Expert Advice with Philippe Brach 18/02/2016
But for many would-be landlords, waiting for capital growth isn’t the problem – it’s being able to save the initial deposit to get started in the first place that proves most challenging. Property investing requires a major capital outlay and low-income earners especially can have a tough time coming up with a deposit, because there’s not much leftover at the end of their pay packet each week to put towards property ownership goals.
In saying that, in working with countless investors over the years I’ve noticed that old cliché saying to be true: ‘Where there’s a will, there’s a way.’
For example, I have clients who earn $40,000-50,000 a year who continue to impress me with what they’ve been able to achieve. They are so driven and committed to their goals that they have been able to save regular deposits and invest in property.
Then I have worked with other people who earn substantial six-figure incomes, but who struggle to save a deposit because their cost of living is so extravagant and their personal debts are out of control.
It reinforces the point that it’s less important how much money you earn, and more important how you manage the money you do earn.
Remember that banks and lenders are looking for you to satisfy three main criteria when they assess your loan:
1. Security. A lender needs to be happy with the property the applicant is buying or giving as collateral – in other words, a good quality property.
2. Serviceability. The borrower needs to be able to afford the loan.
3. Funds to complete. This means that the borrower has enough deposit or equity to settle the loan.
All of the above is possible for low-income earners, particularly if you’re committed to a savings strategy to help you accumulate ‘funds to complete’. The following strategies may help:
1. START A SAVINGS PLAN
It sounds obvious, but a savings plan will keep you focused. Initially this is about establishing good money habits, not chunking away huge slabs of cash (although if your living costs are low and you can afford to save $400 per week, then by all means go for it!). Saving as much as you can each month will not only help you accrue a home loan deposit, but it also proves to lenders that you’re responsible with your money and you can afford to service a mortgage.
2. CONSOLIDATE YOUR CREDIT CARDS
If you have personal loans, credit cards, store card debts or unsecured debts of any kind, then make it your priority to clear them. Ideally you want to consolidate them all to one low-rate or zero-interest credit card, making sure you cancel all of the cards and loan facilities when each one is paid off, to avoid re-spending. This way, you can eliminate these debts from your budget and divert the money you were spending on repayments to a high-interest savings account.
3. GET EXPERT ADVICE
The worst thing you can do? Nothing. You could be in a position to invest in property right now but you don’t know it, because your own thoughts and fears around your situation are holding you back. Starting with an affordable investment is better than doing nothing at all and having the right property experts on your team can help give you the motivation and guidance you need to commit to your property and wealth creation goals.
5 TIPS FOR BORROWING TO INVEST AS A LOW-INCOME EARNER
1. Having a stable job and regular income will help you present your application in the best light.
2. A stable address helps too; extra points if you are living with parents or relatives rent-free.
3. Show that you are financially responsible by making regular deposits in a savings account.
4. Pay your bills on time to avoid a bad credit rating.
5. Consider investing jointly with someone you know and trust.
Philippe Brach is CEO of Multifocus Properties and Finance
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property
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