Free Property Portfolio Review

So what is a property portfolio review?

Here at Blueprint, it's an integral part of our strategy session. It's one of the sheets we share with our customers out of the many spreadsheets that we have, especially our property investor customers.

Here's an example I'm sharing with you now, this is an example of a client's portfolio. They've got three properties and we've actually broken down all the important information for that customer. So we go through all these scenarios, ownership, purchase price, estimated value, et cetera.

So you can see here we're really analysing all the important information there is to know about their property and what we can actually do with that. So we're calculating things that they're available equity. Understanding the spread of lending across different lenders. So really gives us the opportunity to really analyse their portfolio and create and identify opportunities to make your mortgages, work for you a bit more.

So really important spreadsheet for us to take our clients through allows us to identify that equity. Most importantly property investor clients. This is really important 'cause you get to understand how much you have available to play with and what you can actually do with it.

Different clients will have different LVR restrictions and requirements based on who they are as borrowers and also their property types. So that's something that we'll touch on in our strategy session as well.

I've hit a wall with my bank.

Can a review fix this? That's a fair question. All different lenders have different LVR requirements, so there's a chance that some lender out there might actually look at your property differently. For example, there's two major valuation services in New Zealand.

That all the main banks use, and they have different values for every single property in the country. So by making comparisons or sitting through a review, one bank might actually value your property slightly higher than another one. So what that means is if we analyse your equity and there is a discrepancy there, there might be a bank out there who could lend you a bit more money and help you get past that.

Another thing to address is lenders. Some lenders will have certain lending restrictions on clients or property types. It's another important thing to review and sit down and see if there are options out there for you. Some of those options might include non-bank lenders who sometimes can be quite expensive, so depending on your personal situation and your goals, we'll be able to provide all those options for you and you can make the call.

What is cross securitisation and does it affect me?

Now, there's a couple of urban legends around cross securitisation and whether or not it's actually important, the correct answer to this is it totally depends on your personal situation. Cross securitisation refers to having multiple properties at one lender. So for example, let's say you had your family home worth a million dollars. You used your equity to purchase an investment property. Now both of your mortgages will be cross secured with both properties, meaning they're all mixed together, even though there might be two distinct separate loans or two entities, for example.

Your personal names and a company that you own the rental property in. You might assume the bank has done it separately, but a hundred percent of the time, or 99% of the time it's not the case unless you specifically ask them not to. But regardless, they always do. So your property will be cross secured unless there are multiple applicants, in each particular loan application.

Then they'll be separate. How could this affect you? The real issue with cross securitisation is if you want to sell one of your properties, the bank can use that as an opportunity to review the remaining lending that will be in your property.

So, for example, you wanna sell your investment property. You still owe 700 grand on your family home, but you're expecting to sell your rental property and take the profit that you've made on that mortgage. Once you sell it, you expect just to pay down the mortgage of the investment property. But if you're no longer working.

Or if your LVR position is not strong, the bank may ask you to use your proceeds from the sale to actually pay down some of your family home debt. So this is really the concerning part across securitisation and where it can mess up your plans or your property investment plans. There's a couple ways to get around this and

the easiest way to solve this is with split banking, so having your mortgages and properties at different banks topping up on the family home at one bank, and taking that deposit to a new bank and using that to buy your rental property.

What this means is when you sell your rental property. That bank will only have claim to that mortgage on the rental property versus your family home, which is now another bank, and will not be affected by that transaction. That is how to solve the cross securitisation issue.

Now, it's not always an issue. For example, if you're a young family that's building their property portfolio. You're earning good income and you can't see that changing for quite some time. There's not really any reason to split bank unless you think in the future you might, your income might go down or your situation might change, and you might in the future, fail the servicing requirements to keep the proceeds of a property.

So if that's the case, cross securitisation could be good. But if you don't see that being an issue, then having all your properties at one bank can sometimes be a benefit. You're a bigger customer to the bank. You have more leeway in terms of negotiating, maybe bigger cash retention, cash backs, or better interest rates.

So that can be a positive to having all your lending at one bank. Also with cross securitisation, you know, some people like the fact that their family home might not. Be leveraged on. So for example, you know, you've got your banking at one bank, but the, the family homes paid off. It has a very small mortgage on it, and then all the investment lendings at a different bank.

So some people really like that position 'cause it means that their family home is not up for grabs, by the lender, if something bad was to happen to them. That is a good position, but it's also a disadvantage if you're looking to continue to grow because it means that you can't access the equity in your family home.

So this is what I mean by cross securitisation isn't always a bad thing, but it depends on what your goals are and what you're trying to achieve.

Why should I review my property portfolio if I'm already cashflow positive?

Well, that's a great question. With a blueprint finance strategy session, the aim is to see if there's any way to improve our client's mortgage situation. That starts with a full review, analysing your existing mortgage structure, your equity and your property portfolio.

