Finance - Understanding how to manage your money is critical
Understanding money management is critical whether you are an investor or you may have also a range of other investment holdings. The main principle that underpins effective management of 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 property investors should engage to make sure your investments are working hard for you and not the other way around.
Don’t cross-collateralise 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 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.
Offset accounts are your best friend.
Offset accounts are 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 cashbuffer 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.
Effective management of money is critical, so it’s important you regularly speak with your finance advisor not just about your property portfolio but your wider financial situation.