Hi guys n girls,
My query is how are people buying more and more property when they are on the same or similar income??
I understand when you buy +cf your income goes up but certainly not much.
By getting an equity loan it then adds to the debt side of things which again brings down your income, which then dictates how much you may borrow for the mortgage.I hope everyone can understand my question, but it just never seems to add up to me.
How do lower income earners get the funds to purchaes multiple properties if using equity?[confused2]
In a rising market or where the investor can add value or even buy under valued it is this increase in equity that allows them to buy more.
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
… and in a falling market, the results are tragic, particularly for lower income earners*.
The reason you can’t make the numbers add up is quite simple – even the CF+ strategy is reliant on capital gains to work.
Cheers, F[cowboy2]
*Imagine going to a bank to borrow money for anything – to shift PPORs, buy a second hand car or a new fridge or washing machine.
“Certainly Sir (or madam), how much have you saved for a deposit?”
“Well, I’ve got $40,000 in negative equity from my investment property…”[eh]Cathnniv,
Well you need both equity & income for additional investments…
Even with a CF+ investment, banks will take approx (depending on which bank) 75-80% of income in serviceability criteria, so depending on how much cash flow positive it is, it still might drag down your serviceability.
How do lower income earners get the funds to purchaes multiple properties if using equityWhat do you define low income & is there a specific example you are referring to?
Hi,
Woodsman,
Low income in terms of what we can borrow.
joint income
Monthly income net $2200 from job
$180.00 monthly from disibility payment for dependant which i’m told is counted
1 dependant
Extra income $160.00 month from boarder
Total of $2540 month
No credit cards, car loan etc
$50.00 month payment on personal loan.
All this tells me we can borrow a max of $175,000 if were lucky and the places we are looking at are $200,000 – $230,000 for a wrap situation.
This is without taking into account repayments on an equity loan for deposits.
Own around $280,000 in equity allowed to borrow $95,000 only.I understand we must be able to service the loan but i have no mortgage, rent,cards, car loan etc to pay for and with wrap in place shall be making more income.
Very new to all this and very frustrated, especially with having the equity for deposits.
Any advice is greatly appreciated.
Thanxhi Cathnniv
im not sure who you are talking to about your finance, but i suggest that you find yourself a competant and keen broker and detail to he/she what your plans are. i did this a few years ago and to this day still deal with the same broker who somehow manages to find a way of making things work to our advantage. the problem however that i see with your situation is low income. serviceability is more important to most of the mainstream lenders than equity in a property. and as far as how others do it on average incomes ($50000 pa etc) depends on whether the property is + or – geared. if negative then i suspect damn hard. you only need to read the report on negative gearing on this very website to see how badly the numbers come out. if i were you, i wouldnt rush things or be impatient. you should really be looking at ways of increasing your income or reducing your current mortgage so that you dont need to borrow as much for the subsequent propertys that you intend to purchase.
Read this article about borrowing capacity – http://www.prosolution.com.au/articles/unlimited.pdf
Cheers
Stu
Stu, thanks for the article. Simple and to the point.
Question re Guarantors. If I was a guarantor for a corporate trustee as director for an investment loan, for $300k, what would the entry on my credit history be?
Is the wording any different to a normal loan application? ie Bank X enquired about you on xx/xx/2005 in reference to a Real Property Mortgage aacount for the amount of $300,000.
neo25x5,
Are you able to pass on contact details for your broker? Have spoken to 3 or 4 brokers, and while all have been professional & competent, none have really impressed. Would like to find one that really understands what you are trying to achieve and actively supports it.
Regards,
eeshole
You could try a low or no doc loan. All you do is sign to say that you can afford the repayments. The interest rates are higher on these loans but it may be the practical way for you to enter the market. You have good equity so you should be able to do better than what you have been quoted in the past. Just make sure you are sensible about the risk you take on and don’t take on anything that you really cannot afford. I have a good mortgage broker who understands these issues. I would be happy to forward her details to you if you wish.
Todd
Thanx everyone for the replies.
Crusher i would very much appreciate you sending me details of your broker!Living in a small town (Goulburn NSW) We have a limited range of brokers and most are not too helpful.
St George Bank are the one’s who tell me i can only borrow $95,000 of equity.I am looking at the $200 – $230 price range as that will buy a three bed family home which would suit the potential wrappers i have in mind.
As for income well for now there is not much change for my income to go up, if anything it may go down for a while when boarder moves out. I will be getting a raise next year but am unsure as to how much.Other than share investing or similar i’m unable to up my income for now.
A low doc loan sounds good as being used for a wrap my income rises, the wrappee is covering mortgage payments etc and it will at least get me started in raising my income.
One other question if successful in obtaining more equity is it smart or possible to pay a higher deposit therefore dropping what i have to borrow but upping repayments on equity loan and at a later date upon agreement with wrappee re draw the deposit paid as equity for next place??
