4 reasons why you should use a mortgage broker

When it comes to investing in property and building a large portfolio, a good mortgage broker will play a significant role in boosting your personal wealth.

The popularity of mortgage brokers has increased significantly in recent years, so why is it important to use these specialists rather than directly engaging a lender?

Here are 4 reasons.

1. A good broker can strategically arrange your finances and loans so you can access a higher volume of credit.
2. A good broker can structure your finances to suit your individual circumstances (i.e. your financial capacity, investment goals and life circumstances).
3. A good broker will have access to a wide variety of lenders. In Momentum Wealth’s case, more than 40.
4. A good broker will save you time and money as you won’t have to shop around to find the best deal.

There a number of benefits to using a mortgage broker, but it’s important to note that not all brokers provide the same level of service.

It’s critical to engage a broker that specialises in investment loans because they will have a deeper knowledge and more experience with such transactions, whether it be for the direct acquisition of a residential property, to finance a residential development, to invest via a SMSF or to purchase a commercial premise.

Overall, a good mortgage broker will provide the right advice and recommendations that will help you to build a larger property portfolio much faster.

Before you even start your search for an investment property, you should engage a broker who specialises in investor loans to gain a comprehensive understanding your financial capacity.

The importance of unbiased research

Most investors would agree that buying a high-quality investment property requires comprehensive research. So why do so many fail to achieve the returns they hoped for?

While it’s true that some investors conduct inadequate research before they buy, the real problem for investors is that most research is not designed with the investor’s goals and interests in mind. This can lead investors to make significant investment decisions based on information which is, at best, incomplete or, at worst, misleading.

During your research, it’s wise to consider who the research was originally developed for.

For example:

Property developers commission research to find sites that will be the most profitable and provide the best economies of scale, to allow them to develop and profit again and again.

• Property industry bodies collect data and report on city-wide and nation-wide statistics and trends. This information is interesting reading (hence why it’s so eagerly published by news media outlets) but it doesn’t give much insight into how local areas perform for investors – and more importantly, why they perform (or fail) the way they do.
• Property marketers conduct research on local economic and property market activity in order to find the best ‘good news stories’ to use to market and sell their client’s development project.

So how can investors be sure that their research will lead them to find and acquire a high-quality investment property? Here’s some tips from our research team on what makes property research work:

• Collect a large volume of data, from a wide variety of sources. This could include your typical real estate data, government-collected data (e.g. Census), industry reports and economic indicators.
• Consider the macro factors (i.e. city-wide factors) of economics and population trends, as well as the micro factors (i.e. street-level factors), such as local area gentrification and the emergence of new café strips. Public and private spending on infrastructure should also be analysed.
• Some of the most valuable data is not published broadly. That’s why our research team consistently record suburb-level supply statistics, track upcoming property developments and read local council minutes. These behind-the-scenes details can make or break a property’s performance.

What lies beneath – unearthing your site’s secrets

Asbestos, building rubble and even kitchen appliances – buried secrets that can be detrimental to your residential development and how to find them.

Many investors only focus on the structural aspects of a property, i.e. the house, when searching for their next development site.

However it’s always a good idea to find out what lies beneath the surface of a site, otherwise you might end up with a costly remediation bill.

Case study: Development site with (hidden) pool included

Take the below case study, for example.

A client approached Momentum Wealth to find him a development site with specific features, including:

• Located in an established area
• Close to parks and amenities
• Good capital growth drivers
• High rental demand

Our research team worked with our buyer’s agents to create a shortlist of possible sites that met the client’s criteria.

After completing some initial feasibility calculations we identified a development site and, with the client’s approval, placed an offer on the property, subject to due diligence.

As part of our due diligence we conducted satellite photo analysis which discovered a very serious issue with the property.

Below the surface of the site was an old pool that had been buried by the owners some years earlier.

Our investigations found satellite photos that showed the pool being buried and a soil test determined that the pool wasn’t filled in correctly, which could cause soil erosion and costly damage to any future development on the site.

Because we were able to identify the issue during due diligence, we were able to negotiate the remediation of the site at the seller’s expense.

This case study illustrates why it’s imperative to complete adequate due diligence, including soil tests, when buying your next development site, even if everything above ground seems fine.

If you fail to do so, you may buy a property with severe geotechnical issues that could cause significant damage to your development and could cost thousands of dollars to repair.

5 actionable tips to keep good tenants

Too many landlords take a ‘set-and-forget’ approach once they’ve leased their investment property, but being proactive can potentially save you thousands of dollars.

Once you’ve secured a tenant for your investment property, it’s easy to sit back and expect the rent to roll in.

While it can be as easy as this, it can also pay to be more active to address any issues that your tenants may have with the property to ensure they remain satisfied.

A happy tenant is likely to stay longer, which will save you a lot of money by avoiding more frequent vacancy periods and, subsequently, lost rental income.

Here are 5 actionable tips you can use to keep your good tenants from moving out.

