Don’t let your financial structure hold you back from achieving your property goals
When seeking to build a sizeable portfolio, many investors only focus on the need to find properties that will grow in significant value.
This is paramount of course for property investing success; however, as an investor you also need to be aware of your financial structures because the wrong arrangements can severely constrain your borrowing capacity, and subsequently your ability to build a large property portfolio.
Here are 3 finance structures that you might want to avoid:
Cross Collateralisation
Cross collateralisation is when a lender uses two or more of your properties as security to issue you a loan. This effectively keeps you tied to the one lender and can reduce your ability to borrow – in some instances, your lender may stop lending to you altogether. It’s best to secure each loan with one property only to maximise your lending capacity.
Ownership structures
Accountants, financial planners & solicitors may suggest you buy property via a trust. While a trust ownership is a great way to embed your asset protection, this type of ownership structure can also limit your borrowing capacity.
Some lenders will not allow the negative gearing claims for loan serviceability where the property is owned in a trust. Before establishing a trust to buy an investment property, it’s best to engage check with a mortgage broker id this will impact your borrowing capacity and be counter productive.
Dont get me wrong trusts are a great vehcile for investmetn however if it stops you from borrowing ion the first place thenan alternate plan may need ot be considered. A professional & reputable mortgage broker should be happy to have conversations around this matter not only with you but with your team of advisors – be it your Accountant, financial planner and/or solicitor.
Joint and several liability loans
When borrowing jointly with another person, you are each individually responsible for the entire debt but only entitled to half the rental income. This can adversely affect your borrowing capacity outside of the joint purchase, particularly if you’re buying with someone other than your partner.
Thinking long term is crucial if you have in mind a strategy to purchase with ‘investment partners.. dont go into too lightly.
If you would like to have a chat about any of these topics and how they relate to you particular circumstances don’t hesitate to contact us or call 1300 855 244