Banks 80% rule.

David

It is calculated as 80% of value less current loans.

eg in your example, total value is $330,000. 80% of this is $264,000. However, your current loans are $195,000, so you should be able to borrow another $69,000 ($264,000 – $195,000).

BTW, You will also still have to demonstrate serviceability to qualify.

Terryw
[email protected]

hi all
i thought the banks dont take 100% rent into account ,so are you saying if the rent can cover loan amount ,land rates, insurance ,and you put in ,say $1 they will give you the loan ?

If your gross rental yield is high enough then the property might qualify by itself.

Two points:
1. Most lenders only take between 75% to 90% (one at 100%) of the gross rental income.
2. All lenders will calculate serviceability based on P&I repayments at a benchmark rate (a benchmark rate is the current interest rate plus a margin).

Here is an example of a property that costs $100,000 @ a rental yield of 9.5% (financed at 80%)…

Banks assessment

Rental income @ 80% = $7,600
P&I repayments @ 8% = $7,044
Surplus income = $556 (therefore this scenario does not drain your borrowing capacity)

This assessment assumes that the borrower earns other income that covers its personal expenses and any other financial commitments.

Don’t get me wrong… the bank will look for other income (because they don’t want borrowers to be 100% reliant on rental income).

Conclusion

Therefore, theoretically a borrower could purchase an unlimited number of properties (based on the assumptions above) so long as they had unlimited deposits.

For example, I have a client that owns 19 properties and earn minimal income. But since her average rental yield is approx. 11% her investment properties have actually increased her borrowing capacity.

I hope this makes it clearer.

Cheers

Stu

Property & Finance News
at http://www.prosolution.com.au

Yes you are correct – $606,000.

This is how I work it out…

$1.4 m * 80% – existing mortgages = what you can borrow.

Cheers

Stu

Property & Finance News
at http://www.prosolution.com.au

Hi trying,

$606,000 is what you can borrow based on your current asset base. However, if you are aquiring new assets then I would assume you could borrow a lot more. My calculations (subject to servicability) would be as follows;
The $606,000 you could borrow as a ‘deposit’ towards further assets. Therefor allowing you to purchase roughly $3,000,000 worth of property at 80%LVR if the returns stack up.

Someone correct me if I’m wrong.

hi guys thanks for the yes i did it right []
sounds like i can still go further
but my problem is servising the loan ,in my eyes i want to use this equity to upgrade my ppor from 600k to 1m or so but ,i dont want to sell my old ppor so payments would come alot ,so i was thinking of cash bonds ,but maybe some one has got other ideas ,any way if i can,nt get a new ppor for me i will keep buying ips but they will have to be good cash flow .
my accountant said i have NO MONEY LEFT to service more loans ,that really gets under my skin when i know how much equity i have ,and i dont want to stop now []

Trying

You could use a cashbond to help you service the loan, but this is just like borrowing to pay the interest repayments. It is not nessecarily a bad idea, as long as your property is growing faster than you are using the equity.

Really there is only one way to service your loan, and that is to earn more income. This can come from a wage or from rent from other cashflow +ve properties etc.

And the average bank would not lend you money based soley on the rent if you had no other income. You would be what they term too rental reliant.

Terryw
[email protected]

Trying

What you have written looks confusing.

If you have a $500,000 LOC and use $250,000 for a cashbond and another $250,000 (=$50,000 x 5) for deposits, then you should have none left over. So I don’t understand this:

“…to pay i/o loc say 6% =30kpa
20k left to help service loan ,after rents…”

I think the % on cashbonds is around 4% pa over 5 years.

If you put 20% down, then you would have 20% equity at the beginning (growing with time).

Instead of getting a cashbond, why not just go for a low doc loan.

Terryw
[email protected]

Hi Trying,
I might seem overly simplistic here, but why not buy properties that will increase your serviceability rather than decrease it[?]
I’ve just mentioned it in another post, but here goes again, this time I’ll be more specific.
Ive recently bought(well they’re under contract) 2 positive cash flow IPs that have seen nearly 50% growth in the 8 weeks since I signed the contracts.
Specfics:
* 2 Queenslanders divided into 2 flats each.
* Purchase price 73K & 86K respectively (the cheaper one needs 10K spent on it)
* Situated in a major rural centre
* Value estimated by agent yesterday 115 -125K [8D] each(after spending money on cheaper IP)
* Return 210/week each (ie 110 & 100 per flat)

These properties will increase our income thus increasing our serviceability, allowing us to buy more IPs, and use up our equity as deposits.

My point is not to brag but to show the deals exist, and that the capital gains are definately there! I personally never expected much more than growth equal to CPI on either of these IPs. How good it is to be wrong![]

Maybe I’m thinking too simply, and I’m the one missing the point![] I sure hope not!

Cheers

Scott S

“Aim for the stars and you’ll shoot the top of the telegraph pole. Aim for the top of the telegraph pole and you’ll shoot yourself in the foot!”
-anon

thanks scott,terry []
Yes that sounds good ,
i was looking at more expensive ips ,thats why i was having trouble servicing them {my thought }
but ,i think cheaper ones are more realistic ,thanks for bringing me back down to earth guys [] i have,nt hit the big time {yet}[][]