Forums / Getting Technical / Finance / Does positive cashflow from commercial IP actually improve servicing by lender?

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  • Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    Hi experts,

    I have recently spoken to my finance broker about improving my servicing situation.

    The question is: “Can positive cashflow from commercial properties be considered additional
    income stream and therefore help improve servicing situation for new borrowing going forward?”

    I am not getting a straight and definitive answer other than not 100% of the positive cashflow may be
    considered, which is not unexpected anyway. Fair to say that I am getting mixed and conflicting
    responses from different sources.

    Therefore, I’d like to run this by some experts on this forum to get some insights if this again depends
    on one lender to another and which lender is more inclined to favour the borrowing.

    The answer will have a fundamental and direct effect on my investing plan and if I can leverage on the
    commercial IP cashflow as the main or sole servicing to continue the journey.

    Thanks,
    FXD

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Yes and no.

    Normally depending on the security lenders will take between 60-70% of the Gross rent so that will be added to your income for servicing but the downside being most Commercial loans are done over a 15 year term (odd exception) so the monthly repayments of principal & interest and the higher interest usually associated with Commercial lending will reduce the amount you can borrow.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Yes even positive cash flow property can hurt serviceability because the notional repayment the lender takes exceeds the cash flow.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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

    Commercial generally won’t help your residential lending capacity all that much. In terms of commercial though it can help, or be treated as neutral/excluded from calculations – allowing you to keep rolling into new purchases as long as you have sufficient deposit funds.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    Thanks guys.

    Pardon me for not clarifying my question right at the start.

    I only intend to focus on commercial IP going forward and therefore the servicing improvement question
    is solely intended for continuing and/or growing more commercial IP using commercial IP cashflow.

    Rgds,
    FXD

    • This reply was modified 2 years ago by Profile photo of fxdaemon fxdaemon.
    • This reply was modified 2 years ago by Profile photo of fxdaemon fxdaemon.
    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Don’t worry about it too much then – the variety of commercial products at this time means that even should your serviceability be constrained with time, there’s freestanding products available through certain brokers accredited with commercial lending panels which can be used to allow you to continue purchasing without your existing portfolios dragging your borrowing capacity down.

    Most people will run out of deposit funds before they run out of capacity.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of fxdaemonfxdaemon
    Participant
    @fxdaemon
    Join Date: 2013
    Post Count: 114

    Most people will run out of deposit funds before they run out of capacity.

    Thanks Corey and above statement is so very true especially when the deposit/equity is coming from
    resi IP and/or PPOR.

    Personally I have not been successful due to existing servicing and no lender is willing to factor in
    the future/projected commercial cashflow to service equity draw and some are outright against using
    resi equity for commercial deals.

    It seems the only way for me to continue the investing journey is to sell IP (resi or commercial) to
    raise equity and then go again, and repeat the process every few years. This may hopefully achieve the
    income/cashflow objective into my retirement but may not help me grow the size of my investment taking
    a passive approach.

    Rgds,
    FXD

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