So undertaking that we review your full situation, look at your mortgages, and see if there's any potential way for us to add value or understand what your options are to purchase more property. Now, if you're not looking to purchase more property, that's totally fine. Addressing your mortgages. Even if your property portfolio is cashflow positive, there might be ways to

improve the cash flow by reducing your interest rates or restructuring. So that's worth a conversation, even if you're cashflow positive now, who says no to more money in the pocket? The second thing is if you wanna look at growing your portfolio and investing more so with the Blueprint Finance strategy session, we'll understand your equity position.

You're cashflow positive, but are there any ways that you can get pre-approved for your next rental? If that's not on the cards, that's totally fine, but if you wanna understand what your financial goals are and understand how many properties you need to reach your goals, then we can help you with that.

How is this review or this refinance gonna improve my tax efficiency or my tax structure?

Now I've gotta start with a massive disclosure. I'm not a tax agent. I can't give anyone tax advice. I'm a financial adviser and will only be giving our customers mortgage and investment advice.

So I really can't comment on this. But in general, what I can say is we always liaise with our clients accountants if they do have investment lending because it's very important to understand how the changes we're making to their mortgages are going to affect their financial position in the future.

So before we do anything, if our client's got an investment property, especially if they've got a company involved in the transaction, we're going to involve the accountant and make sure they're all across it. Often we receive advice from the accountant on how to structure the loan most effectively. So that collaboration is very important because it allows us opportunity to make sure everything that we're putting in place for our client is the right thing.

It's built to last and we're on track.

How do LVR loan to value ratio restrictions affect your property portfolio?

This is a great question and one of the most important things for property investors. LVR rules are set in place by the lenders, and they limit the amount of money that you can loan against the property.

Traditionally, the limits for this are 80% against your owner occupied house, and currently 70% against your investment property. Now, disclaimer, these are always changing and different lenders have different LVR restrictions. This can also change based on the property type. So for example, the RBNZ encourages customers to purchase new build properties.

So you can purchase a new build home with a 10% deposit for owner occupied and also a 10% deposit for an investment property. So there's a lot of flexibility in that regard, but the important thing to understand is that LVR positions are always changing. That's why a strategy session with a blueprint adviser, you'll be reviewing this.

You'll be understanding where you're at with your property and what LVRs you can lend up to. Or what limitations are in place. So for example, if you're looking to access equity to purchase another property, LVRs will be set in place on your property. And these will be different at each lender. The key reason they'll be different is because each lender values properties differently.

So once you've determined how much each lender is gonna lend against your property, you then need to understand the LVR restrictions. At some banks, especially non lenders, you can exceed standard LVR restrictions that have been set in place.

So for our investors who want to maximize their opportunities to purchase property, they might look at these sorts of opportunities with non-bank lenders or exceeding the LVR limits at their existing bank if they're allowed on certain products. When this happens, it allows us to access more equity for our customer, and then they can look at different types of opportunities.

This is always different per client and per property type that's involved in the transaction. So a review allows us to give a very specific recommendation on how much equity you can actually access and go from there. Generally, if you're borrowing more money against your property or you're exceeding the LVR restrictions, you might be charged a higher interest rate from a non-bank lender, or what's called a low equity margin.

So this is a fee that the banks put in place for you to borrow more against your property. Generally, it's added onto the interest rate. Sometimes it's a upfront fee, which is capitalised on the loan. With the add to the upfront interest rate, it could be anywhere from 0.3% to 0.15% with this loaning,

generally, if your property value increases over time or you reduce the debt on your mortgage, you can get the low equity margin removed. It's a handy tool that allows clients to get in with a lower deposit, even though I have to pay more upfront rather than having to save their deposit and wait in the future where property prices may then increase.

When should I use an interest only loan?

Interest only loans are very, very important and useful tool for our property investors. It can be used in multiple scenarios for investors, but sometimes it's important to note that it is also employed by owner occupied owners.

Some banks will allow you to go interest only to improve your cash flow for two to three years. Also, it's there in case you have a hardship event and you can't meet your principal and interest repayment. So keep that in your back of your mind, but your adviser will give you some advice on if it's realistic for you to have that on the family home.

Now, in terms of rental properties, nine times out of 10 our client's purchasing rental properties use interest only loans. The reason for this quick disclaimer, I'm not a tax adviser. I can't give tax advice, but there is some tax advantages to having your rental lending on interest only. It means you can prioritise your personal debt, your owner occupied debt, which is not tax deductible.

So that's the basic tax implications there. Now addressing the cash flow. It means you've got a smaller, fortnightly, weekly, or monthly payment for that mortgage, so it allows you to have less of a payment each month so you don't have to top up outta your personal income to cover that debt. Now some investors are in a great position where maybe they have smaller investment mortgages and high cash flow, so they're in a position to use the rental income to actually pay off the mortgages.

But most investors aren't, and the interest only allows them to maybe purchase one or two more properties than they could if all the lending had to be on principal and interest. It's a really, really important tool, especially if you are super long with your property Investment journey allows you to separate out your debts, like I said, personal lending and your investment lending, and prioritise the debt that's non-tax deductible.

