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This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. G'day everyone and welcome back to another episode of The Property Nerds.
And I'm here with co-host Jack from 4Acre Financial and I'm your co-host Arjun Paliwal from InvestorKit Buyers Agency. And today, since it's the second episode now with Jack on board, we're doing a finance-themed session. So Jack, you have this saying. How does it go again? It's around property is a game of finance.
You do it better than me. What is it? Property is a game of finance. And by the way, you should start introducing me as Jack 4Acre, aka White Egg. So for those who are in the studio, the property nerds have two eggs with glasses and two buck teeth coming out as well to show our nerdiness, although Jack's teeth is far better than mine.
And yeah, there's a brown egg on there. There's a white egg on there. I'm the brown egg. He's the white egg. So here we are.
What a coincidence. What a coincidence. But mate, this is truly a game of finance because property investing, how many people out there like buying everything with cash? Like, yeah, I'm sure cash does exist, but not that many, right? There's not that many.
So finance plays a huge part. If you're a first-time investor, you're scaling a portfolio, needing to get finance right. And it's important that on this show we cover that because for all the property nerds out there who tune into our data, the white papers, the blogs, like that all gives you insights of the markets, cycles, selection. But to buy it, you still got to take out a loan. You still got to get your strategy right on finance.
I am keen to unpack three things today that you've got. You shared with me before this episode, they're gold. I want to unpack three different finance strategies to consider or finance policies to consider. And you're going to get a lot more of that tuning into the property nerds moving forward. It won't be my boring voice and just data alone.
I'm going to go through finance policies, the real stuff today. So stick around to the end because number three, love that one. So let's go to number one. Number one, I'm going to make that the most impactful one. Oh, here we go.
Giveaways for the start. Not me. People might miss out. They might have to get out of their car. So the first one is going to be the best one.
Everyone's going to be valuable, but the first one is my favorite because right now with interest rates high, most properties that you buy, especially if you're cash flowing it with an equity loan from an owner-occupied property or another investment property, you're at 100% LVR or 105% LVR in a lot of cases. Could you break that down a little bit for someone who doesn't know what cash out LVR stuff is? Yeah. So say you've got a house that you live in that's worth a million dollars, right? And your loan amount on that property is 500K.
So if you were to access up to 80% of that value, you can get a loan of 800K. So the difference between 800 and 500 is 300. That's the simplest way to do it. So that 300K would be an equity release cash out loan. Now, obviously it's a loan, like you're using equity, but it is a loan.
So you're going to have to make repayments on that. So if most situations are like that, whether it's your owner-occupied property or an investment property, and if you're financing an investment property like that and you're using an equity loan, making repayments on that, it's going to be negatively geared. And it'll be a fair bit, right? Because it's like you've got an 80% loan for the new purchase you're making, and you've now got the 20% loan that came from the first property, and plus you've got costs for stamp duty, buyer's agents and stuff. Yeah.
And obviously it's worth it with the capital growth, like you're building wealth. But a lot of people get scared off by, or they try to chase yields because of that, and they sacrifice capital growth. But a lot of people get scared off by the repayments and how negative it's going to be. So this little trick, right? And using that same example, if you've got a property for a million, you owe 500,000, you do an equity loan of 300,000, which is up to 80% of a one mil valuation.
Yeah. Out of that 300,000, right? And this is where, from a broker, what you need is someone who can strategize, right? Because not all lenders are going to give you that 300K out uncontrolled. A lot of lenders would want that 300K to be controlled by them.
It's like the old ATMs, right? You go in, you have cash in your bank, but they're like, daily limit 2,000, 1,000. That's it. So they're not just going to give you that in your account uncontrolled, right? They're going to want to say, all right, where's the contract for what you're buying?
Are you able to service that remaining loan with us? If not, we can't give you the cash, right? Little things like that. So firstly, you're going to need a lender who's going to give you the cash out without any questions. Obviously, you tell them what it's for, but they're quite happy for you to go and get the lending elsewhere.
And a lot of cases with major banks, you would do your equity releases. And then if you needed to, you can do it with non-banks or second or third tiers for the purchase. Now, out of that 300K, if you get it uncontrolled, you don't have to use the full 300K as a deposit. Right. Right.
