Author and property investor,
Michal Yardney says “real estate investing is a game of finance with some houses thrown in the middle”.
People think that the scarce resource is investment-grade property. But the scarce resource is actually borrowing capacity – as everyone has a limit to how much they can and should borrow.
In a normal market, investors that seek professional advice from a buyers’ agent will eventually be able to identify and acquire a quality asset. And if you had an unlimited borrowing capacity, theoretically, you could keep buying property. However, the reality is that everyone has a limit to what they can borrow. Safely maximising that limit allows you to invest more and build personal wealth. That’s why investing is a game of lending, not investing.
My recent experience is case in point
My wife and I recently refinanced some loans from Westpac to ANZ. Most of these loans were established at Westpac in the past 3 to 5 years. One loan was established as a result of an unexpected, but advantageous, property acquisition in late 2016. To get the loan approved, we had to agree to making accelerated (additional) loan repayments to reduce debt.
However, over the past 3 years, our loan to value ratio has reduce significantly and our overall financial position has materially strengthened. Plus, we have been making substantial loan repayments thereby reducing our debt.
As such, I approached Westpac to (1) restructure our loans and (2) access some equity. In short, they said no! Whilst this was frustrating (and frankly nonsensical), it reminded me how important it is to know the rules of the lending game. You need to know when to push and when to walk. And most importantly, whether a ‘no’ is really a ‘no’ – maybe you are either talking to the wrong person at your existing bank or need to go to a different bank.
The short story is that we refinanced to ANZ, obtained a lower interest rate, almost all debt on interest only repayments (only one loan on P&I because we requested it, not the bank) and we obtained access to a large amount of equity.
To win at the game of investing, you need to first win the game of lending
I have always counselled my clients to do two things. Firstly, always borrow more money than you think you need (large buffer). Secondly, the best time
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