Business owners are often told the same thing when it comes to property finance: wait two years, improve the tax returns, then come back. In episode 109 of Finance This, Property That, powered by Stratega Finance, Dion Fernandes explains why that advice can sometimes be far too simplistic, particularly for self-employed borrowers who may have strong equity, assets and a clear investment strategy. Through several real client examples, Dion breaks down one of the most important principles in property finance: the order matters. The first example involves a self-employed client who owned a development site and wanted to move forward with a build. After speaking with three brokers and a bank, the advice was consistently the same: wait two years. The problem was that while they waited, construction costs continued to rise and the client's taxable income actually looked worse at the exact time they needed it to look stronger. Rather than focusing solely on income, Dion looked at the available equity in the land, the development costs, the expected exit and the overall funding stack. That meant understanding not only the build cost, but also the expenses that are often underestimated, including planning, surveys, engineering, civil works and headworks. By mapping out the exit first, then the costs and funding structure, the client was able to move forward without simply waiting for another two years of financials. Dion then explains another common structural mistake: offset versus redraw. While the two can appear similar when looking at a loan balance, they can have very different consequences when money is later used for investment purposes. Redrawing money from a loan can potentially change the purpose of that borrowing, which can create complications around loan tracing and deductibility. Keeping funds inside an offset account can often provide a cleaner separation, depending on the individual situation and loan structure. The bigger lesson is that the finance structure should be considered before the next property is purchased. For investors looking to grow a portfolio, Dion explains that buying the property should actually be step four, not step one. First, obtain a proper valuation on the existing property. Second, separate the available equity into its own loan facility. Third, determine the correct ownership structure, whether that is personal ownership, a trust, company or SMSF. Only then should the property search begin. Choosing the entity after signing a contract can significantly limit lending options and may be extremely difficult to reverse. The roadmap is simple: Exit, costs, funding, value, split, entity, then buy. For business owners who have been told to simply wait two years, the answer may not always be more income. Sometimes the answer is having the right finance strategy, structure and sequence in place. In This Episode Why business owners are often told to wait two yearsWhy taxable income does not always tell the full storyFunding a development using available equityWhy the exit strategy should be considered firstThe hidden costs involved in property developmentWhy planning, engineering and civil costs need to be factored in earlyUnderstanding the funding stack before construction beginsThe difference between offset and redrawWhy redraw can create complications for investment lendingHow loan purpose can affect deductibilityWhy keeping investment lending clean mattersWhy structure should come before the propertyThe four-step process before buying your next investmentWhy a proper valuation should come firstSeparating equity into its own loan facilityChoosing the ownership entity before signing a contractHow trusts, companies and SMSFs can affect lendingWhy investors should know their roadmap before they start lookingHow the right sequence can help business owners move soonerEpisode Breakdown 00:00 - Why “wait two years” is not always the answer 00:35 - Funding the build instead of focusing only on tax returns 01:10 - Using equity to structure the development 01:45 - The hidden costs people forget to allow for 02:15 - Exit, costs and the funding stack 02:40 - Offset versus redraw 03:15 - Why redraw can create problems later 03:50 - Keeping loan purpose clean and easy to trace 04:15 - Why the property should actually be step four 04:35 - Step one: value the existing property 04:50 - Step two: separate the available equity 05:05 - Step three: choose the correct ownership entity 05:30 - Step four: then start looking for the property 05:45 - Exit, costs, funding, value, split, entity, then buy The information provided in this podcast is general in nature and does not take into consideration your personal circumstances. Seek appropriate professional advice before making financial decisions. Learn more about Stratega Finance: www.strategafinance.com.au Follow Stratega Finance: @stratega.finance Connect with Dion Fernandes on LinkedIn.