1. Suggest including a regular gardening service as part of the rental agreement. This will give you peace of mind that the property is being maintained and the tenant will appreciate not having to complete the work themselves.
2. 3 months before the lease renewal is due, compare your property with other similar properties currently on the market. How does the rent and the quality of the properties compare? If other properties have better features (e.g. air-conditioning or a dishwasher) or the rent elsewhere is substantially cheaper, you could be vulnerable to losing your tenant. Once you have a clear idea on how your property stacks up, determine if a small rent adjustment or investment in new features or amenities is necessary.

1. Attend to repairs promptly to ease the inconvenience on the tenant. When you have a tradesperson on site, pay a little extra for them to check and test other fixtures at the property and give them permission to fix small items straight away. This will help prevent future maintenance issues, which means savings on call out fees for you and less time and frustration for the tenant.
2. Don’t leave personal belongings at the property, unless negotiated as part of the rental agreement.
3. Maintain space between you and the tenant. If you’re self-managing the property, keep the relationship professional and conduct routine inspections at agreed times. If you’re utilising a property manager, it’s best not to contact the tenant in any circumstances but communicate with them via the property manager.

Suburb boasts premium location and amenities

The suburb has the lot – quality schooling, extensive golf courses and parklands, a major regional shopping centre and is in close proximity to the beach.

Karrinyup is located in the City of Stirling and conveniently located just 12 kilometres from the Perth CBD and 2km from Trigg Beach.

There are a number of good schools in the area, including Deanmore Primary School, Newborough Primary School, Karrinyup Primary School and St Mary’s Anglican Girls School.

The suburb’s median age is 40 years and it comprises a population of about 8,500 residents.

More than 30% of the residents aged over 15 years identify as professionals, which is significantly higher than the WA average of 19.9%.

About 73% of properties are owned outright or with a mortgage, while about 23% of properties are rented – there is minimal state housing in the area.

Karrinyup Shopping Centre, which is located in the middle of the suburb, is a major drawcard for the area, as well as two golf courses and significant parklands, including Millington reserve, Karrinyup reserve and neighbouring Lake Gwelup Reserve.

The median house price sits at $820,000.

The area was largely developed in the 1950s and features a mix of residential and commercial buildings that have been built over the decades.

About 85% of dwelling in Karrinyup

are houses, 10% duplexes, townhouse or villas and 4% are flats, units or apartments.

Its neighbouring suburbs include Gwelup (east), Doubleview and Scarborough (south), Trigg and North Beach (west) and Carine (north).

Its main arterial roads include Mitchell Freeway, Karrinyup Road, Reid Highway and Marmion Avenue.

How do I invest in a syndicate?

As you might have guessed, investing in a syndicate can be somewhat of a different process to buying a property directly, so what exactly is the procedure?

While the process for investing in a residential development syndicate varies from company to company, one method is a capital first fund, where investors commit to a certain percentage or amount before the property is found.

These types of residential development syndicates typically follow the below steps.

1. Initial briefing of proposed syndicate. Potential investors are sent an Information Memorandum and invited to a syndicate briefing which outlines the goals of the syndicate, including targeted metrics, such as raising amounts, returns to investors, development size and composition etc.
2. Raising committed funds. Investors who are interested in participating in the syndicate then provide an initial deposit to the fund to secure their place. The deposit can vary but it can be around 5% of the amount they intend to invest.
3. Site search begins. With funding commitments meeting the specified raising amount, the search for a suitable development site begins. At Momentum Wealth, our in-house research team works with our syndicate team to constantly monitor the market and create weekly shortlists of potential sites. These sites are then subject to more analysis and initial feasibility studies are done to determine their profitability.
4. Offer placement. When a suitable site is found an offer is placed on the property and formal due diligence starts.
5. Information evening for investors. Provided the site meets the criteria under the due diligence process, an information evening is held for those investors who outlaid the initial deposit. Investors are provided with financial feasibilities (including forecast costs, profitability and returns), construction timelines and other key information pertaining to the site.
6. Final investment decision. Investors can elect to deposit the balance of their committed funds to proceed with the syndicate and the site is secured.

1. Once investors have made their final investment decision and the site is secured, project planning is finalised and presales and project construction begin.

Construction time will vary on the size of the development, but a boutique apartment complex (consisting of circa 30 apartments) should typically take about 18 months.

When’s the best time to diversify into commercial?

Commercial property should, at some stage, be considered as part of every investor’s asset mix, but when’s the right time to take the leap and add it to your portfolio?

Typically, commercial property plays a different role in your investment strategy compared to residential assets.

As a general rule of thumb, investing in commercial property is best done when you want higher cash flow, for example, at retirement when you need to supplement your income.

Conversely, investing in residential property is a strategy for investors starting out in property. It provides a lower rental return but generally a higher expected capital growth rate.

Why commercial property for cash flow?

Commercial property can deliver yields of between 7-9%, compared to residential yields of 3-4%, which is why commercial is best for when you need additional cash flow.

These higher yields will supplement your income at retirement and provide the cash flow you need for your everyday living expenses, as well as for travel, recreation, dining and any other costs.

Generally, investors should start considering commercial property investment when they have built a portfolio of at least 3 or 4 residential properties.

However, there are no hard-and-fast rules and adding commercial property to your asset mix will depend on your investment strategy and goals.