1. Buying is just a small part of residential property
investment
By Cameron McEvoy
Monday, 28 May 2012
In my view there are three stages for property investors: research and due diligence, then the offer
and purchase process, and last of all the ongoing management and capital maximisation of the
investment property. What I find interesting, and what I am writing about today, is how different
people place varying hours of their time into these stages, and how this can be a cause for concern for
the less informed among us. So let's look at each of these stages and get a feel for what is involved in
them:
Research and due diligence. This is where you must first identify your objectives. By this I mean
you ask yourself the “big” questions about your broader life objectives, such as:
What are my long-term life goals? How much money do I need to retire on?
What kind of investment risk profile do I have?
Is property investment for me? Do I have the time, dedication, and longevity of commitment
to stick to it?
And then hone in to get to the “little” questions, about the specifics of what you're looking for in an
investment property, such as:
Apartment, townhouse, or house? Off the plan, or pre-existing?
Do I want to live near my investment to keep an eye on it? Or am I OK for it to be interstate
or international?
Do I want a “set-and-forget” approach, or something more hands on and high demand (but
with greater potential for capital gain)?
With the above assessed you then need to commence market research (assessing suburbs and
property types and measuring them against hard metrics, trends, data, etc), due diligence (lots of
time spent here, crunching numbers, working out long-term holding costs, capital trends and so on).
Once this is done you will then be armed with all your spreadsheets and formulae to hit the
pavement and inspect. You actually won't need to inspect that many properties, because you'll
already have done all the research leading you up to know exactly what you want.
The difference and net effect of this is like comparing two children who each have saved up pocket
money for a chocolate bar. The first doesn't know what he wants and goes into the shop and is
inundated with too much choice. He rapidly and nervously picks a random sweet, not knowing if he'll
like it or not, simply because there were a mass of other kids buying out all different kinds of candy
bars and he didn't want to miss out. He ends up with a Snickers bar, only to open it, take a bite, and
realises he is in fact allergic to peanuts. The other child has already figured all that out; she knows
exactly what she is allergic to, what tastes good, and what will satisfy her taste. She also knows that
the bar she likes is very popular. When the shop opens at 9am, she charges in with all the other kids
but takes a fraction of the time, buys the candy bar she'd preselected when she was already at home,
and enjoys every bite.
2) Making an offer and purchasing. This is where would-be buyers go through the offer
process, negotiate the deal, have their investment property “team” (Mortgage broker, lender,
solicitor/conveyancer, accountant, financial planner, tax depreciator, strata officer, and most
importantly, mentor) on hand, ready to hit the “green-means-go!” button once the offer is accepted.

2. 3) Ongoing property management and capital maximisation There are many things that
will keep you busy when it comes to this area, with each one of these requiring a chapter to cover
them better. So I'll just list the main ones:
Finding a reputable managing agent
Tenants moving out and sourcing quality new ones
Attendance of strata meetings, building maintenance, and occasional council disputes
Improvements, renovations, maintenance, repairs
Tax depreciation and annual tax and income management
Getting the most out of your investment property is vital. This is because the return you see from
your property can vary hugely, due to a list of unforseen changes to your life. For example, your
personal income changes. Few working Australians actually earn the precise same amount of income
each year. This needs to be taken into consideration in your overall tax assessment. And what if you
don't work or study for a year? Lose your job? Or get a big $50,000 salary increase? This alone will
change the dynamic of your investments' potential to net you solid returns.
Notice how little I wrote about stage two, compared with the other two stages? This should tell you
something about the amount of time you invest in each stage. When I acquire properties I tend to
spend my time investment (remember “time is money” in any investment or business undertaking)
in the other stages, so my time schedule looks more like this:
Versus less informed investors whose time distribution looks more like this:

