All Topics / Finance / Lending leniency

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  • Profile photo of wan0151wan0151
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    @wan0151
    Join Date: 2019
    Post Count: 0

    Hi all,

    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 :)

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

    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.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of wan0151wan0151
    Participant
    @wan0151
    Join Date: 2019
    Post Count: 0

    Hey Terry,

    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?

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

    the less you borrow the easier it will be, but it depends on where you are getting the deposit money from

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of wan0151wan0151
    Participant
    @wan0151
    Join Date: 2019
    Post Count: 0

    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.

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

    That means you are borrowing the deposit

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of wan0151wan0151
    Participant
    @wan0151
    Join Date: 2019
    Post Count: 0

    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.

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

    Yes you would be borrowing $500k in that instance.

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of wan0151wan0151
    Participant
    @wan0151
    Join Date: 2019
    Post Count: 0

    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?

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

    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 combo

     

     

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of BrizzaBrizza
    Participant
    @brizza
    Join Date: 2003
    Post 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?

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

    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 serviceability

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

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post 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.

    Cheers

     

    Yours in Finance

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

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

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