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Thinking about buying property but worried about getting it wrong? I wish I’d had a role model that would let me learn from their investment decisions and planning. Being that person for younger colleagues is really what has inspired me to start this blog.
A professional financial advisor is ideal to work out a financial strategy, the big issue is finding a trustworthy one.
For those that are looking to integrate buying property for investment along with superannuation, it gets even trickier. Most “financial advisors” cannot advise on property, because they lack the qualifications, or they make no commissions from advising property.
Finance professionals blame an increasing level of compliance tasks, created to protect the consumer. This consumer protection has made financial advise unaffordable to ordinary Australian families, and difficult to justify even for higher earners. That $40,000-$50,000 for the first year of investing advice would make a great investing starter fund!
My experiences so far investing in property with Empower Wealth have interested some readers. I have promised to update regularly.
Buying Property: The Decision to Buy A Second Investment Property
My very post on this site documented my thinking around whether I should invest in property, or keep things simple by sticking to super and shares. Two to Fire is another Aussie Fire blogger who was following my property posts, considering property investing themselves. They decided against it and document their rationale and decision here.
After 3 years of research, I came to the conclusion I needed professional help. We engaged Empower Wealth to assist with property selection for our first investment property. Check out my review of Empower Wealth.
We purchased our first investment in Brisbane 2019. The property value has grown in the first year and been rented without vacancy for the first year. I have taken extended leave from work for babies and travel. I need to do some catching up to meet my goal of being work optional by age 55. My calculations tell me I needed a second property growing at around 6% as well as additional super/share investments.
Empower wealth do have a property advisory service, where they can design a property portfolio to meet your goals. I was literally scraping together every dollar I could find to find the deposit. Two to three thousand extra on a plan seemed too much.
I also really wanted an integrated, holistic plan looking at property, shares and super together. Empower wealth are property centred, and I’d rather hedge my bets with a strong super/shares portfolio as well.
There was no doubt in my mind that I wanted to utilise the services of Empower Wealth’s buyer’s agent. And I really wanted the same buyer’s agent as the first time around. Empower Wealth offer a significant discount on the $15,000 Empower wealth buyers agent fee for using their mortgage broker. The first time around, these two teams worked really well in synch and made the whole experience very smooth.
In September 2020, I bit the bullet and emailed my favourite buyers agent and mortgage broker. Mid pandemic, Empower wealth, similar to most of us, were scrambling to get used to a new way of working. This time around things have a lot slower, and a little frustrating on the mortgage broking side.
There are likely several reasons for this. One, the pandemic, and working from home, adds new challenges to a previously smoothly operating team. Two, my lending was more complex given I now have an investment property (and a principal place of residence mortgage). Three, my mortgage broker left the business partway through, resulting in an incomplete handover. Four, I suspect this business is getting more and more clients due to the incredible popularity of the Property couch podcast, and word of mouth (or blog) recommendations. There may be growing pains from bringing on more staff and losing some of the efficiency of a small business.
Borrowing and Property Purchase
Once you have a basic financial plan and decided to invest in property, the next step is to work out your borrowing capacity. A chat with a mortgage broker will give you an idea pretty quickly whether your plans are realistic.
Borrowing gets more complex as you add properties, which adds time. Banks also change their lending policies without notice, and I was caught out by this. Commonwealth decided they were not going to waive Lender’s Mortgage Insurance (LMI). I needed a high LVR to retain a good cash cushion but did not want to pay LMI. LMI is insurance you pay if you want an LVR > 80%. It protects the bank’s investment and provides no value to the buyer. Many borrowers will waive the LVR for borrowers from very low default risk occupations.
Getting loan approval was quite a painful process, despite being a strong candidate on paper. After the Commsec debacle, we had to restart the whole process again with ANZ. ANZ are particularly difficult to deal with in my experience, requesting an insane amount of paperwork repetitively. I was pretty frustrated to miss out on buying pre-February 2020 when there would have been minimal buying competition.
Banks are rumoured to be loosening lending criteria, so hopefully, this process will become slightly less painful.
Buying Property Defence: Life Insurance
Boring! But as the main income earner in our household, taking on investment debt meant reviewing my insurances. I reviewed my life insurance and income protection, and topped up income protection (whilst preserving my “agreed value” status”). If the worst were to happen to me, my partner could pay off the mortgages with some to spare. My family could stay in our home and the kids in school.
Using a Buyer’s agent to Purchase Property
I was really thrilled to purchase with my favourite buyer’s agent again. And boy did I need her expertise. By the time I was ready to purchase in February, the market had already turned. Each property attracted multiple bidders. Few homes were being put up for sale. As you have all heard, prices started escalating FAST.
My buyer’s agent knew how to assess vendor motivating factors. She also understood around what price had a chance of securing the property without paying more than I needed to.
We missed out on the 1st property to buyers that were willing to buy without buildings and pest inspections. This was a risk I was unwilling to take. The next property attracted 15 offers, but we bought the home after a tense and lengthy negotiation.
Buying Property for Investment – the Exchange
Things went far more smoothly after the contract was signed. Empower Wealth’s instructions were clearly communicated, and the property was exchanged with minimal hassle.
The search for a property, lending, bidding, actual exchange and tenant selection is stressful (at least for me). There were frequent requests for one more piece of paper or bank statement and yet another trip to the bank. Uncertainty about finding a tenant and worry over selecting the correct one still feels uncomfortable.
As you can read in my article asking do I regret investing in property, this settles down once the tenant is in, and inevitable early tenancy repairs dealt with.
With this second property, there were new Victorian tenancy act regulations to follow, and some needed repairs identified by the tenants when they moved in.
Renting the New Property
It was in my interest to use the selling agent to manage the property as a rental after the sale. It meant they were motivated to ask the vendor to allow a rental viewing before exchange. When I hired my first rental manager at the Brisbane property, I didn’t really know what to expect. Harcourt’s solutions send me the rent each fortnight, keep me informed by email of any changes, and seem to have access to reasonably priced, reliable tradespeople. I’ve been happy with their management, but had nothing to compare it with.
I should not have taken for granted reliable communication. The new rental agents went completely silent after being hired. I had to prompt them several times to get information on the search for a tenant.
They organised the safety checks required by the new Victorian tenancy act but didn’t actually feedback that they had identified work needed completing until I chased them. I am clearly going to have to be a pro-active manager of the property manager until I find someone more dependable when my contract ends. I’ve set myself a monthly reminder to check if there are any issues with the property.
Where to From Here?
My excel document tells me I can stop here, investing extra in the stock market before pivoting to pay down debt once the investment properties become positively geared. I am on my journey to financial freedom.
Even with a professional plan, there is no guarantee the anticipated returns will actually occur. I do feel an urge to invest a little more than in my plan to provide a margin of safety.
We have not completely dismissed the idea of a 3rd investment property, but am spending the next year or two filling my offset, investing with Pearler as well as putting extra into superannuation. Given my fairly short investing horizon, I need to avoid being equity rich/ cash poor. So I will likely buy a neutrally geared property if we purchase again. I am learning about commercial property investments but am currently not comfortable with the risks.
Are you considering investing in property or have already taken the plunge? What are you stuck on at the moment? Subscribe to make sure you don’t miss out on the updates when we get our 1st valuation on this new property investment and an updated value on our 1st.
Aussie Doc Freedom is not a financial adviser and does need offer any advice. Information on this website is purely a description of my experiences and learning. Please check with your independent financial adviser or accountant before making any changes.