1. Fix your exposure
As an investor, you are subject to all sorts of management of a portfolio a little challenging while you wait for capital gain (if that’s your primary focus).
Vacancy, tenant issues and market competition affect your income, while council rates, managing agent fees, insurance, maintenance and interest costs all affect your expenses. All of this affects your bottom line. Among these factors, your interest bill is the only one you can readily influence and stabilise, which reduces the cash-flow volatility of your investment.
As an investor, it’s prudent to consider taking a fixed rate on your investment loans taking care to make sure:
- Your fixed term doesn’t excedd the period you expect to hold the property;
- There is enough capacity within the fixed-rate loan to accept extra payments you anticipate without penalty(assuming you don’t have any personal debt where that money could be put to better use);
- You do not deposit extra payments you may need to access during the fixed-rate period.
If you don’t have personal debt and you will make extra payments against your loan that you also want to access, work out how much those extra payments are likely to tally during share of your loan.
And when it comes to making comparisons between different deals, base them on the rate type for the larger split. For example, if you work out that 80% of your loan should be fixed rate term as this will most likely have the greatest cost impact over