How to Avoid a Mortgagee Sale on Your Investment Property

How to Avoid a Mortgagee Sale on Your Investment Property 

Many people wish to own an investment property, however very few people have the liquidity of cash to buy a property outright, so having a mortgage is one of the best ways of owning an investment property in New Zealand, many banks prefer dealing with investors. Low-interest rates make it viable to grow your property portfolio by accumulating capital through mortgage facilities. Apart from the asset securing itself, you’ll accumulate equity rapidly through the income earned. However, poor planning can land you on the mortgagee sales list. 

You will drop from being a property mogul to pauper if you don’t follow these steps to protect your investment property

Thoroughly Assess Your Ability to Repay Each Mortgage Application. 

Before you apply for any mortgage facility, have a sit down with a mortgage broker, a lawyer, and your accountant. The mortgage broker will help you understand existing deals, the banks or lenders and which one will give you the best deal. 

Your accountant will be there to advise you on your financial capabilities. 

Assess your ability to repay each mortgage independently. 

If your accountant gives you a green light on the cash flow, you can move ahead and begin the mortgage process

Prepare a Robust Business Plan 

Whereas real estate is a lucrative business in strong mortgage markets like Auckland, unless you have a robust business plan, you have no business doing business. Otherwise, you’ll find your properties on the mortgagee sales list faster than the fall of giant construction companies in New Zealand  

Your plan must address the following questions: 

  • What is the business all about? What are the mission and vision? 
  • Why are you in this particular business? What’s your motivation and what are your goals? 
  • Have you carefully crafted plans of how to make the business succeed? 
  • What types of properties do you plan to invest in? In which locations? And how will you make money from your investments? 
  • How much income do you expect to earn from your investment? 
  • What risks do you face and how will you mitigate them? 
  • Who are your competitors? 
  • What are your strengths and how will you leverage them? 

Make sure you answer each question thoroughly and get a professional to help you figure out how to answer

Leaving out Some ExpensesCould Put You on the Mortgagee Sale List 

When paying off a mortgage, it’s easy to emphasize on the monthly repayment figure and leave out other, relatively smaller expenses, from your list of costs. 

Remember, it’s the little foxes that destroy the vineyard. 

Overlooking smaller costs such as regular repairs and insurance eat into your principal. If you don’t minimize these costs or include them in your calculations the home could end up in the mortgagee sales list

Plan for Low Rental Seasons and Vacant Periods  

Just like any other business, real estate also experiences high seasons and low seasons. However, vacant periods are more common in real-estate. 

If you are buying the home to rent it out, you will experience periods when the home is unoccupied. This often happens when one tenant vacates and you have to keep the home vacant for a while as you perform renovations, and while you await a new tenant to show up. 

During the ‘vacant period,’ the bank or lender will still expect full mortgage payments. 

It’s up to you to plan how you will make the payment despite not having a paying tenant on the property. 

Finally, Consider Inflation 

Whether it’s a fixed-rate or a floating-rate mortgage, lenders keep reviewing the interest rate because of inflation or different factors. 

The question you should ask yourself is, do you review the rent charged in line with inflationary forces? 

If you don’t, your investments could be costing you more than what you are earning from them. 

Such an imbalance will lead to the mortgagee sales list. 

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