You could say, for example, just use 200K, still borrow the 80% against the investment property and have that 100K remaining as a buffer of what you didn't use. Now, if that's sitting in an offset account against the cash out loan and it's making repayments on the cash out loan, as well as making repayments on the investment loan that you've just taken out and receiving the rental income from that property, that 100K, obviously it's going to be negatively geared, right? So the rent's not going to cover the repayments on the cash out loan as well as the investment loan. But then with that buffer, I'm like, I'm focused on the wealth building part. I'm looking at my portfolio.
It's like, okay, X million to X million, long-term compounding charted out. My buffer's there. Wow, I diversified across this many states. Like, that's critical. So point one, very, very important.
Equity loans to help you not only buy, but deliver a buffer so you're in a better financial position and actually structuring savings as well. Like, imagine that, using the equity in your home or investment property to cash flow and control an asset and have it not affect your cash flow position at all for three years. Yeah. It's really powerful, man. And you'd be surprised how many people don't know about it.
Yeah, because people go, oh, we only want 100K because that 100K is only what we want for this home. And then you're like, well, you've just used the 100K and now you have no other buffers left. I'll be very surprised if most people listening to this have ever heard that before because you'd have to pay someone a lot of money for them to tell you that. And I think it's going to be a common theme on this podcast that we just give it all away for free. Absolutely.
That's how we roll. So that's number one. You weren't lying when you said, hey, that's the best one. It's the best one. There's some other number two.
There's some good stuff that people need to know about. Misconception of bank lender policies when you've just started a new job or you're starting a new industry or you're transitioning to a new job in the same industry. A lot of people don't know that. We spoke about it on the previous podcast that the major lenders are trying to take back the market share from non-major lenders. So there's lenders who will take your, they won't even need your first payslip.
They'll take a contract. So you've got a job, you've got a signed contract. No worries. We'll use that income. That's a big change because in the past it used to be what, six months sometimes?
Yeah. I mean, yeah, six months was pretty much the benchmark, but most lenders would, you know, if you've been working in a job for 12 months or whatever, and then you transition to a new role that's in a different company, but the same industry or same sort of role, a lot of lenders would have appetite for that. But even if you've just started a brand new industry, brand new job, you know, and you've got a big pay rise or a bit of a pay cut, the main thing is you can use that income to assist your borrowing power. And it's not like you're scraping at the bottom of the barrel either. Like these are big lenders that you would go to anyway for really good.
... is you can use that income to assist your borrowing power. And it's not like you're scraping at the bottom of the barrel either. Like these are big lenders that you would go to anyway for really good. Really good loans.
And we've seen in building a portfolio, like time and speed is everything. Right? If you go, I have to delay my portfolio scaling from 6 to 12 months. Or you move and you go, now I'm looking at this policy, I'm like, I could get it done in one month. It's all opportunity cost, man.
Yeah, massive. And you know, sometimes people have their contracts, start dates, take your time, or pay slips take time to generate. Because if you have someone who has a contract, even one pay slip is another 30 days potentially. Because they might be like going, hey, I'm a monthly pay cycle. So like, it could be one in previous year, six in previous year, 12 months.
But now you're like able to get off running as soon as you scale the job. Yeah, but not only that, like we've, sometimes you have people that are in a finance course and they say, look, I've got this job offer and I don't want to take it because I'm worried about the finance. It's like, nah mate, it's all good. It's either the same industry or, you know, there's other lender options that are just as good. And, you know, it's all transparent.
There's no guesswork. Yeah, that'd be big because people then like could maybe lose their job. Delay a job opportunity, imagine that. Imagine someone calls me, hey Arjun, I don't know if I can start. Maybe I'm not sure if we can make this happen now.
Like you obviously go like about how long and they might go, it could be months. I'm not sure because I have to wait for this and wait for that. Like your team might really need someone, right? So sometimes for the right person, you go, whatever, I'll wait, right? That's key.
But that's interesting because I used to always think back in the day, I was like, oh, you know, wait for six months and we'll catch up again soon. Now it's like, nah, we can change that. That's right. So that's number two. Jack, what's number three you've got?
