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Just because your bank said you can only borrow $180,000 – doesn’t mean that all lenders will say the same. Any investor wanting to build a significant investment portfolio will need to have a strategic lending structure to ensure they maximise their capacity and factor in long term finance challenges which arise for investors. I’ve written about this previously here: http://www.precisionfunding.com.au/diversified-lending-structure/
Effectively if your lending is structured correctly it’s possible to generally increase your long term borrowing capacity by 1.9-2.5x greater than what any one lender would allow.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Good post Jamie. It’s something which is definitely becoming more popular – just had a maternity leave deal approved this afternoon, another being submitted this morning.
Thankfully the banks are becoming more and more warm to the concept and having specific policy to cater for the reality of the situation.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Interesting decision – I wouldn’t even know my tenants names without checking, I try to keep things running as a business than personalised.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Be careful to assume land prices will rise during the time. Being your first home and a single income with dependents, you may want to consider that it would be prudent to wait until you’ve settled into your new home and then recheck your budget to see if you can afford the investment. The last thing you want to do is sink your hard earned savings into a deposit on land which could cause financial stress.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
There are some meta-filters out there which can search through listings Australia-wide across re.com.au, domain, real estate agent’s direct websites etc. The best one I’ve probably seen to date is https://www.realestateinvestar.com.au/ME2/Default.asp in that regard.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Plenty of great minds in these groups – most cities have groups of likeminded people meeting up semi regularly. There’s a group of investors in Adelaide who meetup once a month here, I believe theres also some fairly regular ones in Melbourne.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
75% LVR is definitely possible, but remember there is a general trend of rate for risk in commercial lending – the higher the LVR the higher the interest rate.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
They’re definitely not non-recourse. If the property market crashed 50% and you went bankrupt, they’ll still come after you for any losses incurred.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
I’m not sure what you’ve been reading to be going about non-resource commercial loans in Australia, you might be confusing this with Lease Doc loans OR reading US based info sources?
To answer the actual questions though:
*To draw equity from an existing commercial property, pending lender policy if the numbers stack up to show you can afford the increase in debt for the deposit that will be all thats required – they will not factor in a new purchases rent OR new debt for the remaining future purchase debt.
*Commercial is a little different to residential lending, you don’t necessarily need to use multiple different lenders to spread the debt to maximise your borrowing capacity – especially if you’re looking to use lease doc loans.
There are some lenders which are great in this space, allowing you to borrow without assessing the personal A&L of the borrower, instead focusing on the purchases income vs outgoings, and likewise have simple equity release policy to allow future purchases. One of these I did last had a release on an existing lease doc to fund a deposit for new purchase, approved within 24 hours and in the clients account within a week. In comparison a standard commercial deal timeframe can take 6-8 weeks with lender turnarounds.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
There’s specific products for this – you don’t need to go down a traditional loan if the retirement village is an aged care bond etc?
Effectively they work as a facility which can creep up over time amortising the interest.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
What’s the ‘unusual’ situation?
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Happy to have a chat with you Panina. Getting into your own home whilst affordable will at least give you the breathing room to rapidly pay down your personal debt, freeing up that equity to get buy investment properties.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
There’s little to if any value in getting more than one broker looking over the deal unless you don’t trust your initial broker. (in which case don’t use them). On the other hand ‘shopping’ the deal around to multiple brokers shows poor respect for a brokers time, as we’re only paid on the settlement of a deal.
All brokers get people who make contact like this and it’s very obvious – we generally decline the work immediately as it’s not exactly profitable to potentially be spending 40 hours for zero pay.
