Using Equity for Positive Cash Flow Property

Viewing 5 posts - 1 through 5 (of 5 total)

safeashouses
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@safeashouses
Join Date: 2005
Post Count: 41
February 27, 2007 - 11:54 am
I have the chance to buy a +CF investment property, but to do it I would have to finance the deposit +cl costs with the home equity. Then the equity pot is almost full (65%). This would seem to restrict my capacity to finance any further properties. Would it help my borrowing capacity if i had a slightly cf+ property?
thomas
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
February 27, 2007 - 12:51 pm
Hi Thomas
Lenders generally only take into account 70-80% of the rental income, so having a postive cashflow property may not increase your serviceability, but decrease it, depending on how much the rent is.
Whether it is a good investment is a different matter.
Terryw
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safeashouses
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@safeashouses
Join Date: 2005
Post Count: 41
February 28, 2007 - 12:13 pm
Funny how some financiers will only consider a portion of the rental income , even when the rental history (as well as good rental management) can show no vacancies in the last 4 years? Yet they will still lend to people under negative gearing (which is a loss!) on the assumption that there will be some majical capital growth!
It makres the novice investor wonder; how to start!
But we must continue on without fear.
thomas
Richard Taylor
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@qlds007
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Post Count: 12,024
February 28, 2007 - 1:50 pm
Thomas
I agree thats why several lenders take 100% of the rent into consideration.
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Richard Taylor
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Terryw
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@terryw
Join Date: 2001
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February 28, 2007 - 1:55 pm
Thomas,
they have to allow for costs as well – rates, insurances, management fees etc. These are usually around 20% of the rents all up.
And I don’t think lenders actually lend assuming their will be capital growth. They only base the servicability on current incomes. Future LVRs and Rents are not taken into account.
Terryw
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Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au