Professionals: Maximise your property investments using an unusual tool
If you want to be smart about handling your property investments, there is an unusual tool that may help you to maximise them.
That tool is refinancing.
It's an unusual approach because most people think of refinancing as a way of capitalising on lower interest rates. Refinancing actually has nuances that many professionals don't understand; and it can take a lot of work if you're trying to do it all by yourself.
In this article, you'll learn why refinancing can be one of the best tools in your kit, and why mortgage brokers are genuinely your best friends during the process.
What is refinancing?
At its simplest, refinancing is the process of replacing an existing loan with a new one.
It sounds like an easy thing to do: Find a new lender with a better rate, and off you go.
Right?
Not so fast.
For refinancing to work in your favour, it can require a higher level of due diligence than did your existing loan. This is true even if you are considered to be a 'low risk' borrower.
Finding the right way to refinance can be complex
Not only does refinancing require a fine understanding of your personal situation, but it also means designing an approach that will:
consolidate your debts
pay down your debt more quickly
allow you to access equity without selling assets, which is extremely useful if you’re wanting to re-invest
save money
negotiate exit fees
negotiate interest rates
discover appropriate discounts, which apply to certain professions
help you navigate insurance requirements
discover the best type of loan
The complexity in refinancing isn't just about the technical details. It also requires the wisdom to spot more beneficial ways of structuring your existing debt.
A real-life example from my own clientele
Now, this is not tax advice, and you ought to talk to your accountant if that's what you're after. But I'd like to tell you a story about some clients that I have worked with.
This client was a couple; let's call them Mr and Mrs Smith. They came to me looking to refinance their debts.
Now Mr and Mrs Smith were quite wealthy. They had approximately $3.2 million in property debt, of which approximately $1 million was owner-occupied. The remaining $2.2 million was cashflow positive: It was investment property, occupied by other people, who were paying rent to the Smiths.
The Smiths believed that they were doing the right thing, and had been paying down all of their debts at the same time.
However, this strategy missed something significant.
That is: Their investments have different tax rules that apply---many of them beneficial rules. An investment that is cashflow positive really is good debt; whereas owner-occupied debt is just a liability.
'Good debt' is debt that makes you money. Ideally it will not only make you money, but will give you enough equity to continue expanding your investments.
In restructuring their loan, I advised them to pay down their owner-occupied debt first and foremost. By moving the debt on their investment properties to interest-only loans, they were then able to move all of the money they'd been paying on the investments into their owner-occupied debt.
In this way, they reduced their payment duration by more than 50%. Once the owner-occupied debt is gone, they'll be able to start paying down the principal on the investments. Except that they will have much more money with which to do it, and will be in a much more beneficial financial position.
Now there's the thing: If Mr and Mrs Smith had gone to a different financier, they may not have been able to gain this benefit. Restructuring isn't just about what loans say on the ticket. It's about establishing a smarter way of handling your debt, and knowing when (and how) to make good debt work for you.
This is why refinance as a tool can save you money and help you to expand your investment property portfolio
Interest-only loans aren't common, but can be very useful for enthusiastic investors.
While it's not appropriate for everyone, in the right circumstances it can be incredibly useful, as you've already seen. It allows you to leverage your existing equity without damaging your cashflow, because it requires lower repayments.
Your goal may be very different: Perhaps you are looking to pay down your debt more quickly, while freeing up cash for daily use.
Whatever your goal is, refinancing can be a highly effective tool to use, if you approach it correctly.
It's easy to gain the benefit of refinancing if you have a broker on your side
While it might sound self-serving for me to say that accredited finance brokers are your best friends for a refinance, it is actually true.
Here's why:
MFAA-accredited finance brokers have the knowledge and expertise to establish loans for any situation. They also have access to loans and discounts that lenders don't publish.
Most critically, a broker's job is to design the most beneficial outcome for your specific situation, and your specific goals.
The best thing is that you don't pay the broker, even for research time
If your broker has to spend time and effort in hours or days of research on your behalf, then you still don't have to pay them. Brokers are paid by lenders, not by clients. It's in a broker's best interest to solve your problem.
It means that you can say goodbye to spending your spare time trying to work out how to maximise the financial side of your property investments. You can simply bring in a broker to do this work for you.
Not only do you not have to pay them, they come armed with the type of knowledge and expertise that makes them more effective and efficient. And their financial advice is second to none.
The moral of this story is that you can work with a broker for as long as it takes in order to get the best outcome.
To see what I recommend for you and your property investments, call or text me now on 0423 515 251.