5 tips to an amazing Christmas without the financial hangover

Set a spending limit – we tend to be so busy and often the year passes in the blink of an eye. By the time we get to the end of the year we will pay just about anything to get through the holiday season. We also feel a little guilty that perhaps we have not spent as much time with our loved ones and try and compensate with expensive gifts to show our love.

Making a list and checking it twice, works for Santa and works for the busy person preparing for Christmas. The list helps maintain the agreed spending limit and makes you think twice about buying something that you do not really need. Think about this… how often have you just seen something that you never knew existed before and now you find that you absolutely cannot live without and then buy it. To make it worse it ends up on the nature strip in 12 moths time with a sign, free to good home!

Gift giving Don’t buy everyone gift. A simple and fun way is to do a Secret Santa gift giving game. Swap, steal or unwrap is a hilarious Christmas gift giving game. Each person brings one gift to the value of a specified amount. You need a dice and for each number on the dice, you assign an instruction of swap, steal or unwrap. Start rolling the dice and you will have your whole party laughing so hard that they will remember the day for years to come.

Lay By – this used to be a really good way of buying gifts and spreading the cost over a number of weeks leading up to Christmas. The modern-day version of this is now take the goods a pay later… BIG TRAP. Most of these transactions are now a credit contract, which means that they are a loan. The impact for people will be when they go to borrow in the future, say for a car or personal loan and they have three or more of these transactions in a short space of time, their credit score is often halved and can lead to their loan being declined.

Share the love with the food preparation– if you are hosting Christmas this year, enrol lots of other family members to help cook and prepare a special dish. Food that is cooked with love always enhances the feel of the day. Ask the more senior members of the family to bring that special dish with the recipe that has been handed down from generation to generation. Ask the younger generation to prepare a dish with latest modern twist on traditional recipes. You will find that the day is far less stressful for you as the host because you are now one of a team of people preparing food and the cost is dramatically reduced as it is now spread over several people.


What is the difference between an offset account, a line of credit and a redraw facility?


At property loan advisor we deal with a lot of enquiry when speaking and advising clients on what type of mortgage is suitable for them. The options appear to be endless and can be confusing. The key is to have a loan product that will help save you money, offer flexibility and help you achieve your goals.


The simplest way to describe an offset account is a normal everyday transaction or savings account that is linked to your home loan. That means when the mortgage lender calculates the interest to your loan, they take the balance in your offset account off what you owe on your mortgage and apply interest on the reduced amount. So at the end of the month when interest is added, a lower amount of interest is added to the loan. These savings could be quite significant just for letting your accumulated funds and wages sit in your account.

The bank or lender may charge transaction fees, but most lenders will waive transaction charges on offset accounts altogether, they are more likely to charge a “package fee” for the loan, offset account and a credit card. Many clients like to have all of their salary paid directly into the offset account. This ensures that any income not spent is being used to reduce the balance of your loan. While receiving the interest savings you also have the flexibility to access your funds at any time.

The below example is based on one of our clients – they have $50,000 in their account and it offsets $50,000 on their loan account, having the effect of interest only being charged on $300,000 instead of $350,000. As you can see the savings are quite substantial and the clients have the ability to access the funds at any time they need to.

Albert Einstein said that compound interest is the eighth wonder of the world I am going to suggest that Mortgage Offset Accounts are the ninth wonder of the world! These accounts have so much flexibility and can save you lots of money!


The simplest way to describe a line of credit is that it is like a giant credit card limit, secured by your home. This product has loads of flexibility, although … along with flexibility comes responsibility. Many of our property investor clients love the line of credit product as it is part of their overall strategy for growing a property portfolio.

For example, our client may own a home that is worth $500,000 and currently have a home loan of $300,000. Their goal is to buy an investment property. We can approach a lender to set up an additional $100,000 as a completely separate loan to the existing home loan of $300,000. The advantage of doing it this way is that you have loans set up with different purposes. The existing home loan can remain on a principal and interest loan and the second loan of $100,000 can be a line of credit loan and can be interest only. The line of credit can then be access for the deposit and cost for the purchase of an investment property. The other major advantage of having the loans split into this structure is that you keep your non deductable loans separate from your deductable loans. Check with your accountant if you are entitled to claim the interest on your line of credit.

