Securing debt as a property investor

Aside from his father, who has spent nearly six decades as an accountant, he also teamed up with property professional Munzurul Khan, who he went on to establish a business with. After a year and a half, his income has gone up and his portfolio has already grown to 15 properties, with a few assets coming off from building.

Still, even though finances have become less of a struggle for him, he believes that one always has to work hard in order to achieve his goals.

 Managing finances

As an accountant and a property investor, Jeremy understands the importance of the proper management of finances in order to ensure serviceability. Securing debt has always been a huge point of conversation in the property investment landscape, but as Jeremy reviews people’s finances over time, one of the patterns he notices seems to be contradicting the aim to budget wisely.

He shared: “During times of huge equity increases, I see some people live a little bit above their means.”

“What I'm seeing … is as these equities increase so much over the last three or four years, I've seen them move [from] where they had a lot of good debt into [accruing] a lot of bad debt … or stupid debt,” Jeremy added.

Many homeowners tend to buy luxury items that eventually depreciates in value, like a car, and use the equity from their house because the interest rates for it would be a lot cheaper compared to other finance facilities. While it’s not necessarily irresponsible to use the increase in equity in properties to buy something, one must always be careful about where they put their money into.

At the end of the day, success in property investment lies not in being totally debt-averse but in knowing the difference between good debt and bad debt.

According to Jeremy: “Everyone feels quite rich because … you look at the house value, it's gone from… [a] modest $700,000 … to $1.4 million. [However], the debt hasn't changed—if anything, it has gone up.”

“Interest rates have come down obviously during that time and repayments have come down and people feel like there is a bit more cash to throw around. They don't feel as much strain or pain as they did.

“I've been really trying to communicate with clients that … [at this point], it's a time to expand. Count the chickens and maybe try and get a couple more,” he explained further.

There’s nothing wrong with rewarding yourself after years of hard work as an investor, but the current condition of several property markets requires more caution than ever before. Property prices in Sydney have come down to 1.3 per cent on average and some areas have gone even lower.

Jeremy said: “This little bit of decline that comes through … [People must] understand that [market] cycle, as it has gone up, it will [also] come down."

“It may not be that way forever … [but] when it does come time to [refinance] their own home, with all these upper changes that have come in and the serviceability calculators becoming tougher and harder, that's when we start to see a lot of … negative things,” he added.

His advice for property investors: While there’s nothing wrong with giving in to life’s pleasures from time to time, as much as possible, make it a point to secure debt against investments that will return some form of income.

Tune in to Jeremy Iannuzzelli’s episode on The Smart Property Investment Show to know more about the key cities which he has seen grow and decline over the last few years and where he sees these cities going in the future.