Hi All,
I've been trolling the forums the past few weeks while I read through various books on Property Investing. One question I've not been able to find an answer for is this:
As many people are saying now, it's getting harder and harder to find properties that pass the 11 second rule, which means resorting to creative methods of creating CF+ investments. One popular one I've noticed is buying a property built post 1987 (I think) so you can claim tax deductions which will turn it from CF- to CF+.
My question is this, will the banks recognise this as CF+ when it comes time to secure finance for further properties? Or will they see the CF- situation and decline further loans?
TIA
Hi Tia,
I am not an expert in this field, but I can my recent experiance.
My bank allowed me to use the rent (reduced by a vacancy factor). Then for the servicability test, they deducted a fixed percentage of my gross income for taxes and living expenses. Then the remainder had to be able cover the repayments at an inerest rate 2% higher than the current variable rate.
Under those conditions, then a property that is made CF+ wouldn't have increased my borrowing capacity.
But, lending is getting more competitve these days. So there is still hope.
The ATO will allow you to claim a tax variation for investment properties, through PAYG, so you get your deductions through out the year, not at the end of the financial year. If you made this claim, it would increase your net salary. Then all you would have to do is find a lender that uses your net salary (mine used gross) and that would increase your borrowing capacity.
A mortgage broker should be able to help you. A good one will know which banks are keen to increase their loan book and which ones that will allow you to use your net income. They don't cost any extra and save a lot of time.
cheers
AdrianBanks don''t really look at properties like that. What they do is what Adrian described and take a percentage of the rent received. These days there are a few lenders that will take into account negative gearing benefits by taken depreciation into account and also interest claimed on rental property loans – eg. ANZ, St G, Bankwest and others.
So being able to claim depreciation can help in servicing.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
In addition to Depreciation several lenders take 100% of rent into consideration on properties they are not financing and also use the charged rate rather than a sensitised rate of variable rate + 1.5 -2% margin.
This 2 aspects can considerably increase your serviceability.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
