Property Newsletter – October 2018

The common mistakes investors make during property negotiations

Negotiating is one of the fundamental aspects of property investment, but it’s also the one aspect that many investors dread. Strong negotiating can be crucial to maximising your profit; however, it’s also an easy process to get wrong, especially when you’re negotiating against a selling agent whose very job is to represent vendors on a regular basis. So what are the key mistakes to avoid during property negotiations?

Not knowing what the property is worth

Arguably the most important bargaining chip you can have when entering property negotiations is knowing the worth of the property you are investing in. This will form the fundamental starting point of your negotiation strategy by helping you determine what you should offer for the property (and the maximum you are willing to pay).

In addition to preventing you from overpaying for a property that won’t pay you back in profit, knowing an asset’s value can be key to helping you identify high potential opportunities when they arise. If, for example, you know a property is listed on the market significantly below value, this knowledge will put you in a stronger position to make a competitive offer on the property, in turn increasing your potential for success during negotiations. This can be especially important in a moving market when prices are fluctuating regularly, as even the most recent sales evidence may not reflect current market conditions.  In addition to thorough research into comparable properties and the local market, having a property expert appraise the property to assess its worth could be key to giving you the confidence and knowledge you need to leverage a profitable investment opportunity.

Letting emotions drive your buying decision

“Emotional buying” is usually associated with home buyers purchasing a property to live in; however, a surprising number of investors also let their emotions dictate their actions during property negotiations, and end up paying more than a property is worth as a result. This is often the case with properties that are attracting high levels of interest from prospective buyers.

Whilst emotions are an inevitable part of the buying process, it’s really important to assess a property objectively and remain level-headed during negotiations. Most importantly, however, you need to know when to walk away from a deal and look elsewhere. One of the ways you can reduce this emotional investment is to research the market and have alternative properties in mind as a secondary option. However, if you know keeping emotions out of your investment decision is not your strong point, you may want to consider enlisting the help of an experienced buyer’s agent to handle the negotiations on your behalf.

Giving your cards away too early

The key to being a good negotiator in any situation is being able to understand and leverage the motivations and needs of the opposing party. In property negotiations, however, it’s also about keeping your own cards close to your chest. If the selling agent knows you are only interested in that particular property, or that you are emotionally invested in the asset, they will often leverage this to secure a higher offer. Divulging your motivations early in the process could therefore significantly reduce your bargaining power moving forward.

On the other hand, knowing a seller’s motivations during property negotiations can give you a fundamental advantage when it comes to negotiating the price of a property. Have they already bought another property? Has the property been on the market for a significant length of time? Or do they need to sell the property by a certain date? Whilst this will ultimately depend on what the selling agent is willing to disclose, this information could be key to shaping your negotiation strategy and helping you secure the best deal possible on the property.

Don’t get caught – consider engaging a buyer’s agent

If you’re not confident in property negotiations or don’t have the experience and knowledge of the market to support your investment decisions, you may want to consider engaging a professional. A buyer’s agent can research properties and negotiate the purchase process on your behalf, with the benefit of local agent knowledge and ongoing experience in the property market. Having access to this objective and informed third party can give you a huge advantage during the negotiation process, helping you to avoid costly mistakes and make the most of opportunities for profit.

At Momentum Wealth, our Perth buyer’s agents have been helping investors grow their wealth through property investment for over twelve years. If you are planning to purchase a property or expand your existing portfolio, our property acquisition specialists would be happy to discuss your needs in an obligation-free consultation.

Split loans: the best of both worlds?

One of the key decisions investors will need to make when purchasing a property and applying for a new loan is whether to opt for a fixed or variable interest rate. However, an alternative option that property investors sometimes take when seeking to reduce their risk or capitalise on the benefits of both options is splitting their loan into separate components.

As the name suggests, split loans allow investors to separate their loan into different loan accounts, with most investors typically opting to fix interest rates on one portion of the loan whilst leaving the other component variable. So what are the potential benefits of this strategy?

The benefits of split loans

Security – Whilst the fixed portion of the loan allows investors to manage the risk of increases to interest rates, the variable component of the loan also enables them to take advantage of rate cuts should interest rates with their lender actually decrease. This can be particularly useful in times of economic uncertainty or volatility in the lending environment, as it allows investors to minimise the impact of rate fluctuations that work against their favour.

Flexibility with repayments – One of the drawbacks of opting for a fixed loan over a variable interest rate is the reduced flexibility this gives investors when it comes to making additional repayments. Many lenders will limit the number of extra repayments you can make on fixed rate loans, which can be a problem for investors looking to pay off their loan faster. By opting for a split loan, investors will have the flexibility to make additional repayments on the variable component, which can be an ideal solution for investors looking to be more effective with their repayments without fully compromising the stability of a consistent interest rate.

Additional features – By having a variable component in their loan, investors may also be able take advantage of additional features such as offset accounts and redraw facilities to help them better manage their mortgage repayments and pay their loan down faster. These features often aren’t accessible for investors with a loan that is fully fixed.

