Which property is the hardest to add to a portfolio?  Is it the first, the second or are they all hard?  Does it get any easier.  We talk to Chris Christofi about that and he has some good advice for anyone wanting to start out and what to consider at all levels of your investment journey.
Transcript:
Kevin Turner:   One thing I do know about investment property is that the landscape changes all the time. Only look at what’s happening with the banks, with the lending criteria, with the value of property and sometimes people really struggle with their first property. That’s what I want to focus on in this interview, but I also want to talk about growing your portfolio and reviewing it. I’m talking now with Chris Christofi from Reventon and they are an investment and financial services company.
Kevin Turner:   Chris thank you very much for your time.
Chris Christofi:   Thank you very much Kevin for having me on your show.
Kevin Turner:   Chris, I want to ask you about the first property. I know in a conversation you and I had off-air that you say that the first property is the most important. Why is that? Is it because it’s the learning experience?
Chris Christofi:   Well look, it’s like with anything, the first property … determining you don’t get into too much debt, and making sure that you borrow the right amount of money, will enable you to get into the property market sooner thereafter. So what a lot of people traditionally do is they go the bank, the bank says, “You can borrow 600,000.” They’ll look for a property around about 600,000, and they go purchase that property. What a better way to be doing it is saying what you can afford. In a case of 600,000, you might be able to afford a $400,000 property, which means your repayments will be a lot more affordable. You can afford interest rates to go up, and if the property’s not tenanted 52 weeks of the year, which is not always the case, you can afford those things, and I can have some safety nets and buffers, which means it’s a safer investment.
Kevin Turner:   Yeah, but Chris, isn’t that the job of the bank, or the broker I’m dealing with to assess my ability to pay that back?
Chris Christofi:   The broker, yes, but they’re going to tell you what your maximum borrowing capacity is, they’re not going to tell you what you’re comfortable to borrow, and what it’s safe for you to borrow. That’s for you to ascertain or dealing with a good broker that’s going to work on the same path as you.
Kevin Turner:   Should you, therefore, be consulting maybe with an accountant before you do it?
Chris Christofi:   Well, not an accountant. A good mortgage broker can give you that information, but traditionally, people like to go to a bank. Now, a lot of people are using mortgage brokers now, but they won’t be asking the right questions when they go into a broker. “What can I borrow and how much would my repayments be? So if I was to borrow 600,000, what would my repayments be?” Now, a broker will not be able to give you the exact repayments without knowing how much rent will come in. They can give you an estimate. But without having all that information, he can’t tell you. “literally it’s going to cost you X per week to maintain this investment property.”
Kevin Turner:   Okay, so that sounds quite confusing. Is there one place we can go to that can help us with all that information? Sit down and have a look at our financial situation?
Chris Christofi:   100%. Reventon, which is a company I established in 2005, and we’ve spoken to over 10,000 people and placed 3,000 Australians into investment properties. We sit down and we go through that process over four, five stages. Before we even look at property, we work out exactly what your borrowing capacity is, exactly how much it’s safe for you to borrow, and more importantly, what you’re comfortable with borrowing, because that’s even more important than actually what you’re looking at buying.
Kevin Turner:   Yeah, because I can see here, Chris, that many people would think, “Oh, well I want to get an investment property.” They go out and start looking for it first, it’s almost like putting the cart before the horse. Do your homework first, so you can then go and find a property you want and you can then move on it.
Chris Christofi:   I can’t tell you how many times, Kevin, I’ve seen it in the reverse order to what it should be done. Looking at property, this is how much I can borrow. Let’s work out what it’s safe for you to borrow, what you can afford before we even talk about property. And that’s the exact process that we do it in.
Kevin Turner:   Let’s talk about the banks for a moment, Chris, if I could. They’ve been in a lot of hot water recently. What are the banks looking for in terms of lending to investors today? How tough is it?
Chris Christofi:   Well, the LVR’s have changed, obviously, because the bank’s loan book was very heavily weighted towards investments, and now they’ve wanted to make that a little bit tougher and put it towards owner-occupied properties, which means they’re making the lending a lot tougher. As you saw, ANZ and Westpac put their interest rates up, which is something that you’re going to see a little bit more of, I do believe, just so they can slow the lending down. The reason that they’re actually making you put more deposit is because they want to control the lending and to make it safer. And to get people putting more deposit down, which means they have more skin in the game in property.
Kevin Turner:   Yeah, it always amazes me how we’re so obsessed about following what the RBA does in terms of rates. What’s more important is what the banks are doing, and we’re now seeing them exercising these levers, which is going to make it more expensive for us to get mortgages, forgetting what the RBA might do.
Chris Christofi:   I agree, but I’m actually quite happy about that, to be honest, because it actually eliminates the people in the market that I think shouldn’t be in the market, and that are over-leveraging. And I think that’s a very, very good sign, and it’s actually very good for buyers in general. You shouldn’t be over-leveraging, and you shouldn’t be borrowing to your maximum affordability, because you don’t know what’s going to happen in the marketplace, you don’t know if your property’s going to be rented 52 weeks of the year. You don’t know how interest rates are going to be affected. So I think that’s a very good thing, in my opinion.
Kevin Turner:   Yeah, fair enough. Okay. It’s good to hear that side of it as well. I guess that’s a very conservative view. Many people would say that they’re risk takers, and they’re going to borrow as much as they can. But what I’m hearing from you is that this may not be then environment to do that, Chris.
Chris Christofi:   No, because … I definitely agree it’s not the environment to do that, but in all my experience, which is since 1999, so 20 years in the property market, the ones that come back and the distressed sellers in almost 80, 90% of the cases, are the ones that have over-leveraged or have got wrong information. So if you eliminate that element and make sure you can have a big deposit and you have a good buffer zone and safety nets in place, that will mitigate that number, or reduce that number exponentially. Which I think, from where I’m sitting, might not be good from a sales point of view or a business point of view, but I definitely think it’s good from a consumer’s point of view, which is what’s more important to me.
Kevin Turner:   Yeah, very good and wise words there, Chris. Thank you very much.
Kevin Turner:   Chris Christofi is from Reventon, R-E-V-E-N-T-O-N.com.au. Check it out for yourself.
Kevin Turner:   Chris, thanks so much for your time, mate.
Chris Christofi:   Thank you very much for having me, Kevin.