Yeah, so at this point, it's probably the worst kept secret. A lot of people know now that there's a streamlined refinance option amongst a lot of the major banks, second tier lenders as well. Basically, when you have a loan and you're trying to refinance it, the lenders are going to look at the actual rate with a 3% buffer. That's pretty well known. What a streamlined refinance option is, is that if you've got good credit, good repayment history, and the product that you would refinance to is better, you could do it on a 1% assessment rate rather than a 3% assessment rate.
So basically, it's really good because lenders, you know, if they're looking at you've got a low 6% rate, they're looking at your ability to service it on a low 9%. Whereas with the streamlined refinance options that are out there, it's low 7s, which is much more reasonable. And see, this is like common sense returning to the banking world because common sense used to not exist there, right? Maybe in some parts it still doesn't. I think it's more around greed and market share.
I wouldn't give them that much credit that they're actually trying to help people. You're being too nice, right? I'm being too nice. You're definitely getting the market share comment right. But if someone's paying their mortgage, they're showing you that they're paying it for 6 to 12 months.
It's like, why should we ping them even more with a 3% buffer? They can bring it down to 1% buffers. Man, we had some nightmare scenarios where people pre-COVID or during COVID got loans with a lender that you've never heard of before. And then they had rate increase after increase after increase and they couldn't refinance. They're making repayments, struggling, but couldn't refinance.
And it's weird because you look at a client who is making repayments on an 8% mortgage, owner-occupied 8% mortgage, but they've got clear repayment history and no one's going to take them on. It just doesn't make sense. It's also kind of like the people paying rent today, right? How many people pay rent more than their mortgage? And they're like, I'm paying this rent, but you won't give me a mortgage repayment loan.
Yeah. Well, mate, three core helpful tips. I love, you know, this episode is pretty cool because I've been, the last few episodes, I've been lonely, right? I've been by myself just talking about some data I've got, research I've got, but you've brought in the finance stuff and this is truly going to help people. Many more to come, mate.
We haven't even spoken about trust yet. Yeah. Yeah, big. So guys, if you've been tuning in, three core finance strategies here. Jack, how do people get in touch with you to unpack this finance, but more of a tailored scenario?
Yeah. Well, get onto Google, Foreca Financial. We'll put the link in the description as well, but very easy to find me if you're looking. Perfect. Jack Foreca, mate.
Thank you for another episode on The Property Nerds. This one definitely appreciated you holding the mic for this one because you crushed it with some epic tips. And property is the game of finance. Love it. Love it.
So I think there's a longer version of that quote, right? Property is a game of finance with a bunch of houses thrown around. Isn't that what it is? I wonder if we can extend that quote even more. Property is a game of finance.
We've got to get a whiteboard up here. We'll brainstorm with a bunch of houses around that outperform the market. Boom. There you go. No, look, got it, man.
So that's another episode. Property Nerds, thank you for liking, subscribing, all the following. And we are also, if I'm not mistaken, crossing over half a million downloads, which is pretty, pretty cool. So guys, thank you. You're welcome, mate.
Thanks, Jackie. Episode two, he's claiming it already. Is this what you do in the footy fields, by the way? Like get one trying, like, hey, boys, it couldn't happen without me. But look, thank you so much, everyone, for your love and likes and subscribes here.
We've got much more gold coming your way. And this is just episode two with the new duo in town, Property Finance, coming together. And we've got some more data, more white papers. And speaking of white papers, last episode, we did a white paper episode on 10 cities that will actually improve a lot in their performance as interest rates come down and change their overvalued, undervalued ratios. Go and check that out.
It's investigate. com. au and click on Property Research. And hearing this all, if all the finance situations that you've had or are in now and that something's clicked today, whether that's the new job scenario, whether it's being on the probation, as Jack mentioned, or whether it's having refinancing in the bank that you're with is saying, you know, we can't make better interest rates and you've spoken to someone else and they can't refinance you, or even just looking at it from how do you invest without being cash strapped if you've got the equity and building a good foundation for your house, reach out to Jack at forekafinancial. com.
au and no doubt his team will help. Catch you soon. The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs and should not be relied upon. Before making any investment, insurance, tax, property or financial planning decision, you should consult a licensed professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.
Game over.