Even more dangerous if you apply for multiple loans simultaneously (through each of the brokers) – the lenders will see the credit hits come up and have them asking questions.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
If you’re looking to buy your own home – do this first. You can put all of your cash into that property, reducing the repayments as much as possible. AFTER this you can then setup a seperate loan account drawing out equity from your own home to purchase an investment property, allowing you to effectively have your cake and eat it – the best of both worlds.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
So long as your lender allows it – split the existing PPOR into two components – portion 1 for PPOR use, Portion 2 to be used for the investment funds. Rough number example in an example where you would use 250k:Initial Loan:*400k loan facility, 150k loan remaining, 250k in redraw availableNew Setup:Loan Split 1 (ppor debt):150k facility, 150k owing – $0 redrawLoan SPlit 2 (ip deposit): 250k facility, 0 owing – $250k redraw availableYou can then draw from the split as needed for the deposit, whilst reducing your PPOR non deductible facility improving borrowing capacity. Likewise the IP leverage is maximised without requiring cash funds to be chipped in + a clear line is defined by what is personal vs investment debt.
Thanks Corey. This is different again (I think). So in other words; refinance PPOR and secure new tax deductible loan/split against PPOR? Without actually increasing the amount owing against PPOR because I’m not re-drawing. I know it’s technically not, but kind of like a off set account? Why not do this against existing an investment property loan?Also, does anyone know if the NAB offers this?
What I’ve suggested is not a refinance at all – so there’s no assessment required, no discharge, estab of govt charges ($500+ in fees), and takes circa a week instead of up to a month for you to have the funds available. It’s just an amendment which splits an existing loan into two loans, which allows the second loan to be paid down and drawn from so a new purpose (investment) can be clearly shown.
NAB can generally allow this all to be done via a tick and flick form (other lenders which can do this amongst others: CBA, STG, AMP, Choicelend etc).
Rhodesv: That’s correct, a split is just another loan account. ‘Splitting’a loan is the process of having a loan split from 1 loan account into multiple.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
So long as your lender allows it – split the existing PPOR into two components – portion 1 for PPOR use, Portion 2 to be used for the investment funds. Rough number example in an example where you would use 250k:
Initial Loan:
*400k loan facility, 150k loan remaining, 250k in redraw available
New Setup:
Loan Split 1 (ppor debt):150k facility, 150k owing – $0 redraw
Loan SPlit 2 (ip deposit): 250k facility, 0 owing – $250k redraw availableYou can then draw from the split as needed for the deposit, whilst reducing your PPOR non deductible facility improving borrowing capacity. Likewise the IP leverage is maximised without requiring cash funds to be chipped in + a clear line is defined by what is personal vs investment debt.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Assuming the valuation of the property comes back at $360,000 – a 20% deposit + government charges equates to ~$84,000 – a tad short of the 100k you’re being told. So either there’s a valuation shortfall or something else at play.
Apartments in the Gold Coast have been the butt of jokes for sometime now – for many years many investors dreams were crushed with slick salesmen selling them stock which was either A, overpriced or B, in an area where theres just increasing supply keeping prices low. A key example in your scenario is that there is older stock selling for less – what happens when your property is old and a new apartment block comes up? Do you think property prices will drive up if there’s newer/better stock continually coming on?
Buyer beware as always.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Amanda,
Welcome to the forums – great working starting to look at investing. You’re definitely on a low income – but this doesn’t necessarily preclude you from buying an investment property at the level you’ve estimated the purchase to be at. A quick run of the calcs show you should just scrape by and a guarantee wouldn’t be required.
The real story is about where to from there – if you want to purchase further property in the future it would be necessary to increase your income, which will also give you further capacity to grow your savings base.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Colin has hit the nail on the head and identified the many issues with joint ownership of property with non spousal partners – there’s so many gotcha clauses and negatives which limit the long term potential to grow an investment portfolio.
The basic TL;DR is that you’re going to have your friend as either a borrowing co-applicant or guarantor, in either case leaving them liable for the debt just as much as you if something goes wrong. This ownership then flows through to your borrowing capacity, as you will be seen as liable for all debt but only 50% of rental income with most lenders – destroying your long term borrowing capacity. The common trend I see with investors with joint ownership like this is after realising the actual issues, end up either selling the property or removing the joint ownership by buying out the other party or selling their share – trigger tax, stamp duty etc. This can be costly, but sometimes pulling the bandaid off is better than having an ongoing issue hanging over your head for the next 30 years.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Someones Hungry Richard! ;)
Reminds me of the private money lenders who spam our email inboxes daily.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide