As I’ve continued along my property investing career, one thing has become increasingly clear to me. If you want to succeed in property investing, “buy for the bank”. Given how important financing is in creating a profitable property portfolio, one of the most important lenses we need to adopt when looking at any potential property is “what will the bank think of this”?
Traditionally, 20% deposit loans have been the norm in Australia. Some banks are more lenient on lower deposit home loans than others, and going back a few years it wasn’t uncommon to see 95% loans. In fact, lenders have been known to extend over 100% of the purchase price of a property to borrowers, relying on an individuals income and existing equity. Regardless of the prevailing attitude toward debt, and the willingness of banks to lend at high LVR’s, one thing is certain-you need to have the bank in your corner. Finding a property that excites the lending manager is a much easier path to follow than pursuing niche properties that banks are not as willing to lend on.
As I noted in another post about planning for the future, consideration should be given to how easy it will be to sell a particular property, should you need to. If we target niche, difficult to fund properties such as student accommodation or very small studios, we may discover that future potential buyers struggle to get financing. This would limit the demand for your property and as such, the capital growth on that particular property might not be as high as hoped. That’s not to say that these property types are always a bad investment, and we need to weigh up things such as ongoing tenant demand and the cash-flow potential of a property, before making a decision whether to purchase or not. However, adopting a mindset of keeping the bank happy and buying properties that they are happy to finance is a good starting place.
It’s also a good way to understand risk. If a number of banks aren’t happy to finance the property, or are only prepared to offer low LVR’s on a property, that should tell you something about how they view the future prospects for capital growth for that particular property.
Please note: the above information and analysis does not constitute financial advice in any way, and it should not be relied upon. It’s important that you seek guidance from licensed professionals, who can provide advice based on your individual needs. No investment decision or activity should be undertaken on the basis of this information without first seeking qualified and professional advice.