The drawback of split loans

Before applying for a split mortgage, it’s also important to understand the implications and potential drawbacks of splitting your loan. For example, if interest rates were to rise but part of your loan remained variable, you would be partially impacted by the fluctuations and would miss out on the potential savings you could have made by fixing your entire loan. Similarly, if interest rates decreased and part of your loan was fixed, you also wouldn’t be able to take full advantage of the lower rates available through the variable component. The case study below demonstrates how this scenario could work.

Case study – As an example, a borrower takes out a $400,000 loan over a 30-year term. They fix three quarters of the loan at 3.95% for two years, keeping the remaining $100,000 variable at 3.80%. In this scenario, their fixed monthly repayments would be $1,423 per month, and their variable repayments would be $465 per month, bringing their total monthly repayments to $1888.

If the lender were to increase their variable rate by 20 basis points to 4%, the borrower’s total monthly repayments would increase to $1,900, marking an increase of $12 per month. In this instance, if the borrower had opted to make the entire loan variable rather than split the loan, their total monthly repayments would have increased from $1, 863 to $1,909, marking a higher increase of $46 per month.  

If, on the other hand, the variable rate was actually to decrease by 20 basis points to 3.60%, the total repayments in the split loan scenario would decrease to $1,877, saving the investor $11 per month. In this case, if the whole loan was variable, the repayments would have decreased to $1,818 per month. Whilst the variable loan would have provided the investor with the lowest repayments in this situation, this scenario is wholly dependent on interest rates decreasing, which is extremely hard to predict as an investor.

Choosing the right option

Deciding whether a split loan is suitable in any given scenario will ultimately depend on your needs and objectives as an investor. Before deciding which option to take, it’s important to speak to a professional mortgage broker who can help you understand the potential risks and benefits of each option to ensure you’re making the best decision for your individual situation.

If you’re applying for a property loan and would like professional advice on the best option for your circumstances, our finance brokers would be happy to discuss your needs in an obligation-free consultation.

Six essential questions to ask before investing in a property development syndicate

Property development syndicates are gaining increased popularity amongst investors looking to diversify their investment portfolio and access large-scale development projects without the time and costs involved in developing an entire project themselves. However, investing in a syndicate can be a daunting and potentially risky process when you don’t know what to look for in a high quality investment. Here are six essential questions you should be asking to mitigate risk and identify a syndicate that suits your investment strategy.

Does the development syndicate match your risk profile?

If you’re considering investing in a property development syndicate, the first thing you will need to ask yourself is whether the syndicate aligns with your risk profile and investment property strategy. As opposed to yield-based commercial property syndicates, which tend to be suited to investors seeking a passive income stream, property development syndicates typically focus on generating higher profits within a shorter timeframe through capital growth and value-add strategies. Rather than receiving regular income distributions, investors will generally receive a final distribution upon the completion and sale of the development project, and will therefore need to factor this into their overall finance strategy. These syndicates are typically higher risk, but with the right management and strategy in place, can also offer significant rewards for investors seeking to build wealth quickly.

What size is the syndicate?

Another key factor that can determine the risk of syndicated investments is the size and scale of the syndicate itself. Most development syndicates will need to secure a certain number of pre-sales before construction can go ahead, with the target pre-sales generally being higher with larger developments. This can lead to longer wait times before construction, during which time the project will be exposed to market fluctuations. This is something you will want to bear in mind when researching different property syndicates to ensure the project aligns with your expectations and financial strategy.

How experienced is the syndicate management team?

A key due diligence question you should be asking before investing in any type of syndicate is whether the syndicate management team have experience in similar projects. For instance, what properties have they already got in their portfolio? And have their past projects generated successful outcomes? The syndicate management team will be responsible for everything from initial site research to acquisition and management of the development project, and will therefore play a fundamental role in the success of the syndicate. As an investor, it’s vital to do your own research to ensure the development project is in the best hands possible. As a rule of thumb, it’s always a positive sign if the syndicate promoters have their own capital invested in the development and are personally tied to its success.

What additional fees are involved in the investment?

When it comes to budgeting for a syndicated investment, one of the fundamental things you will need to know as an investor is the fees involved. Whilst almost every syndicate will require capital to cover capital raising fees, marketing fees and management, it’s important to note that not all developers are equal, and some will charge significantly more than others. When researching different projects, this is something you may want to ask the syndicate management team to ensure you are making a worthwhile (and most importantly, profitable) investment.

What is the strategy behind the property development syndicate?

Another fundamental element that will determine the success of any property development syndicate is the strategy behind the project. This is a crucial due diligence question you should be asking the syndicate managers before making your investment decision, as getting the end-product wrong can have a hugely detrimental impact on the overall returns of the development. Who will the development be targeting? Are there strong current and future demand drivers in place in the local market? Does the property type and size appeal to the project’s target demographic? And are there any future supply threats from competitor developments? These questions will help you determine whether the syndicate management team have completed thorough research and developed a strong investment strategy to support the success of the development.

Have thorough due diligence checks been performed?

