A Melbourne mortgage broker is on a mission to help his investor clients turn their property dreams into a reality by making calculated financial decisions.
Suvidh Arora (pictured above), founder and CEO of Cinch Loans, told Australian Broker his loan book was culturally diverse and he worked with his clients to unlock their goal of purchasing investment properties.
“My team and I help strategise with our clients by learning what their long-term property portfolio goals are and we structure their debt the right way to leverage the built up equity in their existing properties to help them climb the property ladder quickly,” Arora said.
“When it comes to writing loans, the loan side of things is more straightforward as there are processes in place, but as brokers where we add value is by listening to our clients’ requirements and implement strategies to help them grow their wealth.”
Arora said a broker should provide a bespoke approach to their client’s circumstances, starting at the initial interview stage.
“It is so important to sit down with them, listen and let them speak before asking any questions,” he said. “Find out what their aims and goals are for the next five to 10 years, where do they want to be and as their broker how can we help them get to there.”
Arora said there were still options for those wanting to unlock equity from their investment property in a rising interest rate environment.
“Although borrowing money is harder right now, the correct loan structure and pre-planning of anticipating these things does come in handy,” he said.
“When it comes to leveraging equity, timing is important. Rising interest rates affect property prices a little, which translates to the value in the equity and value of a property to what equity is available to leverage or refinance an existing home loan.”
Arora said if property prices softened too much, those refinance options became more limited and clients might become “mortgage prisoners”.
“This is why as brokers we need to be smart about getting property valuations done at the right time with the right lender because this is where we can add value to our clients,” he said.
“Property markets go through cycles and people are panicking as rates rise, however they don’t realise we have just gone through a once in a generation event in the last few years where interest rates were at rock bottom worldwide. With a record low cash rate, people went crazy buying properties. Interest rates sitting in the 4% to 5% range is nothing new in the Australian economy, investors just have a short-term memory.”
Arora said each investor clients’ circumstances were different and there was no such thing as a one shoe fits all approach.
“Whether fixing your interest rate or riding the variable wave, you need to implement the right strategy to fit your clients’ circumstances and not their friend or neighbours,” he said.
“Many of my clients with investment loans choose to pay principal and interest to reduce their overall debt over time because in the long term you want to reduce your debt and be debt free. I tell my clients to make sure your strategy is always working for you and keep working towards your goals. Be sure to go with the market and not against it because the only constant thing in life is change.”
Arora said the key to successful property investing was ensuring the mortgage was set up correctly from the onset because a big reason people invested in property was not passive income generation but enjoying the negative gearing benefits in the short term.
“There are two types of debt – one provides tax deductibility and one doesn’t,” he said.
“Ensure you structure the loan so it doesn’t gain tax by borrowing fully on the investment property and put any cash available into an offset or owner-occupied loan to avoid paying interest and no tax to minimise any interest paid.”
Arora said the added benefit of implementing this strategy was paying off your own mortgage sooner and becoming debt free on your own home.
“Once your home loan is paid, you have achieved financial freedom,” he said.
“It’s not just the feeling of being debt free but imagine what you can do now you have complete ownership over this asset. You will be saving thousands of dollars monthly on mortgage repayments. Financial literacy is the steppingstone to everything.”
Director of Adelaide brokerage Finance Prospects Jessica Arabia, said there was still a lot of opportunities to invest in the South Australian commercial property market.
“There are certainly deals to be had for the astute investor and there are more players in the market who are trying to diversify their investment portfolio,” Arabia said.
“I have many clients who in the past have just invested in the residential space who are now looking at branching out into the world of commercial property which is an exciting trend.”
National property market analysts and buyer’s agency Propertyology head of research Simon Pressley said the days of investing in a quality cash flow positive property were dead, given that annual out-of-pocket costs of $15,000 was the ‘new normal’.
“For those wanting to invest in a detached house purchased now with a 10% deposit, only six of Australia’s 20 largest cities have an annual cash flow shortfall of less than $10,000,” Pressley said.
“Ballooning holding costs further compound Australia’s ability to generate the much-needed influx of extra rental supply to reduce the intense pressure on household rents.”
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