Good to Great: How to Scale With an Outsourced CFO

Property investors have a lot of decisions to make. You need to consider the best places to look for your properties, the long-term strategy for each property, whether or not you’ll refinance in order to invest in new properties, and much more. 

Besides these important decisions, property investors also need to carefully consider which loan structure will work best for their investments. In this post, we’ll take a look at six things to consider when choosing a loan structure for your next property.

 

1. The Deposit

When it comes to the deposit on your loan, most lenders require at least 10% if the loan is for an investment property. The amount you pay for your deposit may affect your interest rate, and it will certainly have an impact on your monthly payment. 

The amount you put down as a deposit on your mortgage will affect your cash flow, so it’s important to calculate your income and expenses before you settle on the amount of your deposit. In order to make these calculations, you’ll need to do some research to find out how much rent you can reasonably expect from the property.

 

2. Your Tolerance for Risk

As you choose a structure for your loan, it’s wise to consider your personal tolerance for risk. If your upcoming purchase will be your first rental property, you should probably minimise your risk as much as you can. 

The following loan structure attributes are less risky:

• Fixed Interest Rates
• Larger Deposits
• Absence of Prepayment Penalties
• Smaller Loans

Property investors with more experience or greater financial resources may be able to tolerate loan structures with more risk. For example, a property investor may choose to use an interest-only loan under certain circumstances. If you need a large cash flow at the beginning of your loan term, an interest-only structure might make a lot of sense, but it’s important to understand the risks involved.

 

3. Flexibility

You will have more options in the future if you secure a loan with plenty of flexibility. Flexible terms include the ability to make early payments without penalties, options to make payments via direct debit or phone banking, and the ability to re-fix your interest rate at a later date. Depending on your situation and future plans, it may also make sense to look for a loan that allows you to split your loan to suit your situation.

 

4. Customer Service

Property investors who continue to expand their assets know that working with a customer-friendly lender can make all the difference.

As you find future properties, you’ll want to get in touch with your lender to learn about what your options are and how you can best structure potential loans. Finding a lender that provides excellent customer service can be a huge benefit to your property investment ventures.

Seek out a lender that offers clear information and transparency. Most competitive lenders don’t require application fees these days, so don’t immediately accept application fees as the norm. Ask to see a list of fees required on investment property loans, and inquire about any hidden fees for settlement, legal fees or valuation.

 

5. Variable Structures

With variable interest rate loans, your interest rate fluctuates with the market. Therefore, if the market goes down, you’ll maximise your savings. Depending on the market’s behaviour, you may be able to pay off your mortgage sooner. Of course, it’s difficult to predict how the market will perform in the future, so variable structures are inherently riskier than fixed interest structures.

 

6. Expert Advice

As you can see, the structure of your loan will have a large impact on the future performance of your investment property. Therefore, it’s important to seek expert advice regarding your loan and its structure.

Seek the advice of an expert who has extensive experience with investment properties and with investors. Once you find an expert who has the experience and credentials you’re looking for, talk over your long-term goals as well as your immediate plans for investing in real estate.

By paying attention to the above factors, you’ll be in a good position to acquire the best loan for your upcoming investment. For more information about our lending services, reach out to us at Altus Financial. We’re here to help you achieve your goals.