3. As you can see, the “buying” stage should actually be the least time-consuming part of the overall
investment process! Sounds weird to say it, right?
So, while some investment property gurus are fast to tout the “you make your profit when you buy,
not sell” mantra as a rationale to dedicating so much time to buying process, what they actually mean
is that the profit is made in the research revelations leading up to the purchase of your property.
Prior research/due diligence should take up the bulk of your time, followed by ongoing management,
which can take 10, 20, 30, or even 40 years if your strategy is a more long-term “buy-and-hold” one.
Certainly something to keep in mind when preparing to purchase.
Watch this space; next time I'll put the ”offer acceptance and purchase” process under microscope
and list most of the hoops you'll need to jump through, one by one, when purchasing the property
itself. This might help to relax you and take some of the stress away that we all face when going
through the buying stage.
Why mortgage holders should talk to their lenders and
consider refinancing: Cameron McEvoy
By Cameron McEvoy
Thursday, 19 July 2012
I want to begin by saying this: I do not house any hostility towards lenders. In fact, I’ve written many
times in the past about how lenders can be your best friend when it comes to starting out fresh in
your property investment career. Let’s be honest; if you’re like most new investors out there, you
don’t have suitcases of cash just lying around, ready to buy real estate with, so lenders can absolutely
be the “determining force” in your decision to get into property investment. If no one will lend you
money, well, your pipe dreams can be quickly flushed.
All of that aside, lenders are simply a means to an end. Providing that you find a lender that offers
the best rate and features relevant to you, they are all pretty much the same. For many years, lenders
had, quite cunningly and cleverly, marketed themselves as more of an authority over you. They did
this by using a certain kind of language when discussing and corresponding in paperwork the nature
of their products. Basically, they made it seem like you were locked in forever to their mortgage
products. One way they did this was to charge excessive and complicated “break fees” should you
ever look to shop around and move to a different financier.

4. The industry watchdogs, and eventually government bodies, cottoned on to these tactics and
established legislation to remove all of these break fees, effectively making it much easier to switch
your mortgage to a better/cheaper product in the marketplace. So you know (and it goes without
saying, you need to double-check this yourself should you actually be looking at breaking a
mortgaging product), banks cannot charge their exit fees anymore, however you will always have to
pay the government processing fees – usually a couple of hundred dollars only – to get out of a
mortgage.
There was initial fear that as a result, lenders would recoup these losses by charging heavier entrance
fees into new mortgage products; however this has not really happened as yet, at least to extremes.
The beauty of the removal of break fees meant that the marketplace has become more competitive,
and lenders now actually have to fight their competition to get a slice of your potential custom.
For any would-be switchers out there, my advice is to do up a spreadsheet and calculate all the costs
to switch out from one product into a new one. If the savings in one year’s interest repayments at the
new lender’s rate is greater than double the cost to switch, it is an exercise worth doing.
When approaching lenders as a property investor – even if it is your first property – you should
always make clear mention of your growth potential and desire to hold a large portfolio. Although it
won’t win you any brownie points in terms of qualification and verification for mortgage products,
mentioning your growth plan to them will certainly make them earmark you on their computer
systems! No jokes – I’ve seen lenders who literally input an asterisk against someone’s details, which
is pretty much code for “keep an eye on this one; he could be a repeat customer!” I would encourage
everyone to do this when buying their first property, even if you only intend on buying a home to
occupy and never an investment property.
It is therefore important to remind a lender at times just how valuable you can be as a potential
“repeat customer”. Having a great mortgage broker working for you can help with this – they are able
to leverage – and effectively vouch for – your future portfolio growth expansion/potential and use
this as a bargaining chip to negotiate better product offerings back to you, but I strongly believe that
it is always important to have a direct and solid relationship with your lender(s).
All of this is especially important when considering the times we’re living in. Finance is edging
further and further down, and interest rates could fall to all-time lows. Lenders know this. They
understand how the cheaper rates in market will truly change the dynamic for everyone. In fact, I
attribute the recent increase in lender marketing campaigns, which heavily promote “switch to us”
themes in their tactics as a response to this trend. For example, UBank from NAB has released an
online home loan product offering a variable rate of 5.62%, one of the cheapest currently on offer in
the market. But the bank is very quick to point out the product is only available to new customers
and switchers from other lenders. Existing customers cannot get access to this product.
So as the market – investors and owner-occupiers alike – respond to cheaper finance products
hitting the market, consumer confidence may begin to return. This could mean that would-be buyers,
who previously held the mantra “the entire global market is too unstable; now is the worst time to
take a risk” change to a mindset of “the global market might not be so stable, but darn it, rates are
probably not going to be this cheap again anytime soon, so I should give this a second look”.
I’d love to hear from the community about experiences in mortgage switching – was it easy? Were
there in fact hidden costs (whether it is a government cost, lender cost, or other kind of cost)? And
did the old and new lenders make the process easy or hard? Also, when leaving your lender, was
there a last-dash attempt to keep your custom, or did it let you go easily?

5. Cameron is a property investor and maintains a blog, Property Spectator.
Best regards,
Linda J. Debello Licensee, LJ Gilland Real Estate Pty Ltd
Tel: (07) 3263 6085 | Mobile: 0409 995 578
www.ljgrealestate.com.au
Contact me: ljgilland
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