Loan pre-approvals by banks can be confusing. They aren't a rubber stamp to buy whatever you want, but some buyers are being a little too cautious.
What not to buy
A great piece in yesterday’s Age by Simon Johanson reveals the types of properties our big four banks are unwilling to lend against. It should be required reading for any would-be investor. The blacklist includes:
- All National Rental Affordability Scheme rentals
- Serviced apartments
- Student accommodation
- Inner city high rise apartments
- Cottages on the coast west of Melbourne
- A Melbourne Flinders Street office building converted to one bedroom units, where the bedroom had no windows!
- A Melbourne King Street development, due to poor location. (You think?)
These blacklisted projects can be found in Victoria, News South Wales, ACT and Queensland.
I love the understated implication of the following quote from a bank’s report about one Queensland project that was rejected: “there are concerns that the developer may not be able to complete the project, which may impact on the saleability of existing homes.”
If the banks are wary of committing to a property despite the 20 per cent drop price buffer they provide for themselves by restricting lending to a loan-to-value ratio of 80 per cent, then so should you.
Of course, just because the banks will lend you the money for a property, that doesn’t mean it will be a good investment prospect. The banks’ principal concern is getting their money back should you default on the loan. As an investor, that is no sort of target.
Your aim should be to double your money every seven-to-ten years and achieve a moderate market rent. To do this, stick to established property 2-to12 kilometres in our larger capital cities or 2-to-5 kilometres in the smaller capitals. Invest only in older style houses or apartment blocks on the best streets that are well served by transport and other amenities. Apartments must not be compromised in terms of outlook or security and must have dedicated off-street parking.
These types of properties generally represent less than five per cent of the stock on sale at any one time. With those odds, engaging an experienced and wholly independent property advisor remains the safest route for investment success.