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We have a lot of clients using Karen Young’s Property Zest buyers agency. Andrew Allen is also always popular – however this popularity in many cases means he may not be taking on clients.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks Corey.
Are you saying that the lease back rental may beinflated by vendor to distort the true value of theproperty?
ThanksFXDThat can be one of the things they do. They can also just have it on a standard rent – but leave as soon as they can, which if the property is in a difficult to rent area/type of property can completely tank the investment.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Generally pump and dump – but I’m sure theres exceptions to every rule. You’d have to ask yourself why they would offload a property to reduce their flexibility and rental security. There’s the increase in liquidity which may be used to invest elsewhere, but selling a commercial asset just to get access to funds isn’t sending the best signals.
I’ve known businesses who have sold their commercial properties with <3 years remaining, then not renew the next option and instead buy a new vacant on possession property – leaving the landlord in a sore spot.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
All lending is stress tested, even if using a multi-lender structure. What it does however is reduce any additional layers of stress testing which can make a portfolio which is substantially cash flow positive, appear heavily negative. Standard stress testing under this kind of portfolio will see debt costs tested 25-30% higher than the actual cost and rental return only 80% of received, whereas a single lender focus could be as bad as debt costs tested at 110% of actual cost and 80% of rental return.
This isn’t about creating an environment of irresponsible lending, but identifying that most banks policies are designed with the mum and dad PPOR owner, not the multi property investor – so when you add multiple properties into the mix an otherwise rational borrowing policy can fly off into absurdity.
As per borrowing structures – for the most part having it in multiple entities will not improve the capacity position if declared correctly as per lender requirements, and in many cases using trusts will have a minor reduction in capacity with some lenders. There is a lender or two which has a technical niche which can be exploited to increase borrowing capacity, but this is a fringe scenario which isn’t relevent to 95% of the population looking to invest compared to normal investment.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Definitely isn’t the same thing to go direct to a banker vs broker – quite simply the broker is going to have access to dozens of different policy sets and hundreds/thousands of lending products – so they can find a product to fit the investors needs, instead of try make the investor fit the product.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks Corey,
So why is your borrowing power not affected by your other home loans with the other lenders? I understand it will be affected by some extent, but choosing your lenders obviously lets you advance further, but why?Hey Borat,
Good question – it all comes down to how each lender looks at their own debt and debt of other lenders.
Every lender when calculating your borrowing capacity will stress test the amount of funds you’re borrowing, by calculating the borrowings at a higher rate, and generally at principal and interest repayments. So as an example, a 300k mortgage, interest only at 4.5% may only have a monthly repayment of $1,125. Stress tested, a lender would potentially look at the loan at 7.25%, principal and interest at 25 years (they remove 5 years to factor in the interest only period eating into the repayment term) – equating to $1,667 per month.
Where the lenders diverge in borrowing capacities is through the assessment of other lenders debt. Some lenders will calculate it as above through a rigourous stress test, others may only increase the repayment by 20-30%. There is even some lenders who will take the repayment at it’s actual amount. These more generous calculations allows investors with multiple properties to not be as lumbered down by heavily stress tested debt calculations layering on top of each other. By using these policies against each other, a good structured lending strategy will allow an investor to extend their borrowing capacity far beyond how each of the lenders would otherwise allow.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
What aggregator are you with currently? Changing aggregators is a pain – not something I’d do likely.
Quite happy with Choice, won’t be moving the business from them anytime soon.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
It’s early days – there hasn’t been any mention about it being transitioned to YBR, just the business has been purchased. I haven’t heard anything about any consolidation of brand or changing of products.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Loan Ave is fine as a lender, they’re a mortgage manager who provide a number of niche products. I’ve always found them to be a reasonable brand to work with. (they’ve also just been bought out by Yellow Brick Road – Mark Bouris’ new brand.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Definitely should have a rate with a 3 in front of it. Homeside may not sharpen their pencil to get to that level as their primary market isn’t for CHEAP rates – so you may well be better served looking at the greater lending options for your situation.
It does all come down to your greater financial picture however – if the lender is helping you move closer to your investment goals it may well be a valid part to pay a higher premium to help you move forward.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
For investment? ~ 4.59%
Owner occupied ~ 4.49%.
