All Topics / Finance / How much can I borrow?

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  • Profile photo of StreakerStreaker
    Participant
    @streaker
    Join Date: 2011
    Post Count: 24

    Hi All,

    I posted a similar question many moons ago, but just wondering if someone can give me an indication as to how much I can borrow now that my circumstances are a little clearer and those of the financial world are not…

    • Gross Income: $44k + Overtime ($5k-$10k)
    • No dependents
    • Genuine savings: $9k (will add my tax return to this, expecting at least $2k)
    • Minimal living expenses (I live in my parents house, taking care of the place while they work overseas, in lieu of rent)
    • Credit card limit: $2,000
    • Credit card balance: $0
    • Current IP: Valued at $209k about 18 months ago – based on similar properties listed in the area, it hasn't changed much from this. Leased (furnished) at $270p.w. Owing on loan: $114k with ANZ @ 6.35% (variable).

    I wasn't expecting to make a move so quickly, but a property has come up that I'm interested in purchasing as an IP in a regional city in NSW, listed at $265k, hoping I could get it around $250k – needs a little cosmetic work to add value down the track, but a tenant could probably move in from day 1 paying around $240-$260pw (or more) in its current condition.

    Just want to know how much I can borrow, NOT cross-collateral if possible. Ideally I'd like to keep as much of my savings available aside to make any minor cosmetic improvements.

    Many thanks in advance – if I've missed any necessary details, please just let me know.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Streaker

    Yep – on those numbers, a purchase of $265k is certainly possible.

    There's no reason why you'd have to cross collaterise – but the bank will no doubt tell you otherwise.

    Have you considered using equity for those renovations rather than your own cash?

    Instead, you can keep that cash tucked away in an offset account and treat it as an emergency fund.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    As Jamie has mentioned i cant see an issue with the 265K but i am not sure i would be putting any of your own cash fund in to fund the cosmetic renovation rather keep these up your sleeve for a potential PPOR down the track.

    Definately dont cross collateralise the 2 securities as your existing lender will love it. 

    Personally i think i would be looking to borrow to 80% of the existing security value to set yourself up correctly now ready for the next IP acqusition. Refinancing / restructuring will take a while to do it properly and you want to get yourself set up correctly both now and in the future.

    Cheers

    Yours in Finance

     

    Richard Taylor | Australia's leading private lender

    Profile photo of StreakerStreaker
    Participant
    @streaker
    Join Date: 2011
    Post Count: 24

    Thanks guys, much appreciated!!!

    I will go and see the bank this week to see what they think…

    Profile photo of StreakerStreaker
    Participant
    @streaker
    Join Date: 2011
    Post Count: 24

    One more question…

    Online Stamp Duty calculator is telling me I'll be up for about $8000 – is this correct?

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Tread carefully when dealing with the branch lender – chances are they won't have a clue about what it is you're trying to set-up. Some are good – but many aren't.

    Stamp duty is about right.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of StreakerStreaker
    Participant
    @streaker
    Join Date: 2011
    Post Count: 24

    Thanks Jamie – I'll suss them out… My previous experience has been pretty good, but if they tell me it can't be done or seem confused I will look elsewhere.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Streaker i promise you they will not tell you it cant be done just 101 reasons why you would want to not do it that way.

    Then they will tell you if you cross collateralise the securities they can give you an extra 0.0001 discount and all will be sweet.

    Just ask the lending manager you see how many IP's he owns as that will give you a clue of whether he has any idea?

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    Richard,

    I was wondering, do you by any chance have a “borrowing power” spreadsheet or similar you would be able to share with me? I was able to develop a relatively simple one which worked for me in my first purchase, but since then it has become a lot more complicated. So I thought I would see if you would have anything useful.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Streamline

    The problem is that the variance between lenders is so vast these days and there are so many variable within each lender that anything meaningful by way of a excel spreadsheet is going to inaccurate.

    As a rule of thumb if you take

    1) Your net income and add
    2) 80% of the gross rent on each investment property (include new IP to be purchased) and then subtract

    1) Your total monthly mortgage committments (including PPOR & IP loans)
    2) Any other monthly repayment due under any personal loan, leases etc 
    3) 3% of your total credit card limit.
    4) A living allowance based on the family number i.e single person say $1150 (couple say $1850 and then say $410 for each child)

    Divide the surplus figure by 7.35 and that will give you a very rough indication of the amount you can borrow. 

    As i say it is so inaccurate it is not funny especially where you have some negative gearing in there or similar.

    Lenders vary in the way they interpret everything from rental income to living allowance.

    Sorry not trying to be vague just it is not a matter of one formula fits all.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    Thats fine Richard, I thought that might be the case but I guess I was just hopeful.

    Seems like it is not really worth developing anything significant as it might not be effective anyway, and probably better off just approaching lenders and seeing what they will allow, I guess at the end of the day it is them you have to satisfy anyway.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Totally agree but be careful contacting a lender to ask them as i have seen it happen to so often.

    You make a quick enquiry on your serviceability and next thing they have undertaken a credit search.
    <edit>

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of StreakerStreaker
    Participant
    @streaker
    Join Date: 2011
    Post Count: 24

    Just to clarify, you guys would recommend taking out a LOC against my first IP, drawing out the money to pay for the deposit, stamp duty and any minor cosmetic changes on 2nd IP, with a new separate loan to finance the rest of the 2nd IP?

    As this is all deductible debt, is it worth putting my "rainy day" cash into an offset account?

    Many thanks again – finding this forum to be a very big pool of very valuable knowledge!

    Profile photo of sgoodessgoodes
    Member
    @sgoodes
    Join Date: 2012
    Post Count: 21

    Good luck. I earn $170,000 per year, have a small personal loan. $20,000 in savings but because I got nailed to the wall in my divorce and had to sell the house and walked out with nothing, I have no collateral. I have had 5 mortgages with CBA and a perfect credit history and the banks dont want to know me unless I meet stringent criteria with deposits. Im reluctant to hand over all my savings as we still need to live, pay rent etc so dont listen when they say "you shouldnt have a problem ".

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Streaker

    In essence you have it about right. I would suggest an equity loan if your current lender charge a higher interest rate on a line of credit. The purpose of the funds will be for investment and therefore deductible.

    Then make sure you use a separate lender for your IP's.

    The offset account should be linked to the non deductible portion of your PPOR loan.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Like Richard said – an equity loan (or interest only loan) will generally achieve the same result as a LOC, albeit at a lower rate.

    Do you really need to spend all of this time/effort trying to get up to speed with lender policy, products and structure?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of StreakerStreaker
    Participant
    @streaker
    Join Date: 2011
    Post Count: 24

    Hi Jamie,

    If I were in Canberra, I'd be coming to see you (or are we able to do all this via email???) – I think the mortgage broker who I got my first loan through has now gone on to do something else, and I haven't had a good experience with the few others in my area… So in the meantime I'm going to have to do a bit of leg-work – hence trying to arm myself with all this info so as not to be signed up to a structure that might cause me headaches in future.

    "Know the answer before you ask the question" as the old adage goes.

Viewing 17 posts - 1 through 17 (of 17 total)

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