Seth Godin gave the best advice when he said you should “dig your well before you’re thirsty”. This tip transfers across to investing in property and in this article we will tell you why it is so important to have a property investment war chest at the ready and how you can build one to ensure you never miss out on that prime property purchase.
What is a property investment war chest?
In property investing, a war chest is a metaphor for a stash of money that has been set aside to be used when expansion possibilities arise. However, money is not the only thing you need at your disposal to secure your next property.
Accumulating assets to build wealth also means you need to accumulate resources to bolster your growing portfolio that will equip you to act when great opportunities present themselves, for example when an under-market-value property is up for sale.
So, what resources do you need in your war chest?
A strong financial record
No matter what the market conditions are, sellers are enticed by a contract that offers minimal challenges around finance, so it is imperative that you are finance ready and able to strike when you see a great buying opportunity. This means it is imperative that you are always able to prove that you have been saving consistently and that you can demonstrate discipline with your spending
Banks will view your finance application favorably if they know you are in control of your household cash flow. The simplest way to prove that you are is reflected in your bank statements. By providing statements that show not only a capacity to earn, but also disciplined spending habits and regular savings pattern, you will be well on your way towards having a mortgage approved quickly.
Liquidity
The ability to provide a healthy deposit on the day you make an offer will put you in a wonderful position to have your offer accepted. Only being able to put down 5% may not be enough to seal the deal with some vendors, and delays or other complications with accessing your deposit funds will weaken your position in the negotiation or in some cases, mean your offer is overlooked entirely.
If you suspect there is lazy equity in any of the properties you currently hold, then it is best that you work with your mortgage broker or finance provider to get valuations done and extract that equity so it can be converted into liquid cash and parked in an offset account ready to be used as your next deposit.
Fixed rate mortgages usually have break costs, and cross collateralized loans will be difficult to uncross, however, these challenges can be overcome in time. Before you jump into any kind of refinancing or making any other firm financial decisions, it is crucial that you understand the necessity of seeking guidance from your trusted lending adviser.
An understanding of true market value
Knowing how to identify true market value will prevent you from wasting time looking at overpriced properties, but more importantly it will give you the confidence to execute your deal faster than the competition when underpriced properties pop up on the market.
While it is vital that you follow sales data, there is often a lag of weeks or months from when a property is sold to when the prices are reported. Therefore, the best way to maintain an up-to-date feel for the market pulse is to get your boots on the ground and attend as many open for inspections and auctions as you can, week in week out.
Another benefit of being extremely active in your target area is that you will quickly move to the forefront of local selling agents’ minds and this may secure you an exclusive opportunity to purchase a property that hasn’t even hit the market yet.
A trusted team…on speed dial!
We always recommend having a team of advisors close at hand when considering a property purchase. These include a:
• finance provider;
• conveyancer / property lawyer; and
• building and pest inspectors.
• buyers agent
When you have found the perfect property, time is of the essence. If you love the place, chances are at least one other party will too, and having to scramble and source relevant professionals on short notice can be extremely stressful. Trying to get a call back or email reply or have a loan application approved when you are pressed for time is the last thing you want when you have found a great deal and need to move fast.
To save yourself from this stress, let your team know that you are on the hunt for a property. Ideally, you will ensure you have as much paperwork pertaining to your loan filled out in advance. To maximise your confidence when buying, your mortgage broker should be fully aware of your current financial position and will already have all of your information on file so that there are no delays when it comes time to exchange. Remember that not every vendor will agree to extending a cooling off period, so locking in your finance approval is paramount to a successful purchase.
Similarly, your conveyancer or property lawyer should be engaged in a timely manner, and you will ideally allow a couple of days for them to review a contract prior to your signing of it. Contracts of Sale are usually ready to be forwarded by email from the agent to the purchaser who can then send it straight to their conveyancer or lawyer for review. If you are on the hunt, let your conveyancer or lawyer know so that they can keep an eye out for your email and get their advice back to you as quickly as possible.
Building and pest inspectors can quite often be in high demand, so it is important to understand the availability of the local operators who will serve you well when it comes time to arrange an inspection on short notice. If you are stuck, ask your conveyancer or property lawyer for a recommendation.
If you are considering undertaking any kind of development on the property you will also need to account for the work involved in collaborating with a town planner who can help to determine if the property is suitable for your proposed plan.
You may also want to consider using a buyers agent. The real estate market is in a constant flux. Unless you are a property professional, it is difficult to be fully aware of everything that is going on in a local market. A buyers agent will have a deep understanding of the market and the true value of the property you are considering buying and will represent your fiduciary interest in the real estate transaction, which can make a huge difference to your overall success.
By keeping a watchful eye on the market, having a strong and consistent financial plan and preparing your team for a quick turnaround you will have all your ducks in a row and be ready to pounce on that next dream purchase.
Disclaimer: The information and comments contained in this article should not replace specific taxation, financial, legal or investment advice. For this advice, please seek professional assistance.