Many people approach their existing lender with the goal of purchasing an investment property and they are offered an increase on their existing home loan and then they can access the cash through a redraw facility which I will discuss next. The problem with this loan structure is that your borrowings are not separate and when it comes time to tax time you may have destroyed a very nice tax deduction.


A home loan with a redraw facility allows you to borrow money you’ve already repaid and is usually offered with variable interest rate loans. It allows you to use any extra income or savings to reduce the balance of your loan, thereby reducing your interest repayments and “redraw” that extra money in the future should you need it.

Some lenders will limit you to as few as two redraws per year. Others will charge you up to $50 per withdrawal, and some even insist that you redraw a minimum of $2000. Check with your bank or mortgage broker for a redraw facility that provides you with maximum flexibility at minimum cost.

All three options will you to save money, getting the right advice on each facility will not only give you savings on your home loan but will allow you easy access to cash to help you with your goals.

Top 5 questions to ask before purchasing an investment Property

Due diligence is everything when it comes to investing rental property. Check out the top 5 tips and strategies to help you grow your property portfolio.

1. Decide – Capital gains or rental return or both?

You need to consider whether you are chasing rental returns or capital gain. A rental return will help you pay off a property over time; Capital growth will allow you to use the equity to purchase future investment properties. You may decide to have a mix of both. It will come down to affordability. An experienced mortgage broker can assist with the ability to borrow.

2 Calculate the rental return

The very first step is to calculate the rental return on the property and ask yourself the question; does this meet my criteria for purchasing the property? Some people are looking to achieve a positive cash flow on the property others look for capital growth.  You can very easily do a “back of the envelop calculation” that requires finding out what the weekly rent potential is versus the value of the property.  If you want to achieve a 5% return you would look for a property where the rent is the same as the first three digits in the purchase price. For Example $400,000 house rents for $400 per week it is roughly a 5% return. In fact it is really 5.2% ($400X 52 ÷ $400,000) = 5.2%. Try it – it works! Given that interest rates are at an all-time low it becomes easier to seek a neutral or positive cash flow on the property.

3. What’s the property really worth?

It is really only worth what someone is prepared to pay for it. Statistical analysis will help; you can use RP Data or other vendors of data to offer comparisons. Things that can help your negotiations are how long the property is on the market for, where does the property “fit” with other properties similar to the one you are researching, has the vendor previously dropped the price. What is the condition of the property you are looking at? Bear in mind if you purchase a property that needs repairs this will impact your ability to borrow for that property. The bank may request to see that you have funds available to do repairs or decline the loan because it is not a good security risk for them.

4. What is happening in the local market?

  1. Regardless of the statistical data when the valuer goes out to value the individual property, the fact is that the individual property is impacted by power lines, most people will view this as a health risk that they are not prepared to take. The majority of people may have trouble funding the property due to the adverse remarks that the valuer may add to the valuation report to the bank. Events such as murder or suicide that have occurred on the property will dramatically affect the sale and hence the value. Once a valuer makes comment on why the property is at a reduced sale price it will alert the banks to the risk and hence the ability to borrow, especially in mortgage insurance territory.
  2. I am looking to purchase a property in an area where all the other properties are listed at offers over $325,000. The property is 3bed, 1bath, 1car is perfectly fine condition the problem with the property is there are power lines running over rear of the property, which is the reason no one else is interested because it is well under what other properties have been selling for. A very similar property in the same street sold 2 months ago for $365,000.
  3. You could take a market analyst approach and research everything online. However, in my experience the most definitive way is to visit the area yourself and burn some shoe leather whilst walking around talking to local real estate agents and neighbours of potential houses that you a looking to purchase. A perfect example of this was a young investor made enquiries about a property he was thinking purchasing.

5. Property management

It may be tempting to manage property yourself. If you are going to do this put a proper lease in place and collect the payments by direct debit. Even if the property it is rented to a family member.  There are two main reasons you should put the proper paperwork together; one is to establish “the rules of the game” making sure everyone is aware, all too often the relationship that starts off good can end in disaster. The other reason is that you will need to prove that you can service future borrowings. If the bank can not verify the income on a property rented to a family member then it is assumed that there is no income on that property. This makes life difficult if you want to refinance to get yourself a better deal or grow your property portfolio. Best option is to have a local property manager do all this for you. The good ones are worth their weight in gold!

