Banks can get a bad rap. Particularly when they boost borrowing costs, like they have since the Reserve Bank began its own interest rate hike campaign earlier in 2022. But for the smart investor the bank can be the best investment partner they’ll find.
There are also sorts of investment partnerships out there, from angel investors, start-up investors, joint venture arrangements and private lenders. But the banks, despite their public scrutiny, don’t have the typical parameters found in your average investment partnership. They’re even less greedy than you think and can be the best investment partner you’ll ever find.
Most property investors need the bank to fund their property purchase. More than two-thirds of Australian homes are mortgaged, according to the Australian Bureau of Statistics’ 2021 census, and this of course doesn’t account for the significant number of commercial property assets that are encumbered by a commercial loan arrangement. Owning these pricey assets would be near-impossible for most buyers if it weren’t for the banks. But it’s also the position the bank takes as a partner that is so brilliant.
The banks might just be the best investment partner for any property investor. Don’t believe us? We think you will after reading the below.
Why banks are the best investment partner you’ll find
1. Banks take no part in the decision-making process
The banks don’t restrict your flexibility or take any part of the decision-making process when you buy a property. Yes, they will ensure there are no caveats or other encumbrances on the property title. And there are certain boxes to be checked before they’ll join you in buying the property (i.e. apartments need to above a certain size for some banks to lend money against them). But they aren’t nagging you to find a property with a bigger bedroom or an industrial space that has a prettier façade.
This means you have the autonomy to chase opportunities without the ball and chain of a high-maintenance investor.
2. Banks allow profit from day one
Because banks stagger repayments and charge a relatively consistent interest rate (particularly if you choose a fixed rate loan), you can earn a profit from day one. You’re not obligated to repay them with the first chunk of profits you receive from your investment property.
Sure, the banks charge interest. Which is why – if your investment goal involves positive cash flow – you should perhaps ensure your yields are higher than the interest rate you’re being charged.
Investing in commercial property, for example, usually provides these high yields. While Australia’s current interest rate environment is offering interest rates of around 5 per cent, the country’s commercial property investment market is offering annual yields of around 7 per cent (and higher if the asset is purchased well). This is also far higher when considering 5-year average annual returns can be in the ballpark of 12 per cent or more.
The banks take their 4 to 5 per cent. And you keep the remaining 2 per cent to 7 per cent.
3. Banks take none of the capital gains
Banks don’t dilute your total return by taking your capital gain. They take none of the profit earned from the sale of the asset. They simply want to reclaim the principle amount they’ve lent you.
There are benefits and risks for each type of investment partnership. But saying, “I don’t want to owe someone money” should be a sentiment left in the wind when there are great property investment opportunities to be found thanks to your devoted investment partner – the bank.
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Properties & Pathways is a dynamic Australian property investment company. Our completed syndicates have provided investors an average annualised return of 21.97%. For more information on how you can invest alongside us, get in touch today.