

Note: Unbeknown to some, earnings for a lot of people in the mortgage industry are directly correlated to the number of new mortgages they can setup. Whether seeking advice from mortgage brokers or other lenders be upfront and honest. Tell them you will shop around and even try and squeeze your current lender to get a better deal. It’s not the nicest thing to tell someone you’re going to leave your bank and go somewhere else hoping to secure a better deal, as they may think they will be getting a new client.

Lender limitations

Don’t act like a bull in a china shop and understand that all lenders have a set of guidelines they must work within. Certain variables such as fees can be waivered but they may have next to no power for reducing interest rates. Borrowers should work with lenders to see what they can offer rather than demand for things outside of their hands. For example, if a lender can only can only offer a discount of 0.60% (because it’s capped) ask them to waiver the annual package fees for 2-3 year instead.

The truth about switching lenders

Many borrowers don’t hide the fact they hate their bank but they still never leave, why? Because they think it’s a huge hassle and usually not worth the time or stress associated with moving. The idea of getting new debit cards, setting up new payment schedules and filling out new forms with their employer sounds like drudgery (and they would be right). However, refinancing can sometimes save borrowers as much as $1,000

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