Is compound interest the eighth wonder of the world?

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. – Albert Einstein

Finance is leverage in the financial world. Getting the balance right is absolutely crucial when you are growing a property portfolio. Having your portfolio too highly geared leaves you nowhere to go if something goes wrong and conversely not using finance to leverage means you most likely find extremely difficult to build a property portfolio. Compound interest is a double edged sword, as leverage, it can quickly grow a property portfolio or if it is misused it can quickly destroy a property portfolio. A good analogy is a knife, a knife in the hand of a surgeon can be lifesaving, a knife in the hand of a thug can be life threatening. The same for compound interest, as Albert Einstein says he who understands it earns it, he who doesn’t pay for it. Having a good understanding of compound interest will help you use it a leverage tool to grow a property portfolio.

So what is Compound Interest? Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount. In the case of a loan, interest is calculated on a daily basis and charged the loan every month. As long as you are paying more than the interest charged each month you will be paying off the principal. Paying more and paying frequently will see the loan term shorter, if you stop paying then you will end up with interest being charged on top of interest and can quickly derail a loan.

A common question that I often get asked is how do I get started borrowing money for an investment property? To start buying your first property requires a deposit. A good number of lenders will lend up to 95% of the property value. There is an additional cost for people who borrow over 80 % of the property value this cost is known as lenders mortgage insurance. If you are borrowing 95% of the value of the property, the mortgage insurance cost will be in the vicinity of about 2.5% – 3.5% of the borrowing cost. Some lenders will capitalise this to the loan which will mean you have effectively borrowed 97.5% – 98.5% of the value of the property.

There are pros and cons. In an upward trending market, it gets you in the property market before the property price escalates again. You may find that paying a mortgage could be similar to paying rent and justifies the mortgage insurance costs. This has rung true in recent times with interest rates being so low. Conversely, in a steady or even downward trending market you will have to work hard at paying down the loan as there is no growth to offset the cost and a bigger risk to manage the mortgage. Borrowing at 95% of the value of the property is a great way for a first time home buyer to enter the market. For most home buyers they look at the first home to get out of the renting cycle, it will either be their forever home or they will use the home to upgrade into something bigger down the track. On the other hand, the property investors goal is to build a property portfolio to create financial freedom. Having too many properties too highly geared will create more way more headaches than freedom.

I would strongly recommend if you are starting out on your property investor journey save at least a 10% deposit plus the cost to complete the deal. I can hear some of the arguments now as I say this, there is a school of thought that you use as much of other people’s money when you invest, so you can get into more properties. The mortgage insurance is just a cost of doing business. My response to this school of thought is to keep the end goal in mind, you want financial freedom not headaches.

Having your personal finances in order is about being a good steward of your money, making sure that you are constantly keeping everything in balance. This includes your leveraging.

Happy investing


The 7 mistakes that property investors make

The seven mistakes apply to any property niche; it does not matter if you are a vendor financier, a landlord a renovator or a developer. The seven mistakes are;


  1. Not getting the right advice or worse still taking advice from people with zero experience. How often have you heard a story that goes a lot like this, the uncle three times removed, once owned an investment property and everything that could gone wrong did go wrong. The tenants stopped paying and just before they abandoned the property they trashed it and then as soon as it was repaired it burnt to the ground. Yes, things to go wrong, however if one has seeked some good advice and education on property investment it would become apparent that you can mitigate many risks associated with property investing. For example, you can get landlord insurance that can cover rent default, malicious damage and building insurance in case of fire. It is not all doom and gloom, property investment is a skill and takes the correct advice and education to hone it.


  1. Shopping around for finance – it sounds like a good idea but what is really happening is that your credit report is now starting accumulate “footprints” of all the lenders that you have approached. This then impacts the decision of the lender that you finally decide to work with, many loans get refused purely on the basis of too many credit enquiries. Employ an experienced mortgage broker to make enquiries for you that will not impact on your credit report. A mortgage broker has the ability to go in behind the scene and make all the enquires you need without the enquiry being recorded on you your credit report. Obtaining credit has become quite complex, leave it to the professionals do a good job for you.


