• Category Archives Budgeting
  • The Business of Property Investing in 2013

    With a new year under way, now is the best time to organise your financials and plan for a prosperous year ahead. These four tips will assist you in making 2013 your strongest investing year yet.

    Number 1 – Set goals

    You’ve probably heard this one a bunch of times, each time brushing it off as unnecessary or something to look at later. It took me quite a few years of doing just that before I finally realised the benefits of setting goals at the start of each year.

    Setting goals will help you focus your energy and give you some direction throughout the year. It doesn’t need to be an onerous exercise but each goal does need to be actionable and measurable. For example, ‘purchase another investment property’ or ‘increase passive income to $500/week’ provide clear benchmarks to aim for. ‘Get rich’, on the other hand, won’t really do.

    Make sure that each goal:

    • can be achieved within a year
    • is something that you can measure your progress against
    • is, most importantly, something that you’re passionate about achieving.

    The goals that you set at the start of the year can be amended and updated as things change.

    Number 2 – Undertake an end-of-year review

    An end-of-year review is something everyone should do, regardless if you set any specific goals the previous year or not. When you treat your investments as a ‘business’, your overall results will improve.

    Undertaking a review doesn’t need to be too complicated. Start off by asking yourself simple questions such as, ‘Am I happy with what I achieved this year?’ and ‘What area could I have improved in?’.

    Next, list your achievements for the year (this doesn’t need to be limited to your financials) and areas where you lost a bit of focus (for example, sticking to a budget).

    The final step is to review all of your current investments to see how they are travelling.

    Number 3 – Set a budget

    Budgeting ties in nicely with the first two tips. Once you’ve set your yearly goals and undertaken a review of the previous year, you’ll be in a much better position to move forward with all of your financial pursuits.

    Find a basic budgeting spreadsheet on the internet and fill it in as accurately as possible. If you’re unsure about any numbers, make an educated guess, but do try to be as comprehensive as possible.

    With your budget complete, you will be able to see exactly where your money is going on a weekly or monthly basis. This will also assist you when you undertake your next end-of-year review.

    Deposit a portion of any excess income into a high-yielding online savings account where it can stay until the next deal comes along.

    Number 4 – Keep good records

    Start each year with a relatively clean slate when it comes to records. It’s easy to be overrun with too many emails, RSS feeds and ‘to-do’ lists. Give your inbox a thorough clean-out and try to keep it clear by archiving old emails. Keep one ‘to-do’ list (preferably one that you can access everywhere, for example, with Evernote), then write down each day’s actions on a Post-It note.

    Lastly, file everything (electronically and hard-copy) that is important using a clear folder structure.


  • Funding Property Deposits

    If you are reading this then you have most likely made up the decision to at least look at investing in property. And why wouldn’t you, investing in property should be easy right? Purchase a house, put some tenants in, hopefully the rent collected would cover all your expenses and pay the home off. Few years later, capital appreciation has increased the value of your asset and you have made yourself a tidy profit without having to do much at all, money for nothing, as ZZ Top might say.

     

    But the most important part of property investing is the actual purchase of a property. Buying a property at a good price can be the difference between a great investment and a terrible investment. Buying your first property, whether for investment purposes or otherwise, is typically the most difficult. With rising house prices all over Australia, affordability has decreased dramatically and has left a lot of first home buyers with no hope of being able to enter the property market. The first step is getting the required deposit. I am a firm believer in trying to minimize your finance as much as possible. I am not saying that you should avoid finance all together, because I am sure most of you do not have $400,000 lying around to be able to purchase a property outright, so of course you will have to use some finance to be able to fund your dreams. But even if you are buying with someone else’s money, there still comes the difficult part of having to find enough money for a deposit for the property. Gone are the days where you can purchase a property with no money down, obtain a mortgage of 105% of the purchase price to be able to cover all the fees associated with purchasing. This means that we are left with no option but to obtain finance, and in my opinion I would generally try and aim for a LVR of 80% maximum, not only are you able to avoid LMI (Lender’s Mortgage Insurance) but it should also protect you against a negative equity situation and provide a more sustainable mortgage.

    But then the question still remains how you can come up with the 20% plus purchasing costs required. For a $400,000 property, that would be $80,000 plus purchasing costs of around $10,000. A total of approximately $90,000, and again I am sure most of you do not simply have this money lying around. So what is the answer? Well I think I will disappoint you because unfortunately my solution is not very exciting. Save, pure and simple, just keep saving up money until you have enough money to comfortably enter the property market. If you are a first home buyer, the government offers a “First Home Buyer’s Account” which means interest earned on your savings is not only tax deductible, but also receives additional government contributions added on top of your savings. There are of course some regulations associated with this account which I will not go into here, if you want a full list of the information for this account, please see this link – First Home Buyers Account.

    So what are the benefits of saving, well first of all you will have a much lower financed amount which will mean you will end up paying a whole lot less over time. See below for some numbers to put things into perspective –

    Situation A – $350,000 loan with 7.00% interest with a monthly repayment of $2,500 will take 24 years to pay off. Total cost of $720,000 + $50,000 deposit = $770,000

    Situation B – $300,000 loan with 7.00% interest with a monthly repayment of $2,500 will take 17 years to pay off. Total cost of $510,000 + $100,000 deposit = $610,000

    So as you can see, even though you may take an extra 5 years to save up the extra $50,000 deposit, you will still end up owning the house faster and paying $160,000 less. This is a very simplified example which does not take into account a lot of variables such as capital appreciation of the asset, rent money required while not living in your mortgaged house, and several other variables. But the main point you need to take out of this is the power that having a sizeable deposit can have on your overall loan term, and the overall return you can make.

