Good people,
What figure will banks accept you putting in your DSR ratio for rental income? Just yearly rent? or do you also include tax back on your expenses? How about tax back claimed on depreciation? It makes a BIG difference. I’d realy appreciate some feedback on this.
Thanks
Cabo Wabo
Cabo
Yes dependant on the rental income assessment can make a big difference in increasing your borrowing capacity.
Most lenders accept between 75-80% of the rental income you receive however in saying that certain lenders take 100% of the rent you receive on properties which they dont take as security.
Also the negative gearing impact makes a BIG diference as you state. Some lenders include just the interest loss others make an allowance for depreciation.
What I would suggest is to run your figures past an independant mortgage broker and see what they come up with. However remember whoever you use make sure that you structure that loan correctly as getting it wrong can be an expensive mistake inb the long run.
Cheers Richard
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Richard Taylor | Australia's leading private lender
It really depends. Usually banks take 70% of rental income. Some banks take into account negative gearing (from memory) NAB is one).
Usually they don’t inc. things like tax back from repairs, etc. Unless you make a special case to them (and you are a wealth indvidual that needs to save alot on tax).
Hellman
I believe it depends on the quality of the income stream.
I’ve seen big banks take a variety ;
1. 60% for residential tenants on a rolling monthly lease in a pretty dodgy suburb.
2. 80% for residential tenants on a fixed term 2 year lease in a top flight well to do suburb.
3. 100% for a national company locked into a fixed 5 year industrial lease with a strong track record at the site for the past 10 years.Banking personnel are usually reasonably accurate in their estimation of the quality of the income stream and set limits accordingly.
My Lender does not take into account tax refunds. Tax refunds don’t impress him that much, as it means on a cashflow basis you’re asset isn’t a real strong performer…they are interested in, and support things that actually make money.
most banks take 75 – 80 % as a given, some will do 100% if all properties are held by them (read mortgaged).
neg gearing is more and more common today – that is we can build it into the lending calculations.
But the ‘add back’ is only the interest costs – as you can imagine its way too hard to facilitate all the other crap that ‘happens’ during the year where as the interest cost is at least constant.
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker BrisbaneI’ve been crunching a lot of numbers lately, and i’ve found (unless i’m stuffing my numbers up), that, if i borrow the whole lot including trans costs, a 60-150k property will still loose me money before tax even if i charge 120pw for the 60K and 300pw for the 150K property.
If i buy right, my LVR won’t be the killer, it’ll be my DSR! As i’m still a relatively small time (new) investor compared to some of you old time higher rollers, I realy need to be able to include my tax back in my DSR in order to maintain momentum (claiming interest and other fixed costs)…. at least thats what i think at the moment anyway. Maybe you’ll think differently and convince me otherwise….
What banks do and what banks don’t include tax back in a DSR?
Thanks
Cabo Wabo
Soem lenders that will take negative gearling into account are:
Bankwest
St George
ANZTerryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Cabo why dont you post your numbers I’m sure you will get a more insightful response from some of the great brokers and others on the forum?
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