All Topics / Finance / "Rent Reliant"

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  • Profile photo of KellieKellie
    Join Date: 2014
    Post Count: 6

    Hi All,

    With only six months to go study wise and the life goals all sorted, I am now getting my head around how I am going to finance all of my future plans! I came across the following information while reading about how banks assess loans for IP’s. I appreciate that rent reliance could be problematic if you had all your eggs in one basket, but with a balanced portfolio and average vacancies…Well, I fail to see reason for concern if the borrower still has a ‘good’ salary. Have any of you experienced investors ever come across this whilst obtaining finance? Merely curious.

    Below is an example of the “rent reliant applicant” policy of one of our lenders:
    “Where significant portion of borrower’s income is derived from rent and the proposal is heavily reliant on rent, the application may be considered too rent reliant.
    Level of gross rental accepted for servicing should not exceed:

    40% of gross salary or wage for incomes less than $60,000
    65% for incomes $60,000 – $100,000
    70% for incomes greater than $100,000″

    Profile photo of TerrywTerryw
    Join Date: 2001
    Post Count: 16,213

    I haven’t read the link, but…

    I just did a loan for a person who earns 10 times more from rents than her salary. One lender wanted to do the deal as a commercial loan because of the number of properties she owned, but other lenders didn’t have a problem with it.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide)

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

    Hi Kellie

    Hate to say is happening more and more with lenders these days.

    One major lender has a credit policy that if you own 10+ properties (geared or not) they will not consider any loan.

    Hard to believe I would not meet their credit policy merely on number of properties owned.

    Half the trick is to structure your portfolio in such a manner that you use the least generous lenders first and then work thru those with more favourable credit policies.

    Too many borrowers are merely driven by interest rates and believe the cheapest rate is the be all and end all. Regretfully they found out the hard way.


    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Corey BattCorey Batt
    Join Date: 2012
    Post Count: 1,010

    This can certainly play into lender policy, but I’ve yet to ever have a deal we couldn’t put through due to rent reliance – it’s just a part of correctly structuring lending, factoring in lender policy.

    This is including clients with large multiples greater rental income than wage/business income.

    Corey Batt | Precision Funding
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Mick CMick C
    Join Date: 2010
    Post Count: 1,099

    Half the trick is to structure your portfolio in such a manner that you use the least generous lenders first and then work thru those with more favourable credit policies.

    Too many borrowers are merely driven by interest rates and believe the cheapest rate is the be all and end all. Regretfully they found out

    ^ Richard nailed it on the head!
    It comes down to “order of lender based on your situation” and choosing the right loan structure/lenders.

    Mick C | Shape Home Loans
    Email Me | Phone Me

    Same Banks. Better Rates. Served With a Passion.

    Profile photo of xdrewxdrew
    Join Date: 2010
    Post Count: 479

    I totally agree with the understanding of lender rate not being the chief concern.

    In my early days (this is how to date yourself guys .. you use phrases like .. IN MY DAY) I would be ok with taking on any lender at any rate as long as it was cheap and the broker was ‘honest’ (go on .. laugh now). Having had one particular loan company that was based largely online to save money and no real infrastructure .. it was VERY difficult to meet payments by the due date allowing for the fact that the payment systems they used took 4 days to process (this was NEVER mentioned in any conversation I had with the institution). So basically I was always getting a late fee even though I would be submitting payment a day or two in advance.

    It was an excellent recipe for ending up with mortgage troubles and paying a heap more than you need to.

    The other thing I found out over time .. that the LIABILITY you are exposed to by non-banking institutions is a hell of a lot greater than banks. If the situation is that the loan provider falls into receivership or sells off its folio to another lender .. the conditions on your loan may change faster than you really wish them too, or even worse .. you may be required to refund the loan AT THE FULL AMOUNT to the receiver or folio purchaser .. depending on the conditions of the transfer or redemption.

    So my usual schedule over the years has been to get a loan with a reasonably secure non-bank lender .. wait a year or two then approach a bank and see if I can draft the loan across to them. By then I usually have either increased equity or better rents so the answer is usually YES straight up.

    After the PYRAMID collapse (and Tricontinental and State Bank) the rules were rewritten slightly on the requirements for stability in the banking industry. This means that a bank in Australia usually has a bank guarantee (for whatever thats worth) on your loan and the arrangement. Thats the one key component that’s missing in non-bank lender transactions .. and the value of that really cannot be underestimated.

    I can only expect the situation with non-bank lenders to get more strict over the next couple of years. There is a growing feeling in the lending industry that residuals (read RENT RELIANCE) which used to be capped at 60% are too much of a reliance for borrowing and not enough of a consideration vs income. However as someone who at one stage was TOTALLY reliant on my residual incomes (cos i got enough) and didnt actually NEED a job .. it really is a pain in the gluteus maximus for attracting lenders.

    The issue has been that when things get tight for most people and the banks WONT lend .. well .. thats really the time you want to borrow .. because of the inherant value in being able to. So as I have stated many a time on here .. the appropriate mix when approaching a bank .. is to have a source of income .. and the possiblity of a residual as a balance .. rather than a pivot.

    The other thing I have stated .. is to reduce your loans no matter what the market .. by a graduation of about 2.5-3%. In the short term it looks as if you are paying the loans down (which they like to see) and it also places you as a good credit concern.

    And in a tougher market .. there is a great price to be placed on being a good credit concern.

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