I very much doubt you are near your borrowing capacity. I’ve assisted in financing clients into multi-mil portfolios on similar income figures (and they have PPOR debts which eat much quicker into your borrowing capacity).

Have a chat with a savvy investment based finance broker if you haven’t already, as your borrowing capacity issues may not be anywhere near realisation!

With regards to whether its worth going CF+, generally a neutral portfolio allows clients to keep pushing their portfolios further as beyond the lenders calculations, they don’t have the same heavy impact on their personal expenses which keeps them moving forward. In saying that though, it largely comes down to your investment strategy and finding properties which will meet your goals.

Give a savvy broker a call/email regarding this than going direct to branch – it will save you a lot of time and hassles as we know the exact policies of multiple lenders, than having to guess your way around. I have done guarantors in the past with regional vacant land previous without issue.

The total income and liabilities are pooled together, to provide a net surplus income. Newstart for the most part is no longer accepted by lenders, and child support only if the child is <13yr’s old.

Ontop of that the Lender then will need to see a minimum living cost per month for the adult (circa $1100 per month – dependent on lender + each child which is $300-400 per month). If she is paying any rent this will also be added into the monthly expenses.

If her income is acceptable to lenders policy, suddenly her surplus income is negative per month, and she won’t be able to borrow.

Realistically buying an investment property with her only cash she has left isn’t going to provide her with the biggest financial benefit moving forward – getting a job will. Once she has an income secured, she can build a portfolio if she wishes and expand from there.

You are required to state any loans which you are providing a guarantor to still, as well as only factor in 50% of rent. This structure doesn’t resolve the serviceability issue.

Other than that, quite a common setup you’ve mentioned for these scenarios.

Commercial certainly does have a lot more rewards, for greater risk. Due dilligence is paramount with your purchases, as a poor purchase can result in vacancies for *years* and a declining capital value.

The size of your inheritence will play a major role in your strategy, as if it’s significant enough you can get into price ranges where the yields are strong and blue chip tenants/leases. As a rule of thumb, the low end prices generally provide you with B-D grade tenants, with lower lease terms, shaky guarantees etc.

Have a chat to a savvy investment broker who can give you a strong perspective on your potential and how to meet your goals if commercial IP’s are the investment vehicle you wish to use.

I’d think this wouldn’t be a second mortgage guarantee situation, but an equity access followed up with purchase finance with NAB secured solely to the new purchase. This is standard fare and nothing to be concerned about.

JZ_33 wrote:

My 2 cents worth, though keep in mind I’m relatively new to all this and still yet to pick up my first IP but I have done a fair bit of reading.

To put simply, there are two places where you’ll be making your money, through positive cashflow (if the rent covers loan + other costs) and through capital growth (how much your property is worth in the future).

Positive Cashflow – Nice to have. Allows you to hold a property without forking out each week. Banks love it and will be more inclined to lend you more money for more property purchases provided you have the deposits. However, you won’t be making money from this until you have a good portfolio of these behind you.

Capital Growth – This is where you’ll make real money which will allow you to grow your portfolio. It’s important not to solely focus on positive cashflow, as they might not grow very much. What is important is picking a good property. Also depends on what kind of strategy you have as well, are you investing for the short term or long term?

Identifying whats positive / negative, there are tools out there that can help you do property valuation. What you essentially want to figure out is how much rent you’ll get vs the outgoing costs. You have to factor in costs such Strata, Council rates, Water rates, Insurance, Real estate rental fees and maintenance of the place.

A good way to start might be to just browse a few properties online and see how much they are worth? Figure out how much would it cost you each month? Then see what other similar properties are renting for. You’ll start to get a better idea that way.

Like I said, I’m still learning every day but hope this helps.

Great post JZ.

Another great thing to remember is that CG and CF properties not mutually exclusive. Some CG properties have strong cash flow, and likewise some negatively geared properties have terrible growth!

The key in the end is to buy a property with long term desirability. This will drive your growth in both rental and capital gains. Some properties you may purchase with strong cash flow initially as the area is undervalued as it is yet to be ‘discovered’. Once the area becomes chic, capital values improve whilst still retaining that cash flow from your initial purchase – the sweet spot.

• This reply was modified 9 years, 11 months ago by  Corey Batt.

Who ever is providing you with that advice has no idea what they’re talking about.

1. don’t use the offset account funds if its against your PPOR. Pay the offset funds into your PPOR loan, reducing your non deductible debt.

2. THEN have a separate equity access loan setup to provide the deposits for the two investment properties. This will maximise your deductions and minimise your non deductible debt + interest.

This will allow you to avoid cross collateralisation as well as provide you with the most tax effective + cash flow effective structure.

Downtime issues would be a major headache. You are ensuring the delivery of a service, without it you’ll get constant calls about downtime/latency issues/intermittent speeds and everything else under the sun.

To avoid cross col + LMI you could just draw the equity out as an equity access, then put this forwards as security alongside the cash for the new loan (which is only secured against the new purchase).