Is this possible or viable??Cathnniv,
I think there may be some confusion here. The main purpose of accessing equity in an existing property is to use it as a deposit on a new property so you don’t have to come up with the cash or have to pay mortgage lenders insurance. If I understand your situation correctly, you should have heaps of equity to get a $200K to $230K property. If the bank will not lend money based on your income then you may have to look at a low doc loan.
I will inform my mortgage broker that you may decide to contact her and then I will email her contact details to you. She will assess your situation in more detail and let you know what is possible and what is not.
God Bless
ToddHi Crusher,
Lot’s of confusion!!!
Thankyou for the advice i will contact her and get my head around it all yet.
Low doc sounds the way to go so far.
Thanx againOriginally posted by crusher:Cathnniv,
I think there may be some confusion here. The main purpose of accessing equity in an existing property is to use it as a deposit on a new property so you don’t have to come up with the cash or have to pay mortgage lenders insurance. If I understand your situation correctly, you should have heaps of equity to get a $200K to $230K property. If the bank will not lend money based on your income then you may have to look at a low doc loan.
I will inform my mortgage broker that you may decide to contact her and then I will email her contact details to you. She will assess your situation in more detail and let you know what is possible and what is not.
God Bless
ToddTood,
How does a LODOC loan improve serviceability? Except perhaps where the self employed individual does not have the tax returns finalised to supposrt his income estimates.
Are you suggesting that Cath commit bank fraud by overstating her income?
I suggest that a broker who would be a party to this would not be one I would consider recommending or using.
There are other ways but it is hard to advise without knowing the full story.
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Simon,
What are the requirements for a LOWDOC or NODOC Loan? What are the expected interests and conditions?Thinking of my situation (as you are aware), would short term finance using one of these be easiest to get started?
Or do you need more info?!
Cheers
C@34
Generally a LODOC or a NODOC wil have a higher rate than the standard variable. Some lenders have a LODOC method of entry into a normal oan but these sometimes aren’t a true LODOC.
A LODOC will usually lend up to 80%. They require that you certify your income. ie make a legal statement as to what your income is.
A NODOC is similar except they lend 65% and you don’t need to provide any info re income, employment etc.
The company I generally prefer has rates of 6.85% for both but these will rise by 0.25% soon if not already.
These loans have penalties for early discharge so will not suit everyone and may not suit your situation. They are not generally a short term solution.
This is by no means an exhaustive description and I would suggest people get professional advice before making a decision.
All the best,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon,
No, I am not suggesting fraud so please do not suggest things that I have not stated. As a mortgage broker you should not rely on limited information to rubbish another broker or investor. I suggest you assess your motives before making assumptions and accusing remarks.
I am here to try and help others with my investing experience not pull others down to make myself look better.
Todd
PS: Now I have cooled down I will answer your question- As you have previously stated, there are certain loans that require only a signed and legally binding statement for proof of income. Many standard loans are full of regulations that reduce serviceability because of part use of income streams or sometimes they will not count a legitimate income stream at all. I am suggesting that some low doc loans may allow the borrower to legitimately include these streams of income but as I have previously stated the borrower must make sure that they can actually afford the loan repayments. The lenders know that the risks are higher for them on these loans and that is why the rates are higher. If there are any concerns over affordabilty or risk exposure, seeking the help of a good financial advisor who specialises in property investment would be a wise move.
If I have offended you with my insensitivity then please accept my apology.
I didn’t accuse you of anything nor your broker.
I asked you a question.
Please understand that this is an area of increasing fraud perpetrated by borrowers and encoraged and abetted by brokers. Unfortunately the borrower commits the offence and wil have to live with the results.
As a moderator and a professional I feel I must point this out. Everyone should also be aware that the ATO are now cross checking. People will get burnt.
It wasn’t to make myself look good either – need a plastic surgeon for that [blink]
Can you advise how a LODOC will improve servicability? I am here to learn too.
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon
Apology accepted. No hard feelings. I must add that I am an ideas person who endeavours to find ways to be legally creative in the way that properties are funded. As you know there are lots of ways of accessing loans and the critria can change to include people in situations that would have never been considered in the past. I will however, be more careful in the way that I state my ideas lest they be misunderstood.
Todd
Hi again,
Sorry for getting everyone upset.
Basically lo doc sounds good to me purely as they may take other streams of income into account or at least a higher percentage.
I have income from a boarder which is regular and declared,disability payment i’m told is counted in part and very low living expenses. I own home outright have no loans etc yet it always comes down to set income (job) which being in a country town will possibly always be low.
I am looking into shares as a way of getting more income along with a few business ideas but once again the tradition lenders will have hassels with that until i have an established record.
Anyway thanx everyone for thier input.
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