Why P+I repayments can be a good thing for investors

When it comes to structuring the finance needs of a portfolio building property investor, director of Get Real Finance Kelly Cameron says there are two things in particular that she does to help clients on their journey of acquisition.

MPA spoke with the Brisbane-based broker and property investor about the importance of understanding the client’s motivation and why she thinks making P+I repayments can be a good thing.

It takes one to know one

With a portfolio of 27 properties under her belt, Cameron is no stranger to investing. Since she has about 18 years of active experience in the property market, she knows how important it is to develop a clear understanding of why and how you want to invest.

This is something she always focuses on when helping investor clients with their finance needs.

“I try to understand why it is that they want to buy an investment,” she says.

Once she hears the client’s goals, she can use her own expertise and experience as a property investor to help her see the bigger picture.

Looking ahead

She says in order to successfully help property investors with finance you need to think of their long-term needs. It is also important to act in the best interest of the client – which can be a challenge if you think the client’s strategy may work against them.

“Brokers need to be careful. If they’re going to talk to investors about investment lending, they need to really understand what the client’s motivation is,” she says.

“You’ve got to be knowledgeable and suggest things to them – but you can’t give them advice.”

What the client needs to understand about property investing

Cameron says when helping an investor with finance, she always makes sure the client has an adequate understanding of the market before they jump in.

Anyone who wants to invest in property needs to have a good cash holding to help them deal with emergencies. For instance, even if an investor pauses their repayments throughout the current COVID-19 crisis, they still need to be able to cover all the other running costs of the property throughout periods of vacancy.

She says it’s also important to consider the client’s time horizon. For instance, a 50-year-old investor on a 30-year loan may not have made their money back by the time they hit 60 and this will impact their position and strategy if not taken into consideration.

“It’s really important that the clients understand rental properties,” she says.

“Unlike shares, the transaction costs of property are really quite high. I don’t want my client buying things that are going to give them negative equity in the future.”

Financing portfolio builders

When it comes to enabling portfolio builders enough mileage for their purchasing goals, she says she takes the following approach: “Don’t cross-securitise anything.”

She also says it can help if the client makes P+I repayments straight away where they can afford to from a cashflow perspective.

This may improve their serviceability while preventing against the unexpected trauma that can sometimes occur at the end of the interest-only period, when the client has to do a full credit application if they want to extend it.