Whether you’re strictly a property investor, or you have other investment holdings as well, understanding how to properly manage your money is crucial. The key principle that underpins effectively managing your money is making sure that once you’ve worked hard to earn your money that you put it to work for you.
Here are three finance hacks every property investor should know to make sure your investments are working hard for you and not the other way around.
Don’t cross-collateralise your loans.
If you have a number of investment properties through one lender, the loans on these properties may have been cross-collateralised to help secure the mortgage on your next property. Sure, this can be powerful in helping you to grow your portfolio, but if you sell a property, your lender may need you to pay down the debt on your other properties to balance your Loan to Value Ratios.
To avoid a scenario where your mortgages are cross- collateralised, try going to different lenders for each property transaction or be specific with your lender about making sure your loans aren’t cross- collateralised.
An offset account is your best friend.
Having an offset account is a great tool for reducing the interest on your loan and keeping funds in a separate account for tax efficiency.
With an offset account, you don’t earn interest on your savings, but the balance is deducted from your loan balance.
This reduction in your loan balance results in a decrease in the interest you need to pay on your loan. Over the life of your loan, the decreased interest can add up.
Cash buffers are essential.
This is an important one even if you’re not a property investor, but it’s especially important to make sure you don’t end up financially strapped if an emergency arises. Build up and keep a cash buffer to cover any unexpected expenses that may need to be covered for your properties.
A solid cash buffer will mean you have the money available, if needed, to cover unexpected expenses without using your savings or needing to refinance your property. The amount you want to keep aside in a cash buffer will vary based on your situation. Talk to your accountant to review the outgoings on your property and rental yield to determine the minimum and ideal amounts of cash you should have set aside.
Effectively managing your money is crucial, so it’s important you regularly speak with your trusted advisor not just about your property portfolio but your wider financial situation. This will help to make sure you’re building sustainable long-term wealth and have the means to weather any financial storms with ease.