Hi guys,
I’m looking at a few inner city apartments around my area which at the moment would probably break even but I can see in the next 1-5 years really taking off and increasing in both growth and cashflow (which is what it’s all about isn’t it??).
The problem i’ve been told is the following (in a nutshell, serviceability and how banks look at “inner city” IP)
Extract from broker’s email:“You also need to service all the loans, and for investment properties in inner city, they will only take 60% of rental income.”
I understand that banks inflate the interest to determine the serviceability on the loans, but what is this junk about 60% rent only????
How is a person supposed to prove serviceability if 1. They inflate the interest to begin with by 30% and 2. Then only take 60% of the proposed rental income of the IP?
How do people that -gear, prove “serviceability” to the banks…if their rents aren’t covering the loans in the first place?
On my calculations, if the banks used the “real” rental income, serviceablility would not be questioned… ?
Your help is appreciated guys…
Thx
RichardBecause of the massive amount of supply for these type of apartments, banks are very reluctant to lend on them. Also when they are 2-3yrs old they tend to rent for less than ‘new’ apartments (which are seen to be newer/better by tennants).
As for -gearing your servicability comes mainly from your income. In the ends the bank only care that you can afford to meet repayments, even while the apartments is empty.
Hellman
Also inner city is usually restricted to certain postcodes – some apartments may not have any restrictions at all.
Cheers,
Simon Macks
Residential and Commercial 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.
Thanks Hellman,
So is the thinking the same when it comes to general residential property?
Once you get a few IP’s under your belt, is the bank still “assuming” you need to cover the repayments on every single one out of your income?
And so basically, it would be better, easier and possibly?? just as profitable to look elsewhere (outside inner city). But in saying that, how do people end up owning inner city apartments? Is it a case of having way too much of their money tied up in them?
Cheers
RichardThanks Hellman,
“So is the thinking the same when it comes to general residential property?”
>Not really, see if you select’established’ house suburbs, usually developers aren’t going to target those areas (and flood the market). Also you usually get a higher density of home owners which means you’re never going to get a flood of sellers (due to a down turn – home owners tend to do what ever they can to keep their house). Also another big factor is that with units unless your property is radically different from another in the same unit block it will go to who has the cheapest price, where as with houses you can always differentiate your property from other sellers (to a large degree – of course you do have to be mindful of the average of that area, but you can do more than an apartment).
Once you get a few IP’s under your belt, is the bank still “assuming” you need to cover the repayments on every single one out of your income?
>Ironically you can get to a position where banks see you as too rent reliant! In the end it’s about presenting a strong case to the banks and working within their lending policy (no matter how wierd they are). As a side note usally banks will look at your total rents then either take 80% (or as low as 50%) of that, to factor in vaccancies and other costs (repairs).
And so basically, it would be better, easier and possibly?? just as profitable to look elsewhere (outside inner city). But in saying that, how do people end up owning inner city apartments? Is it a case of having way too much of their money tied up in them?
>I know many apartments were sold to existing home owners as investment properties. They were sold mainly on the high deprication rates. These people had a huge amount of equity tied up in their homes (since they basically increased by 50%+ in the last 4yrs) and pulled that out to pay (allot of the time they wouldn’t even have to throw in $1).
Also banks were throwing alot of money about so there were few lending restrictions, these seemed to have been tightend. Now they are being sold more to (usually first) home buyers.>In the end I’m not saying apartments are bad (or good) I just think you really have to make sure you’ve selected the ‘right’ one (more than just say a regualr house). Usually this means close to shops, transport, etc and your proeprty isn’t going to be built out or have a massive supply come onto the market near where your buying.
Of course buying the ‘right’ one might your buying at a significant discount and so there is enough ‘fat’ in the deal so that you won’t go backwards (even if prices stagnate or even fall a bit).
Hope this helps a bit.
Hellman
Just briefly, the inner city apartment issue also has to do with the floorspace in metres squared. Some banks won’t even touch at all units under 50 square metres of floor, some differ with their policy on floor space of course. And if they do, you may be able to buy it, but none of that value or equity can be used as that will not use it, or see it as security.
Hope this helps…..
Jarrod.
http://www.jenterprisegroup.com.au
data-security-communications-entertainment systems<- home networking and home theatres- talk to me first!!
*Technology Consultants*
Brisbane.Gold coast.Sunshine coastAll true, however there are some lenders that hold a better view for the inner city and willing to lend generously even for units bellow 50m. As for your gearing this is something you will need to work out. Usually you would want to have a newer property anyway to be able to depreciate more of the value and increase your cash flow to better support your investment and ease the burden on yourself. There are ways to work out all the figures and then to make an educated decision, do not take it lightly, conduct your own research.
Regards,
ES
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