Common roadblocks to converting more pre-approvals

It is important to understand a few key elements that make up the investor psyche. After nearly 10 years of helping clients to invest strategically in property, I can put it down to four main concerns or fears that prevent people from taking action and pursuing their pre-approved loans: misunderstanding cash flow, concern over the performance, ongoing management of the investment and perhaps most importantly, the motivation or their ‘why’.

Obviously some of this is outside the scope of the normal advice a mortgage adviser can or should provide, but being aware of how to handle these common roadblocks might just be the key to unlocking more conversions.

1. The ‘why’

This is the reason for the interest in investment, and it will also provide the motivation to get the purchase done. It may include such things as investing to grow a deposit for an owner-occupier home, creating wealth for retirement or generating extra income so they can work part-time. This is the harder of the four to control or influence as it is the most personal, but it is very important from the outset to determine if the ‘why’ is going to be strong enough for an investor to actually complete a transaction. Asking some key questions in the initial meeting such as ‘What are you trying to accomplish in acquiring an investment property?’, ‘How will it change your lifestyle?’ or ‘What are your concerns or fears?’ can save you time in the long run by uncovering any objections or roadblocks early. You may find yourself getting better at qualifying clients so you can move on to spend more time with clients who have a stronger ‘why’.

2. Cash flow

Some people may think they are going to need to live on beans and rice to afford the running costs of an investment property. However, if they are earning a reasonable income in today’s low interest rate environment, buying a relatively new property with a rental yield around 5 per cent and moderate expenses (such as body corporate and management fees), an investor might be surprised to find that the cash flow after tax is actually positive. The problem is most people who are new to investing don’t understand the various expenses of the investment other than the interest repayments, and how the tenant and the taxman can cover these costs. There is some powerful and easy to use software that, combined with a tax adviser, can help to clarify the income and expenses relationship, and show how the investment is funded by means other than a salary. Having an accountant who is familiar and pro-property in your extended team will be a great asset to getting clients comfortable with cash flow.

3. Performance

As we all know, not all property is created equal, but there are basic fundamentals you can look for to ensure consistent and stable growth. At Sound Property, we use our 15 Key Investment Drivers as a minimum. Stick to capital cities or economically diverse areas, away from large developments and oversupplied areas. Don’t chase fads such as mining towns and ‘cheap’ areas. It is not the mortgage adviser’s role to be picking the next hotspot, but having someone in the extended team who has a national understanding of the various property markets and such things as supply and demand, vacancy rates, economic activity and demographics will reduce risk and provide the peace of mind that the investment will not be a lemon.

4. Management

It may be more comfortable for a client to purchase an investment in their own street or suburb so they can drive past it every day and tend to it, but this might not result in the best performance of the investment over time if their area does not exhibit the key investment drivers mentioned above. Where you want to live is not necessarily where you want to be investing. It should be viewed as a commercial transaction, and as such, you get the best professionals to look after it. Yes, this will cost them money, but sometimes you need to spend money to make money. Someone who is reluctant to spend money on a good property manager is probably not going to cut it as an investor, as they will not have the right mindset. Insurance policies such as landlords insurance protects against any tenant-related issues, and building or strata insurance will cover the building structure. All these running costs can be added to the cash flow projection ahead of purchasing so there are no surprises.

Purchasing an investment property can be a daunting process and often takes the new investor outside their comfort zone. This is the reason why only a small percentage of the population own more than one property. The mortgage adviser is usually the first port of call, as the right finance forms the foundation of any successful investment. In our experience, employing a holistic approach to mortgage advising and leveraging off a team of experts will help clients through the investment process and in turn convert more leads.

Andrew Cull

Andrew Cull is the director and founder of Sound Property Group, a property investment and education company that sources strategic real estate investments tailored to client’s individual needs. He has had a decade of experience in the real estate industry and has a wealth of knowledge to share. His Professional Services Program was created to help diversify and add value to the mortgage adviser’s client offering by having an end-to-end property investment solution. He has been involved in hundreds of successful property transactions with clients, and has developed innovative systems to ensure clients take action and secure property that provides for their tomorrow.