Important to note that interest only is usually approved from a period from up to five to also 10 years. You can get 1, 2, 3 year interest only if you want, but the maximum at some banks is five years and 10 years at some other lenders. So once your interest only term is expired. You'll have to reapply, and this will be subject to your income versus expense test.

The serviceability test that we mentioned before, if you don't pass that test, you may not be reapproved for interest only. So it's important to factor that into your long term plan. If I don't get interest only approved in five years, is that going to be a problem? Should I maybe apply for the 10 year term now? Important to address these questions upfront, to set yourself up for long term success.

Is a property portfolio review suitable for self-employed borrowers?

The answer is absolutely. In fact, it's probably more effective for self-employed people because your lending applications are quite complex. Anyone who's self-employed who has been for a mortgage application before would understand that

there's a few more hoops to jump through than a standard PAYE application. You generally have to provide two years of business financials, or if you've only been operating for 12 months, you can provide 12 months of history and an accountant supporting forecast depending on your business and the industry you're in.

The application will be easier or harder. For example, if you're a skilled worker contractor, it's likely to be much easier and you might not have to provide as much history. If you work in a very niche industry, for example, you're an entertainer, or perhaps you are a property trader, you would have to provide quite extensive information to the bank for user servicing.

The portfolio review allows us to look at your property. And also understand the serviceability element and what needs to be done in that regard. Now, along with this, there may be some restrictions in terms of how much you can lend against the property based on your employment type.

If you're a self-employed borrower and you're based overseas, this will significantly reduce the amount that you can borrow against your property. There may be some lenders, particularly non-bank lenders who can lend a bit more against these types of borrowers, but this could be restrictive, so self-employed people,

it's really important to have a review, understand where you're at servicing wise, and what restrictions might lay in place for you as you continue to grow your portfolio.

If I only have one to two properties, is a property portfolio review suitable for me?

The answer is absolutely. In fact, we have property portfolio reviews with people who just have their family home. It's the most important part of understanding your investment options and beginning the journey.

For example, we need to understand from the get go what your long-term goal is. If you've got your family home now and you hope to have two or three rental properties by the time you retire, then we have to reverse engineer that and understand what your equity is now, what you need to do to get to that position.

This might require you to pay a bit more aggressively on your mortgage,

or you might have to refinance to another lender that has more suitable servicing requirements for your goals.

By putting this plan in place early on with our clients, we're able to establish a really good baseline for long-term growth. This is why we've had clients who are coming back year after year to help them grow their portfolio because we put the foundations in place early and allows us to foresee any restrictions.

For example, so many clients come to us after their second or third property and they say. I'm stuck. I've been told by the lender I can't go any further. Sometimes we have to actually sell one or two of their properties to set up their portfolio correctly. It all starts with asking the question, what are your actual goals?

What are you trying to achieve? Because any single financial goal can be tied to a certain property type and amount of properties or a yield goal. So many people will realise once they've bought their second or third properties, that they actually haven't put that plan in place and that's why they're stuck.

They have to go backwards or restructure their portfolio in order to be able to move forward or work towards the goal that they want. This is why it's really important to have your strategy session or your portfolio review early, understand what sort of roadblocks you're gonna run into, and what type of properties that you wanna buy out of everything.

The property type is probably the most important. You need to understand what that property looks like. How many bedrooms it has, what the rental yield of that property has, where it's located, all those kinds of things. Because if you get incredibly specific around the asset that you need to reach your financial goals, then you'll manifest that and the opportunity will eventually come to you and you'll be very confident to take it.

And once you purchase the property, regardless of what the market does, you're gonna feel great about that decision and you're gonna remind yourself why you bought it. Because every year you're getting closer towards your goal. This is really, really important part of property philosophy because what happens is often people can buy rental properties and then get some type of buyer's remorse, especially when interest rates increase.

So it's important to have the foundations in place that are gonna work for you in all markets and understanding, obviously, interest rates are gonna change, property values will change, but as long as you have the foundation set in there in place, you're gonna set yourself to be a a successful property investor.

So how much does a strategy session or a property portfolio review with a blueprint adviser actually cost?

This is the great question and I'm pleased to let you guys know it's completely free.

So when you engage us, we don't charge you any fees to have our strategy session. We take you through the process, we give you all the financial advice, and then in our nature and scope process, we'll clearly define the rules of engagement and outline our relationship from client to adviser. In this disclosure, we'll let you know how we get remunerated, and nine times out of 10 for our operation, we don't charge any fees.

Because the main lenders pay our commissions. In certain cases, we have to engage non-bank lenders for short-term solutions for our clients' mortgage goals. In these cases, you may be subject to a fee that will be disclosed before the application and will be disclosed before you finalize the loan. So in no case will any of our clients be charged a fee they're not aware of.

And like I said, nine times outta 10,always, if you're using the main banks, you'll will not be charged a fee to work with blueprint.