Still a significant premium being paid for 5 year rates compared to say 3 year rates, which can be up to 0.7-0.8% cheaper than their 5 year counterparts.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Terry,Sure….but when the bank that secures your $400,000 loan says….sorry but we aren’t lending you any more money on a property that they already have a mortgage on….? then what?eg you are in the same situation as I am for the St George Portfolio loan…..Surely you aren’t suggesting a secondary mortgage right? eg a bank to take the second mortgage on the additional equity? I didn’t think that they even had those in Australia.
In that case you have 2 options:1. stay put, or2. take your $400k loan and refinance with a lender that will lend.When cross collateralised you won’t have the second option.
Cool, thanks for the clarification, I appreciate you have way more experience in the space than my wife and I do so appreciate the clarification.
I can if I want refinance all of the properties (eg example 2) but would involve paying a break fee for the fixed loans…..and would prefer not to do that.
Our plan is to leave them in place, draw down the variable loan for 30% and then seek a <70%LVR IO 5 year fixed loan from someone else for the difference on the next property. The irony is we are only going to go from about -5k negatively geared to about -12k which is well within our ability to service so apart from St George missing out on profit they are still on the hook for as much risk as before…..And without x-coll you wouldn’t have triggered the break fee, as you would only refi the variable loans. ;)
That’s the big issue with cross collateralisation, it’s not a problem until it is. Then you sit there wondering why you gave up so much fleixibility for nothing.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
I wouldn’t be too concerned about the $10 fee if the rest of the loan makes sense for your situation – ie structure, lender choice enhancing not detracting from your long term plans, cost etc.
If the other factors about the loan aren’t sufficient to justify staying with them it may well be worth using this time to consider moving the loan – but not over just a single factor like a $10 monthly fee.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
What size development is it? ie how many units. If it’s a resi based loan the DA will not provide an increased value. In some cases a commercial val will, but it comes down to the overall picture on end construction vals, peak debt etc.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
To answer your question – it depends.
Valuers will base it on the local market – so in hard to let areas there can be a significant valuation variance between tenanted and vacant, or short term vs long lease.
Property type ie industrial, office is definitely considered and the leasing rate. For the most part commercial will often be compared on a price per sqm for lettable space – for both capital value and rental return. Depending on the property subtype and local market the prices will vary significantly.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Speak to your solicitor for the purchase immediately – if you do not have the right contract conditions in place you may be locked in.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Joint and several liability from joint borrowing with non spouses is definitely an issue which will destroy most borrrowers borrowing capacity – so it’s a prudent piece of advice to try avoid these types of arrangements.
With 450k borrowings – there is going to be a lot more quality residential than commercial properties. Commercial also requires larger deposits, so if you’re deposit constrained you may not be able to borrow anywhere near what you can with residential properties.
I’m personally more of a fan of property with a land component than a unit, as units can always have an increase in supply in the area and put downward pressure on prices, whereas houses with land in the right area will only see a long term upward trend in demand and prices.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Don’t directly redraw it, else you’ll have a mixed use loan which is a pain for claiming tax deductions – reduce PPOR loan and create a new split for the same amount. Before doing this make sure you still have sufficient borrowing capacity with the lender that the PPOR is with, else you might pay down your loan and be unable to create the new split.
Some lenders will allow the split to be created without a full application.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
There are buyers agents who source commercial properties for buyers – I’ve worked with David Mews from REvaluate who assists investors source commercial property for investment, SMSF etc. http://www.adelaideba.com.au/#!commercial/ctzx
Compared to residential property, commercial is quite specialised and the average investor will generally not have the same laymans knowledge which is needed to ensure good decisions are made – so using a BA can be a very valuable choice.
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This reply was modified 8 years, 7 months ago by
Corey Batt.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi Liam.
In terms of your questions, landlord insurance + property management will certainly be the main additional costs than currently.
With regards to the finance – the lender *may allow the loans to switch to IO, this depends on the lender and specifics of the loan (how many years in etc). You’re not going to be able to combine the two loans with one loan being fixed – this would trigger a break fee which will likely cost thousands. It wouldn’t be ideal to combine the two in any case, as you would be combine a personal use loan with a future investment use loan, muddling the tax deductibility causing long term tax issues for negligible if any gain.
If the intention is to rent the property out, it’d be best to touch base with the lender to see if she can initially switch the loans to IO, then get in touch with a property manager. David Traeger on this forums is a well known Adelaide property manager who runs http://www.dtproperty.com.au – I’m sure he’d be able to shed some light on the rent potential, whether to advertise at pet friendly to boost the yield etc.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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This reply was modified 8 years, 7 months ago by