  1. Not correctly structuring finance – Many lenders will “cross collateralise” the properties which means that the collateral from one property is used as collateral to acquire another loan for a property. The impact of having the properties crossed is that the acquisition of more properties becomes quite difficult. You are also at the mercy of the lender that has all your business. If you want to use the equity of your current property to buy an investment property, the best structure is to open up a line of credit for the equity that you wish to tap into. For example, you own a property that is worth $500,000 and you currently owe $300,000 on your home loan and you want $100,000 released so that you can put deposits down and pay closing cost for the new purchase. One of the best structures is to have the loan “split”, $300,000 remains usually as a principal and interest reducing loan, and the split loan is a line of credit loan. That way you have separated the non-deductible debt (debt that cannot claimed as an expense on your tax return) from deductible debt (debt that may be claimed as an expense on your tax return). If you simply “top up” the $300,000 home loan to $400,000 there is no clear line between your non-deductible debt and your deductible debt.


  1. Too much debt and not enough debt reduction – All too often people get excited and want to gear or leverage their properties to dangerously high levels without any thought as to how they are going to reduce the debt. The thinking here is that they are hoping the properties will increase in value and eventually payout the debt, but what if the properties do not go up in value? Interest only loans, whilst they are a great tool for growing a property portfolio, there still needs to be some debt reduction component to the overall portfolio. The first debt that needs debt reduction is the non – deductible debt or better known as consumer debt, usually home loan, car loan and credit cards. Refinancing and wrapping up your car loans and credit cards into home loan sounds like a good idea as most people like that the monthly repayment will be reduced. Think about this, if you wrap up your maxed out credit card with last night’s dinner on it you will be paying last night’s dinner back over 30 years! A properly structured debt elimination plan is always a much better choice than just simply wrapping up debt every few years, you will never own you home doing that. It also indicates that you are living beyond your means, and you need to address the amount of spending not cover up the bad habit with constantly rolling up bad debt into your home loan.


  1. Using your current bank for all your needs – You may have been a client of a bank since you were 5 years old when your parents set you up with a little bank account to get you in the habit of saving some money. Eventually you grow up and you want to buy your first home so you naturally go to the bank that has your saving account to approach them for a loan. The big mistake here is that no two banks are the same, on the outside looking in they appear to do the same thing. If you are an aspiring property investor you want lenders that can meet some specific criteria on your proposed purchase. You don’t want to be locked in to one banks policy you want flexibility to use different lenders to take advantage of good lending deals.


  1. Buying a property on emotion and not the numbers – Emotional buying often does not have a good ending. When buying an investment property, the numbers have to make sense. If you buy the property on the basis that it had a beautiful bathroom and a delightful kitchen, you will more than like pay too much for the property. You are never going to live there so the beautiful bathroom and delightful kitchen should never be the decision trigger. The rent or the yield and the capital required to purchase the property become the most important criteria when buying an investment property. Followed closely by the location, and the infrastructure to support the proposed occupant. The numbers never lie, if the deal does not make sense to you don’t buy it, there will always be another opportunity that comes along that will suit your buying criteria.


  1. Fear causing analysis by paralysis – The level of complexity is high when it comes to property investment and the amount of education on various different property investment niches is prolific as are opinions on the best way to make it. Getting clear on your property niche is vital to success. Do something you are going to love. I personally love the vendor finance niche as it involves structuring a deal to give someone a homeownership opportunity. I am definitely not a renovator, the whole idea of ripping up smelly carpet and painting does not excite me one little bit, so I avoid that type of niche. I have complete admiration for people that do it and do it well, the big message here is that you have to love what you do and it will come easily for you. Procrastination usually shows up because the person is either not clear on what they need to do or it is not high on their values list. I often hear “I just need to do more research” before I put in my offers or all the good investment properties have all gone or the timing is not just right. The reality is that these are some really good justifications for not moving forward, just know that when you are in this space the underlying emotion here is fear or as many people say fear is the acronym for False Evidence Appearing Real.
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