If you own a property that has positive cash flow as opposed to negative gearing, would the banks be more willing to lend you more money as the rent received covers the repayments? I think you’d would be perceived as a much bigger risk if negative gearing as your own income factors in to covering the repayments as rent will be lower than the repayments. If the investment loan to secure the property is the same amount (say $500k), would lenders let you borrow more for +cash-flow properties? If so, how much more approx?
Thanks everyone :)
It is really irrelevant whether a property is cash flow positive or negative for finance. Every bit of income helps, but the risk is still the same for the lender and serviceability must be passed.
For a property not to affect serviceability, in theory, it would need to have about a 11% yield. But most lenders will cap yields for serviceability at about 6%.
That means if you have a $100,000 property returning $12,000 pa in rent, for servicing they will use $6,000 max – for loans secured by this property and secured by other property.
If you put down a deposit (5/10/20%) for an investment property instead of burrowing the full amount, are lenders more willing to let you burrow more for IP purchases?
the less you borrow the easier it will be, but it depends on where you are getting the deposit money from
What if the deposit is being supplied by an equity home loan? For a $500k property for eg, a home equity loan of $130k is used to settle the deposit, stamp duty and associated closing costs.
Yeah I get that but will the banks view that as a $500k loan total for serviceability? $130k loan for deposit/stamp duty and $370k loan to secure the property? In that case burrowing the full amount being $500k and not putting a deposit down will have no difference on serviceability.
Do low doc loans still take into account consistent income? I’ve currently reached my borrowing cap by burrowing $650k (the full value of the property) for an IP purchase and I heard it’s possible to purchase more property through low doc loans as long as a 20% deposit is being put down. Is this possible?
There are low docs still out there, but you will need to declare an income still – and pass serviceability. If the income is too low you will still not service. You will also have to supply limited evidence of the income which might be bank statements, bas or accountant letter or a comboBrizzaParticipant@brizzaJoin Date: 2003Post Count: 75
For my IP – I currently pay 14k per annum in loan repayments and this property has a rental income of 25k.
Would this loan effect my serviceability or improve it due to the excess of 11k per year?
It will depend on the circumstances, such as, if PI or IO, what the expenses are, how long left on the loan, type of property, type of tenancy, yield etc
Assuming PI residential rate with minimum expenses it would probably neither improve nor decrease serviceabilityRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Youe rental income will be shaded and your loan repayments sensitised so irrespective of what you receive or repay lenders will use totally different figures.
Yours in Finance
Richard Taylor | Australia's leading private lender