In addition to researching the strategy behind the development, one of the fundamental questions you should be asking as an investor is whether the syndicate management team have completed thorough due diligence checks to assess the feasibility and profitability of the project. Failure to notice obstacles and warning signs early on, such as limestone underground that will hinder construction works or easements on titles, can be incredibly costly to fix further down the line, significantly reducing the overall profit from the project and leading to lower returns for investors. Even less tangible factors such as community opposition to a development can be accounted for and mitigated with the right due diligence and strategy up front. Before investing in a property development syndicate, make sure the management team have conducted comprehensive feasibility checks and consolidated prices to ensure you’re not met with any nasty surprises on completion of the development.

If you are considering investing in a property development syndicate and would like to learn more about opportunities for investment with Momentum Wealth, please request a consultation or contact Momentum Wealth’s Key Relationship Manager, Brad Dunn, on 0424 138 044. 

5 finance mistakes that can limit your borrowing capacity

When building a property portfolio, most investors will focus on the need to identify properties with high growth potential. However, your property portfolio will be hindered from the outset if you can’t get the funds to finance your investment journey.

Choosing the right financial structures and taking the right steps towards preparing your finances can be critical to achieving your long-term property goals, and failure to do so could severely restrict your ability to move forwards with your investment plans. Here are five common finance mistakes that can limit your borrowing capacity.


Cross-collateralisation is where a lender uses more than one property as collateral to secure a loan. This is a common practise amongst banks looking to maximise their security; however, unbeknownst to many investors, this set-up can also have critical implications on your future borrowing capacity.

As your debt levels increase with your chosen lender, many banks will restrict your product choice or even stop lending to you altogether due to increased risk. Unfortunately, the likelihood is that you would then also be unable to secure a loan from a different lender due to the lack of property titles available as security, meaning you may then need to refinance your loans to switch lenders.

In addition, crossing your loans could also restrict your ability to leverage equity from your portfolio for future investment purposes. For example, if one of your properties increased in value but the others had decreased, the equity from the first property would be inaccessible due to the value of the portfolio as a whole. To avoid these issues and maximise your potential borrowing capacity, it’s better to take out separate loans for each new property from an established line of credit, using multiple lenders where possible to maximise your product choice.

Choosing the wrong ownership structures

When it comes to applying for a loan, it’s really important to choose an ownership structure that aligns with your property investment plans. Choosing the wrong structure can have vital implications on your ability to achieve your goals, and it can also be an expensive mistake to fix retrospectively.

For instance, whilst buying property via a trust may be useful for asset protection, this ownership structure can also limit your future borrowing capacity due to the tax implications involved, with many lenders not allowing negative gearing claims for loan serviceability. Similarly, a lot of lenders won’t allow you to borrow through a Self-Managed Super Fund. After speaking to your accountant about the best structure to suit your situation, you will need to talk to your mortgage broker about whether you can actually get funding with that ownership structure, ensuring you understand the future implications this could have on your borrowing capacity.

Not understanding joint and several liability loans

Joint loans and several liability loans can be a useful option for borrowers looking to increase their serviceability, but it’s also important to understand the potential implications of these products. When borrowing jointly with another party, you will each be individually responsible for the debt (in most cases, 100% of it), but lenders will only take into account half the rental income when assessing your serviceability in future. This can impact your borrowing capacity should you wish to invest in another property outside of the joint purchase.

However, bear in mind that individual lenders will often assess this differently, and speak to a mortgage broker with a knowledge of property investment to ensure you understand the full implications of your chosen lending product.

Taking on too much debt

When determining your eligibility for a lending product, lenders will calculate your debt-to-income ratio to assess your ability to service the loan. One of the key mistakes that can therefore significantly limit your borrowing capacity as an investor is taking on too much unnecessary debt and expenses.

A key factor that often catches investors out here is their credit card limit. Banks will consider credit card limits as debt, and will take a monthly liability to mitigate their risk in lending to you. This can impact your perceived serviceability, and therefore limit your potential borrowing power.

When taking on additional overheads or applying for a personal loan, make sure you understand how these additional debts and expenses could impact your future eligibility for an investment property loan. If serviceability is becoming a problem, you may need to consider cutting back on unused credit cards and paying down existing debts to improve your potential borrowing power.

Making too many loan enquiries

Another fundamental finance mistake that a lot of investors make is submitting too many credit enquiries. Many borrowers don’t realise that these enquiries will be recorded in their credit report, which can then be viewed negatively by future lenders and adversely impact your eligibility for a further loan.

A lot of banks will often be reluctant to lend money to you if they see you have made multiple credit enquiries in a short time period.  If you’re thinking about applying for finance, consider speaking to your mortgage broker first to carry out a pre-approval and assess the likelihood of qualifying for the loan.

Maximising your borrowing potential

With banks tightening their lending criteria in light of recent movements in Australia’s lending environment, it’s never been more important for investors to understand the factors that can impact their borrowing capacity.

Preparing your finances early and seeking the advice of a specialist mortgage broker who understands the structures and steps that support your long-term investment is fundamental for those looking to make the most out of their investment journey.

If you are looking to secure finance for your next property or would like to discuss how recent changes to the lending environment could impact you as an investor, Momentum Wealth’s mortgage brokers would be happy to discuss your situation in an obligation-free consultation.

Comments are closed.