The Investment Property Plan by Zamykal Stephen

Author:Zamykal, Stephen [Zamykal, Stephen]
Language: eng
Format: epub
Published: 2013-06-10T00:00:00+00:00

A final word on LVR

As I’ve mentioned, when assessing your loan application, banks will apply LVR. It helps them decide how much deposit they will require from you to secure the loan.

The ‘value’ of the property you want to buy is independently valued by the lender but is almost always valued at the purchase price as soon as you purchase.

Once upon a time – in the early 2000s – you could borrow 100 per cent of a property’s purchase price (or even more if you borrowed to cover transaction costs as well); however, following the global financial crisis (GFC) and the near collapse of the American banking sector that followed, banks are more cautious.

For commercial property and some types of apartment-style housing it can be 65–75 per cent. For residential property, some banks will lend up to 95 per cent of the purchase price, plus costs. The higher the LVR the more risk from the lender’s perspective, the higher your mortgage insurance cost.

It is important to remember that LVR is not set in stone. It can change depending on the lender and the type of property in question.

Australian lenders, on the whole, are pretty conservative. That’s one of the reasons our banks and other lending institutions emerged pretty much unscathed through the GFC while some of America’s biggest banks faced financial ruin and had to rely on the government to bail them out. A bank’s willingness to lend you money to buy a property is therefore a pretty good gauge of their confidence in property as an appreciating asset.

If a bank will only lend you 50–70 per cent of the value of a property, such as is the case for most student accommodation, that’s an indication that their confidence in that asset as an investment is about half of what it would be for, say, an established house in an established street. Where a bank will lend up to 95 per cent, it always makes sure the loan is insured.

Step 9 = Choose your next investment property purchase price

Now you know your borrowing power (your loan amounts for Loan 1 and Loan 2), all you need to decide on now is your next investment property purchase price, and for many people this is already in the plan, which was determined in step 2.

Each individual is different and has a different strategy, but this purchase price should be documented when you are devising your plan. When you plan well, it’s amazing how much easier things fall into place. You are heading in a known direction.

Choosing the next investment property purchase price is an easy step.

Step 10 = Factor in all your property purchasing costs and holding costs

When purchasing property, you need to be aware of all the following costs:

· bank application fees of $0–$800

· conveyancing/solicitor costs of $600–$1500

· government stamp duty

· go to www.australianpropertyclub.com.au/calculators

· mortgage insurance (see Tables 5.4 and 5.5), this is a one-off cost, payable at the commencement of any loan above 80% LVR.

Table 5.4 – Mortgage insurance premiums

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