Building a property portfolio requires funding, so organising finance should be a vital part of the plan and something you need to get sorted before you start looking for properties. That way, not only will you know how much you have to spend but you’ll also be able to act quickly when you find a good deal.
Get a good mortgage broker
Immediately after setting up my own structures I focused on getting my financing organised. The first step was to find myself a good mortgage broker because I knew that using a broker would make my investing so much easier than trying to find the finance myself. A good broker knows what is going on in the world of finance, knows about structures and how to set up loans, and will be an expert in dealing with lenders and finding the best mortgage deal.
If I’d tackled the task of finding finance on my own it would have taken up a huge amount of time that could otherwise have been spent sourcing properties and building my portfolio.
As it happened, I already knew of a couple of brokers from my previous work and so I made an approach to one of them. He was part of a big brokerage company, and when I told him what I wanted to do and asked him if he had heard of a revolving credit facility (more about this soon), he told me that he’d heard of them. Well, that wasn’t really good enough and so I moved on to a broker who’d been recommended by my structures expert. This one turned out to be even more hopeless, and after eight weeks he hadn’t been able to find me any money, his excuse being that I didn’t have a job. My chances of being able to fund my property investing were looking slimmer by the minute!
At this point I asked for help from my mentor, who personally recommended a broker. Here’s what happened next: I contacted her on the Thursday, she came to see me the following Monday, and she had $200,000 for me on the Tuesday. What a difference a good mortgage broker, who knows about property investing, can make!
Set up a revolving credit facility against your home to use as a deposit/s
Most people who own their own home and want to buy investment property will head to the bank after reading in a newspaper or similar that property investing is a good idea. Typically, the bank will look at the equity the person has in their home and come up with a loan based on this amount, at which point the person heads off to buy a couple of properties, each 100% financed.While this seems like a great start, the trouble is that the investment properties are then secured against each other, as well as against the person’s own home, giving the bank total control. In other words, the bank can tell the would-be investor what they can and can’t do with the properties, even to the extent of saying he or she can’t sell one of them because the bank might lose some of its security. This boils down to the would-be investor being stuck with three properties that he or she can’t take any further. And to make matters even worse, if one property goes down the gurgler it’s highly likely that it will take the others with it.
The good news is that it doesn’t have to be this way. If you structure things correctly you are in control of the bank, not the other way around. As you might imagine, that idea appealed to me immensely.You can achieve this by setting up a revolving credit facility (also known as a revolving line of credit) against your own home. I learned about RCFs back at that very first property seminar and that knowledge has turned out to have been one of the major keys to my success.
Note that your RCF is not for buying toys. Although it can be very tempting to have all that money sitting there just begging to be spent, you must be strong. These funds are for investing in property; there will be plenty of opportunities for you to buy toys later on using the fruits from your property-investing endeavours.
The above post is based on the book “The 15 Million Dollar Man” by Sean Wood, to read more click Property Investment and download 2 free chapters.