Business

How to Create your Financial Freedom

BY UNDERSTANDING THE FINANCIERS’ PERCEPTION IN CHANGING TIMES

By Michelle Murchison

For your family’s future and lifestyle to be all that you imagine it to be, you need to know what strategies are appropriate to meet your financing needs. Now more than ever, different strategies are needed at different times, based on your circumstances, combined with the ever-changing economic, property and finance cycles.

While this may seem overwhelming and an impossible challenge at times, it can be done with the right advice and by understanding how best to access other people’s money (OPM). By understanding what the financiers’ are looking for, you can maximise the power of leverage. Property continues to be their preferred security and they can lend up to 90% of the property value.

The changing credit environment over the last few months, has given rise to the financiers’ being more cautious than what seems warranted. Nevertheless, they have obligations to ensure they can remain profitable so as to provide long-term service to the community.

“Whatever you can do or dream you can do. Boldness has genius, power and magic in it. Begin it now!”

With low interest rates, low vacancy rates, higher rental returns, undersupply of housing and effective tax minimisation strategies available, there is plenty of reason to seize opportunities!

If you have a regular income – whether salary or self employed, and can provide/demonstrate savings or equity (held within existing property), you are still in a strong position to leverage and buy/invest again!

It’s important to partner with a finance expert who understands the idiosyncrasies of the financiers’ that are changing often, so that you can gain maximum leverage with little of your own money.

Areas to mitigate (reduce) perceived risk by lenders when borrowing money:

Review your 5 Cs – character, capital, capacity, collateral and conditions.
Maximise leverage – use other people’s money – ie the financier’s and taxman’s (if buying for investment).

To do this focus on:

Buying for capital growth – predominantly governed by location and land content. From a financier’s perspective – near CBD and/or higher land content contributes to perceived value as it will usually have higher demand.
Optimise your income – aim for as close to or greater than 5% gross rental return on investments – the banks allow approximately 80% of this income towards your capacity to repay the loan.
Maximise tax benefits – rental income minus investment outgoings and depreciation (on newer properties). With current rates and rental returns, it often equates to minimal shortfall in your cashflow – which the financiers like to see also.
Aim for affordability – while land appreciates (capital growth) and building depreciates (for tax benefits). It’s important to buy in a market where the median income can service the rent you wish to receive from your investment. As a general rule of thumb, around 30% of a tenants’ income can service their rental payments. If you buy in areas where the median income can afford your property, this will capture the greatest demand for people to rent your home.
Let time be your friend – wealth building requires a long-term view and plan. Using capital growth to accumulate property is the buzz of ‘making money while you sleep’. This is a ‘get rich slowly’ formula. The key to your long-term wealth is to buy and hold, while the value of your assets grows. The sooner you start, the longer you hold and can duplicate, the easier it will become!

By providing quality, clean and financially viable housing (for you and the tenant), you are contributing not only to your own personal freedom, but also to your broader community and the
global economy.

It starts with us individually. Collectively we can make a wonderful difference to change the perception of our global economy and thrive during these times. After all, perception is projection.

Michelle Murchison

Michelle is the owner of Money Advantage. www.moneyadvantage.com.au