Investor lending restrictions can be difficult and expensive but worth it. Here is a great success story from a single mum investor who has overcome high rates and made it work for her.
Q. You already have a couple of investment properties and you had been looking for a while for your next. What obstacles did you face with this purchase?
I am a sole parent with 2 kids (income $105k p.a.) and have held a number of investment properties for over a decade. The situation with this latest property was that I had decided to buy 3 years prior to when I actually bought. Louise had helped me get the deposit in place in a separate account, but I then unexpectedly had an immediate family member develop a critical illness. So I had the deposit ready to go, but absolutely had no brain space, and no time at all to devote to choosing my next property. This was the case for 3 years as I spent most days after work at the hospital caring for my family member. It was an incredibly tough time that thankfully had a positive outcome. The reason I mention this is because (if you are like me) my investment journey has never been smooth. You are always fitting in your investment aims and interests around your family and work life and you rarely feel like you have time to be making big decisions. Not everyone has a serious illness to give them a jolt but we are all incredibly busy with lots of competing demands.
So, at the end of this 3 year period, having almost lost this person, they began to get better. I decided to focus on having a more fulfilling life because “you just never know.” There’s nothing like a critical illness to make you assess your priorities in life, so I went back to creating a future for myself both in terms of my career, my health and of course my finances. As my family member slowly recovered, I decided to sell a property that I had held for a decade, to take the cash even though I knew I would have to pay significant CGT (I am 51 and still work full time.) The plan was to use this money to pay off my own mortgage and focus on creating a more fulfilling life outside of the routine of full time daily work. In my mind, I wouldn’t have any difficulty getting another mortgage, and it took me a while to get my head around the fact that having just sold a property I held a lot of equity in, the act of discharging the mortgage would disadvantage me rather than give me an advantage. I felt in better shape financially than ever, so why didn’t the banks see it like this! So this was one of the obstacles I faced, as my lender that I did all my banking with and the lender I would have liked to use again for this new property refused to give me the funds I needed for this new property. After taking the funds from the sale, my PPOR is valued at $1.5mil, (debt 50k), I held another property worth $600k (debt $285k) and due to tougher lending I struggled with my Debt Servicing Ratio (DSR) to buy a property of $410k.
Q. You bought in Hastings Vic – what made you want to buy in this area?
I bought in Hastings after doing research myself on numerous plane trips I have to take for work. When I travel, I tend to buy one of the property investor magazines and I spent hours perusing the data section at the back of the magazine. I knew I wanted to buy a house between 350-400k, and then it was careful research looking at the trends – 3 mth, 12 mth growth, 3 year, 5 year and 10 yr growth, rental yield etc… I just shortlisted the suburbs, reducing the number of possibles from 15 down to 7, then 3. This is then when I started looking more specifically at the location as such, the distance from my house for ease of repairs and inspections, the quality of the housing on offer, transport options, the type of renters I would get etc… . It was just a process that anyone can do, and where I gained confidence that the decision I was making was a logical one and likely to succeed.
Q. How did Louise help you when deciding on the property or what to offer?
Louise was useful in making suggestions with what price to go in with initially. The market was rising very quickly and I missed out on 3 properties, making counter offers on some which was disheartening. I knew that I would be successful at some point, but just didn’t know with which one. I was getting better at it all though, getting tougher and bolder with the prices and communicating with the agents. I became much stricter with my purchase criteria, and with knowing what situations I was willing to be flexible or not with.
Q. You have owned it nearly 12 months – how has it performed for you?
My property had increased by $100k in the 12 months since I purchased which is amazing.
Q. Finance has been an issue for many investors – what issues did you face with servicing a new loan?
As I mentioned before, my regular bank lender wouldn’t lend me the full amount for the new property, so I had to split the loan between 2 lenders. It’s not ideal but has definitely been worth it as I wouldn’t have been able to proceed otherwise.
Q. How did you decide which lender to use? How did Louise assist you with this decision?
Louise did all of the hard work with putting submissions in to lenders and I think she had to work pretty hard to get it all sorted. There were lots of dead ends with lenders saying “We can see she’s a great client, but we just can’t at the moment.” I don’t think that they often have people on 1 wage that want to keep purchasing properties so I think I just didn’t fall within their criteria. In the end it worked out ok and has been quite easy to manage really. I have all of my banking with just the 1 big bank plus the new loan with LaTrobe. I am very conservative with having access to an Line of Credit (LOC) account with buffer funds, so nothing goes wrong. I don’t stress when I get a call from the property manager and never have sleepless nights over my investment properties.
Q. You ended up with a higher interest rate with another lender in the end. Was it worth paying a higher price (as in rate) for this property?
I think it was definitely worth it. My tenants have just clicked over their 12 months and are looking after the place beautifully. It has increased in value and is sub-dividable should I choose to go down that path.
Q. Have you had to spend much on it since the purchase?
As I sold my other property and have capital gains to pay, now was the time to put money into the new property to reduce my capital gains tax. So I spent about $30k in total on renovations- new carpets, fully painted, new bathroom fixtures etc.. I had to get 2 massive skip loads of rubbish removed from the property when I purchased as the previous tenants that had lived there for 8 years hadn’t looked after it very well. I enjoy this sort of thing though, dealing with the tradies, (avoiding being ripped off) and was very pleased with the outcome.
Q. Did you have any difficulty getting tenants?
I knew when I purchased that I probably wouldn’t have any trouble finding tenants. What I wasn’t prepared for was having 3 of the tradies ask me about renting it as it was being renovated. I was always going to use a rental agent so just directed them to the agency to go through the process. I didn’t take any of the tradies in the end, but it was nice to see the rental demand for houses in the area.
I actually made contact with 3-4 rental agents 5 months prior to purchasing the house to ask about rentals in the area. They told me about which areas command the highest rent, and which areas to avoid so I felt well informed. I kept pretty good notes on what they had said, and also got a feel for what they might have to offer me as a rental agent. I work in sales myself (not real estate though) so feel comfortable asking them questions and requesting better information. In the end, I felt I had all of the information I needed to make a good choice.
Q. What’s the best advice you can offer to others buying a new investment property?
Don’t wait for others to make a decision for you. Do the research yourself and then you will have the confidence to proceed. Inform yourself about what you are doing and why, and then make logical decisions. So many people just want a real estate miracle, but don’t want to take responsibility for the decision. And this is where it starts to become scary I think. If you make a logical decision, it’s still a big step but it’s a calculated decision and it’s really not that hard.
My interest in real estate has given me a financial future that I couldn’t have earnt with my own salary. I haven’t even been very aggressive with it and could have done so much more, but I’m happy with what I have achieved. At 51, I have basically paid off my house (value $1.5mil, loan is $50k), have a Sydney property (value $600k, loan is $285) and the new property now worth $510k.
I am heading off in 3 weeks’ time to take the kids to Europe for a month. I’ve also asked the boss for 4 weeks extra unpaid annual leave every year which he has agreed to. So property investment has enabled me to have a better life than I otherwise could have. It’s given me the resources to buy time off to focus on the things in life that really count.
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