Forum Replies Created
Be careful with this – many lenders are heavily restricting cashouts so you may draw the funds out and find then that you can only work with <10% of lenders as the others won’t allow you to draw the funds back out due to the latest round of restrictions.
Best to speak with an investment focused broker who can determine whether you might cause any issue with this – it will largely depend on the details of your situation – I’ve got some clients who actively use this strategy in particular with very distressed/damaged property and then renovate/revalue and equity release.
Aside from that – 5.5% for a LOC on your PPOR is extortionate, you could alternatively get that down to ~3.7x% odd with a restructure/refi which will be well ahead of what most investment loans. (you mention 3.5% for an investment loan, obviously an example but you’ll be stretched to get any reasonable product near that rate and most close will mean you’re making sacrifices which will limit your ability to borrow again in the future etc)
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Interesting that they would be looking at Latrobe finanical. Do you have bad credit situation, ie something going on with your credit file?
Their borrowing capacity calculator is OKish but nowhere near the best and have significant costs – so I’d be curious how they fit the best.
Terry’s touched on some of the other considerations to make re; the lender.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
If the loan is structured as a owner occupied loan and that’s not your current and legal address they have something to argue in court.
Hmm – that is an interesting thought !! And things in contracts – would have to be quite new wouldn’t they, as it was only APRA swinging its bat that had the Banks charging more for IP loans. All something to do with getting total IP loans below some percentage of all loans (was it 30%?).
So now, if I am a Bank, and you buy a property to live in, then you are charged at Home Loan (lower) rate. Cool – but then you change your mind and make it an IP. I doubt the Bank would worry as your loan is “making up numbers” on the Homeowner side. That means the Bank may be able to make another IP loan to someone else without flopping over that 30% mark perhaps. Your loan is therefore in the “goodness” pile. You are helping the Bank !! :)
I’m also picking they wouldn’t be chasing you. But then, I havent seen any new contracts written since that change earlier this year – are there any clauses in there re this? Ones that could bite?
I dunno…..
BennyJust a quick one Benny – you’ve got the general right idea why banks aren’t too worried about this. (besides the fact it would be an immense adminstrative burden to keep trying to get the right ownership type up to date for millions upon millions of loans) But the 30% cap is for amount of new interest only loans being written, not investment loans in general. There’s also the 10% year on year growth cap on investment lending which lenders have to abide to.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Agree with Matty – Norlane, or even cheaper would be Corio. Geelong in general has a lot of options around the 400k mark and is incredibly popular with investors at this time. I think there’s a lot more value investors in Geelong compared to the alternatives ie Melton.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Generally not – valuers will generally disregard them on valuations too as there is no evidence to show they increase value. Pools are similar – they are highly subjective so they don’t necessarily increase the value of the property.
Renovating your bathroom on the other hand is generally a great way of increasing value in the property – just compare the costs vs what a property with a renovated bathroom is worth to make sure you don’t overcapitalise.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Corey out of curiosity what your debt to ownership ratio then?> LVR against your properties
Floating around circa 70% at the moment – generally the leverage stays at this point as I debt recycle to leverage equity into property deposits/shares. So long as there is a reasonable enough ROI I’ll keep doing so.
@corey Batt: Yup it works now, but I’m not sure how this relates to borrowing under a trust structure and going as guarantor. All this talks about is that you can increase your borrowing capacity by using different lenders. One of the graph is also confusing – says lender 1 $400,000 debt but the graph shows $800,000.
It’s about achieving the desired outcome – borrowing more/as much as you can. The old trust ‘loophole’ is dead – but you can still squeeze the capacity more by using the right lender approach whilst growing the initial portfolio.
re; the debt amount – as per the scenario you can see the borrower has a 400k existing PPOR mortgage + a 400k proposed IP loan = 800k.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Not too many FP’s up in Darwin! Haven’t met any of the guys up North who usually come down to Adelaide for most training events – but there is a couple kicking around.
One of my advisers Steve from our office is the SMSF whiz – with years under his belt as a CFP and previous accounting background. Feel free to send an email through if you’d like to have a chat: http://www.precisionpw.com.au
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
@david-thiu still works for me – maybe give it another try.
And yes correct, you can still increase your borrowing capacity structuring in this way, it’s all just a case of using a little foresight and planning to make sure you can eek out as much as possible.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Unless you have significant cash funds – start in residential and build your portfolio up there until your borrowing capacity is exhausted. From there you can expand into commercial which allows you to access alternative borrowing capacity calculations/products which will allow you to get yourself to the next level.
The general gist is to build your equity base in resi, then diversify into commercial whose deposits are leveraged from the residential IP’s.
If you’ve otherwise got a mil in cash and ready to invest – you might just want to jump straight into commercial.Hi Corey,
Is it much more difficult to grow equity in or release equity from commercial or both?
I am very new to commercial, ie started tracking the market actively for 2+ years only but did
notice many deals have been transacted at very low yield and/or strong growth compared to the last
transacted price for the same properties.
Thanks,
FXDI’d say it’s more the size of commercial property prices which is the issue. As per the previous post I wrote that it comes down to how much cash you have from day 1.
Many investors say that you generally don’t want to be going too much below $1mil for a reasonable commercial property otherwise you risk quality reduction in tenant/property – which at this level is needing 250-350k in deposit upfront which can be prohibitive for a lot of investors.
So in comparison an investor can work each year with their cash to building up a portfolio in residential lending – so the coupled growth and saving will get their portfolio and equity position up so they can leapfrog into commercial thereafter.
