How a mortgage advisor can get you better investment returns
Smart property investment is all about getting the best returns for your investment. On the surface that means earning more than you spend, and in principle that's all there is to it. But understanding where you can make savings, and where you need to spend more to increase your returns is an art perfected over decades of trial and error.
In this article we'll explore the role a Mortgage Broker can play in helping you increase your investment returns.
To better understand the dials that can be toggled to improve returns we'll break down a few key factors.
Assuming that you're borrowing to fund your investment strategy, your loan ends up being the main barrier to a healthy return. The interest rates and the repayments form the baseline for your biggest costs. You must obviously make more than you spend in order for property to be a sound investment.
YOUR ONGOING COSTS
Separate to the loan (which will exist whether you have tenants or not) you also have the costs associated with getting and keeping tenants. No matter whether you're buying a commercial property or a residential investment you will need to spend money attracting new tenants through marketing, and also ensure the building meets various regulatory requirements. Having a vacant property is incredibly costly as not only are you the one paying the mortgage, but left too long the property can develop issues such as dampness caused by not being heated regularly.
Stretch yourself too thin or underestimate these costs and you could find yourself dragged backwards in financial terms, rather than moving towards financial independence.
Once you have all the ongoing costs outlined you will be able to ascertain a break-even point which is the revenue you need to collect in order for the investment strategy to be profitable.
Any investment strategy's goal is to achieve an income which exceeds your expenses. If you only make break-even then you're going to eventually pay off the mortgage and then see a monthly return at the value of the repayments. Or you'll sell the property and cash in on the capital gain.
If you can manage to earn a higher rental than your outgoings then you'll also see a weekly or monthly net income from your investment, which is obviously a great thing to have !
HOW CAN I INCREASE MY INVESTMENT RETURNS?
There are two places you can consider in order to increase your property investment returns; in simple terms you can reduce your costs or increase your income. Undertaking the latter approach doesn't make you incredibly popular with tenants, and can result in them moving out, although there is a natural expectation that prices typically increase over time. Tenant departure can be a timely point at which you re-evaluate leases or rent and possibly increase tenancy costs then.
The other area you should review often is any opportunity where you can reduce your outgoings or expenses. Obvious places to start looking include finding a competitive insurance quote, doing repair and maintenance work yourself and ensuring damage is repaired early - before it becomes a bigger problem. Once you understand all your outgoings you can work to reduce them.
Sometimes spending money can mean reduced ongoing cost in the long term. Making sure a property is watertight, well ventilated and warm means dampness cannot penetrate the structure and create rot in areas that will be expensive to replace later.
Needless to say if you manage to tackle both of these tasks then you can realise even greater gains ! Make no mistake, investment property should be seen as a business rather than a passive hobby.
HOW CAN A MORTGAGE BROKER INCREASE MY PROPERTY RETURNS?
Even though you looked for the best interest rates when you first got your mortgage, relativey few people actually reassess this later downstream to see if they could be reducing this cost.
Your current bank may (or may not) appreciate that you've been a loyal customer for decades but your tenants won't if that means rent increases, and your wallet may prefer that you earned more than the bank from your investment !
Shopping around for a new rate when your mortgage ends its Fixed Term period enables you to potentially get a more favourable interest rate. A lower interest rate would mean reduced mortgage payments and if your rent stays the same this means more money in your pocket at the end of the year.
Re-evaluating your current mortgage doesn't cost anything either. At Stephanie Murray Mortgages our services are absolutely FREE. This means that we run around trying to find you the best available rate, while you focus on managing your investment portfolio. We also go to the major banks and non-bank lenders to negotiate the very best offer for you that we can. When you don't want to spend the time or effort shopping around a dozen or so lenders, a Mortgage Broker can do the leg work for you. To see how you could achieve a lower interest rate, and see better returns on your property investment speak to a member of our Stephanie Murray Mortgages team today.