    Once you do own your first property, you will find it much easier to be able to fund future deposits, because provided you did have a good sized deposit, you should be able to discuss with your lender about accessing equity in your property which you can use as a deposit for future properties. For example, if you purchase a property valued at $400,000 with a finance amount of $300,000, you have access to $100,000 in equity which you can use for further deposits. In one year’s time, if the property value has increased to $420,000 (5% increase), then you would have access to potentially $120,000 in equity. You would need to discuss this with your lender as they would typically not allow you to access ALL of the equity you may have in a property, and a more realistic assumption would probably be the lender would allow you to use up to 80% of the equity available in your property.

    Using equity is probably the easiest way to be able to fund property deposits, and one of the best things you can do is to be able to purchase a property below value and then you have access to instant equity. For instance, if you purchase a property for $200,000 and the bank has it valued at $220,000, well then you already have access to potentially $20,000 in equity and you have not had to wait for any capital appreciation. Other ways to increase the equity available to you is to force the property value to increase, such as by performing renovations and the like. Both these methods can allow you to access equity a lot quicker, without having to wait for it to grow naturally like you would with capital appreciation.

    The only potential issue with using equity is that you are essentially borrowing 100% of the property value for your new purchase, this would increase your LVR and your lender would start looking at your ability to service the loan before it instantly allows you access to the equity.

    There are countless ways to be able to fund property deposits, but I hope I have outlined the most common ways, and unfortunately they may not be the most adventurous ways but they are proven to work and nobody ever went broke by saving a dollar.



    If you have any questions or comments feel free to email us at streamlineinvesting@gmail.com

    Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only. Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.


  • How to Manage Your Home Loan and Save Thousands

    The most effective thing you can do when you are managing your own budget is to look at incomings and outgoings. By looking at these numbers you can see where all your money is being spent and where you money is coming from. The same applies when you have a home loan. It is important to be able to see the you are paying the correct amount of interest to the bank, that they are processing your deposits correctly. It’s quite common for banks to make mistakes which could cost you thousands of dollars.

    It comes to a point where you have to ask yourself, “Is my lender handling my mortgage correctly, are they charging me the right interest amount?” I know just about everyone will receive their mortgage statement in the mail, see a number which shows the interest amount charged for the month, simply assume it is correct and happily go along with their day. We are adding thousands of hard earned money and simply assuming that the bank is calculating everything correctly. I am the type who likes to be in control of my investments as much as possible and being able to track my loan is definitely something I do and encourage others to do the same.

    This is why I created my own loan tracking spreadsheet when I bought my first property back in 2009, I was mostly curious to see how the whole mortgage repayment process worked. It was very useful being able to see the money coming in, going out, and being able to forecast for the future. To see when the amount owing would finally reach $0.00, to see how much money I had put into the mortgage myself, and most importantly, to see how much interest the bank was charging me.

    By creating my relatively simple loan tracking spreadsheet, I was able to determine what the amount of interest charged should be for the past month, and then when I received my mortgage statement, I was able to see the actual interest I was being charged. If there was a discrepancy with the amounts I would simply call up the bank to see why there was such a discrepancy, and more often than not, I was refunded by the bank error.

    Once you have a useable loan tracking spreadsheet,  it should only take a few minutes of your time a week to input the necessary data.

    If you would like a free copy of this spreadsheet, please click this link Spreadsheets.


  • The Importance of Keeping a Budget

    One of the most important steps to becoming a successful investor is the ability to save, stick to a budget and invest wisely. It may seem like common sense but the ability to know where your money is coming from and where it is going will allow you to streamline your personal finances. A budget is not just about the simple matter of working out the cash inflow and outflow. You also need to decide which of your expenses are ‘needs’ and which are ‘wants’. It’s important to note that it is much easier to cut your costs on the ‘wants’ rather than the ‘needs’.

    The first step to analysing your finances is to get a clear picture of where you are out laying your money on a month-to-month basis. Tracking your outflow does not have to be a cumbersome process and can be done any number of ways, such as:

    • writing down any purchases greater than $10 (there are a number of mobile phone apps that can help you with this process)
    • making a simple spreadsheet to track expenses (NOTE: Send us an email if you would like to receive a free budget tracking spreadsheet)
    • checking your credit card and bank account statements

    The best way to get a good idea of all of your expenses is to pay for everything with your credit card and then just checking the statement at the end of the month. Another important aspect of setting and keeping a budget is to make it flexible for when your circumstances change. We recommend that you review your budget every 6 months or after you make a major purchase such as a car, house or take a holiday.

    There are many free tools online that help you set and keep a budget. We recommend that you try a few of these and don’t feel that you have to follow them without exception. You a budget should be tailored to your individual circumstance and be made as complex or simple as you are comfortable with.

    Having created your budget, you will be able to see exactly where your money is going and, more importantly, where you can invest it. Here are our top 5 tips for creating, tracking and keeping a budget:

    1. Start simple and add more details to your budget once you have a better understanding of your finances.
    2. Use the free tools available online
    3. Split your budget into categories such as; entertainment, food, insurance etc.
    4. Allocate 10% of your monthly income to an investment.
    5. Set some financial goals (monthly and yearly) so that you can have something to strive for.

    If you would like a free copy of this spreadsheet, please click this link Spreadsheets.