If you’ve otherwise got 500k from day 1 – it is a lot more viable to start getting into commercial.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Unless you have significant cash funds – start in residential and build your portfolio up there until your borrowing capacity is exhausted. From there you can expand into commercial which allows you to access alternative borrowing capacity calculations/products which will allow you to get yourself to the next level.
The general gist is to build your equity base in resi, then diversify into commercial whose deposits are leveraged from the residential IP’s.
If you’ve otherwise got a mil in cash and ready to invest – you might just want to jump straight into commercial.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
I’m assuming by ‘which SMSF do you use’ you’re talking about some of the cheapy no frills SMSF setup/admin companies which make their money getting commissions/bonuses from the limited range of products they recommend.
Generally for ease of use and greatest flexibility for investing having a specific setup of a SMSF if the best pathway – an accountant/lawyer can organise this. You’ll generally need to get financial advice on the specifics regarding this – especially if you want to invest in property/commercial property as lenders will put it in their requirements for settlement.
Just remember the important saying – pay peanuts, get monkeys.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Debbie,
There’s a few options – it really depends on your personal circumstances which is the best pathway.
The general gist is that lenders insure their loans against default via LMI – when over 80% they require you to pay the fee. Some lenders in the market are aware that defaults exist and the like and want to cater to that market and so will instead self-insure their loans instead of requiring a third party insurance company.
What this means is that so long as the lender is fine with the deal they will approve it, instead of requiring another party (the insurer) to also approve it, which they will be hesitant to do unless its all squeaky clean.
If you otherwise want to know more about your specific circumstances just flick me an email/give a call and we can go from there.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Good thinking – let us know how you go!
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks Corey, very interesting.
It will be a PPoR at the time of purchase, but it is ultimately an investment and I will be looking to add value and/or refinance in the future to fund my second property (which will ultimately be another investment).
I understand the concepts of offsets/redraws, P&I, split loans, etc. – what other features or types of loans should I need to be considering in my research?
Thanks againThat helps.
Re; the offsets, repayment types etc – that’s all pretty basic features that just about all lenders offer- which isn’t what you want to try to compare (because face it, they all offer it- it’s not a point of difference).
The key is to compare based on lender lending policies – by using the right lenders at the right time you can significantly extend your ability to borrow to invest, release equity etc. Not all lenders were created equal and you can find yourself backed into a corner by using the wrong lender when it comes time to releasing equity, buying further property, changing repayment types etc. I’ve written a bit about this here: http://www.precisionfunding.com.au/diversified-lending-structure/
If you do it right – you should be able to still have a competitive interest rate with an investor friendly lender which will allow you to be able to draw equity from any renovation gains, borrow further and be able debt recycle etc in the future should you wish without having to pay refinance constantly/pay excessive fees over the long term.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hey Jayden,
Stepping back a bit – choosing the right loan is dependent on the property you’re looking to buy, the strategy for it and your greater long term plans.
You’ve said this is for an owner occupier loan – are you looking to invest in the future? Turn this property in the future as an investment property? Renovate, develop – anything out of the norm?
These variable highly influence what is the right pathway for getting the right finance structure. There’s no point just looking at the interest rate – as that’s only one factor of a loan. Otherwise its like picking a car purely based on the cost – you might end up with a Hyundai Getz when you need something to tow a boat!
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Good work – ticks all the boxes. Was the multi a REIT or something along those lines? I similarly had a client get a steal of a deal from a ASX200 company which was offloading assets in bulk a few years ago – amazing what slips through the cracks.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Nice Marissa – what is the remaining lease term on the property? Is it a single tenancy or multi?
I’d assume bio-medical would have pretty extensive fitouts/planning permit requirements so should be a stickier than average tenant for lease renewals?
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
HTW are one of the major players in property valuations – you’ll find that valuers valuation results are usually conservative more than anything so take this as a positive sign.
The Corelogic information on the other hand would have been a computer result which are nowhere near as accurate and generally lenders will only use these for valuation purposes at lower LVR’s (generally 80% LVR maximum).
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
@terryw: Thanks for the clarification. I just didn’t understand how an entity could borrow money without proving any source of income.
@jaxon: My goal is to make +$500 positive cashflow per week, and I’m thinking maybe this could be achieved by finding 10 properties yield $50 positive cash flow per week. Maybe renovate and increase the rent? I’m not really sure, but I’m open to suggestions on how this could be achieved.
@corey Batt: Are there any lenders out there that don’t require you to disclose any loans you are Guaranteeing or is it mandatory by law now?Everyone asks it. Not only because this loophole (it really wasnt one, specific lenders had very specific policies permitting it under certain circumstances) has closed and there’s a standardisation of input of data through a third party channel for most institutions – it’s being asked and to not note it is mortgage fraud.
Lenders are digging into credit hits on your file from 5 years ago now – they will certainly ask questions even if you don’t disclose them.
In reality with the right structuring using the right lenders at the right time you can still achieve quite a reasonable size portfolio – I’ve written about this previously here: http://www.precisionfunding.com.au/diversified-lending-structure/
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks for that Jamie, Ill have to speak to my solicitor as well to see what he is able to put in writing.
With thanks, BenLet us know how you go Ben – I find a lot of agents/vendors aren’t that keen on access prior to settlement. Unconditional offers with an OK deposit will calm the nerves of some, but it still comes down to the other side what they’ll accept. Good luck!
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
