How to Increase your Serviceability?
Peter SPANN talks about using things such as LPT’s and Steve NAVRA talks about Cash Bonds to increase your serviceability.
At some stage we all hit the brick wall that is the serviceability issue as decreed by banks.
Does anyone have any tips or how to’s when you run into this issue?
I know you could go lo-doc as well, with a slightly higher interest rate, but a 1% increase on a 5% loan is costing you about 20% more for your money[blink].
Are there any other ways
Or
Can anyone explain in a bit more detail about Peter or Steve’s ideas?
Has anyone recently overcome this obstacle in their property investing ?
Wasp
**************************************************Its not what you earn but what you do with what you earn
Serviceability is always the problem when you adhere the buy&hold policy.
Banks become more and more conservative the more your exposure increases. Some banks limit borrowing percentages, lower than 80% as your loan book with them grows.
One of the biggest traps, is cross-colateralisation. A mouthful, but simply put, the banks cross-lend one property to another. It is often needed when equity is light on, however depending upon what stage you’re at, it could be time to help out your problem.
I have many clients with 5+ properties, this is always the biggest issue I’ve found. The simple way around this problem, is to free up a property where possible from your lender, thus giving you clean title and more importantly, a clean break! You will find your options far more open to the next lender. Westpac for example, disadvantages their clients, by loading a further margin on top of their normal margins, to whatever you owe them. So, you can take your application to the next bank and have all the options open to you again and you’ll find most lenders will take your current repayments as is, without loading margins!
Also, freeing up equity to do this ensures the new bank is taking on initially a low-lend and being new business are often open to negotiation and gentle persuasion from the broker presenting the application.
It’s unfortunate but true and I guess follows the old die hard saying, “Don’t leave all your eggs in the one basket”
The other option, ask you boss for a payrise!
Hope this helps,
Regards,
RobRob Whyte
Certified Mortgage Consultant MIAAPrincipal & Licensee
The Mortgage Gallery
e [email protected]Winner 2004 National Office of the Year!
Accredited with over 27 lenders nationally. 15 years experience in commercial and residential lending, ask me anything, if I dont know, I’ll find out!
Thanks Rob
Loans aren’t crossed though.
Payrise would help somewhat [biggrin]
Any other Tips or Unusual Strategies that you’ve come across such as I’ve mentioned above?
Have you heard of anyone Implementing the above?
Wasp
**************************************************Its not what you earn but what you do with what you earn
One of my friends worked for free for his brother in law (he is an electrician). When he went for a loan (self employed – didn’t have the two yrs. of figures, but didn’t have enough of deposit for a full doc) he got his brother in law to issue him payslips, and started to get paid by his brother in law, servicability increased enough to get him his loan. Of course his brother in law pays him (and pays the tax man). So perhaps a part time job can also help servicability. Of course it depends on the lender.
Hellman
careful planning from the beginning is necessary. Plan on which names to buy in or not buy in, get your ABNs now in anticipation of getting a low doc at some stage. Get part time jobs if necessary etc.
In the end, if you have equity/depists then you can continue to get loans.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Originally posted by WASP:I know you could go lo-doc as well, with a slightly higher interest rate, but a 1% increase on a 5% loan is costing you about 20% more for your money[blink].
Wasp
Hi Wasp,
Sometimes the additional percentage rate is worth the expense. In some respects it is a little like LMI or not questions.
If the extra cost of the borrowings means you are closer to realising your goals (and you do not over extend) – is that not a good thing?
Sometimes we lose sight of the bigger picture – what is that saying? – something about trees and wood?
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958“Westpac for example, disadvantages their clients, by loading a further margin on top of their normal margins, to whatever you owe them. So, you can take your application to the next bank and have all the options open to you again and you’ll find most lenders will take your current repayments as is, without loading margins!”
Grateful if you could elaborate on this? i have three loans with westpac…I’ve never heard of this concept?
Hi Indigo,
F.F is referring to the margin loaded onto loan repayments when calculating a customer’s serviceability, Westpac add a 0.10% buffer on proposed & current Westpac loan repayments.
E.g.,
$200.000 loan @ 0.10% buffer = $200 per month
$200.000 @ 7.32% = $1374 repayments per month + 0.10% buffer = $1574 per monthOther lenders simply add a margin to the SVR or discount rate when calculating serviceability, i.e. proposed or current debt @ 7.37% assessed at 8.47% 8.82% etc.
I hope this helps. Cheers.Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
We had this problem..
Then refinanced our IP’s and free’d up some equity (paid out an IP, then borrowed against it again)..this was the onmly way we could move forward.
We willrevalue everything in a few months and re- asess our situation. Interestinly I sawin the IC newsletter about 1 couple of average means that were up tothier 15th IP (they obviously found a way over the hurdle)
There is low-doc, no-doc and many other ways of getting $, mainly at higher rates though.
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorRedwing,
that raises an interesting point – how often do you revalue your properties?
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonOriginally posted by calvin@thirty4:Redwing,
that raises an interesting point – how often do you revalue your properties?
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonOver the last few years we have only been doing it every 12 months..
I would say 6 months would be the minimuim..however, with the CG that we have had of late and the fact that I believe we will see a marked difference when several of the IP’s are valued due to recent prices on comparable properties, i’m happy to get this one done at about the 4-5 month mark..
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThanx Redwing,
that’s kind of what I thought. It would be better in a cooling market to go annually, I would think! Your thoughts?Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonThanks for some of the posts folks any other ideas/
Maybe low-doc , no-doc is the way to go as long as we dont overstretch and then refinance once things settle to a lower % rate?
Opinions?
Wasp
**************************************************Its not what you earn but what you do with what you earn
Wasp
Many of the lodoc nodoc lender charge the same interest rate if not better than the standard variable rate so why wait.
Cheers Richard
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
An interesting topic. We’ve yet to reach the limit of our servicibility thanks to my partners recent pay rise. BUT, we’re planning our next move very carefully. For instance, if we buy our next IP around Perth or SW WA, the unfortunate truth is that it would be relatively low yielding in terms of rental returns which means we’d chew up a large chunk of our currently free servicable funds. Thus it would difficult to purchase another IP beyond that. At this point we are now leaning towards IP’s further north where rental yeilds are higher but short term CG probably lower. The advantage is that for the same monthly cash outlay we could possibly purchase 3 more IP’s instead of only one. It also spreads our exposure to vacancies and other issues that would compromise our rental income.
Flatout-
If you buy up North and get good returns, you may be able to buy another IP in Perth as well depending upon the increased income wouldn’t you..kind of along SiS’s Offset Gearing.
Country WA property still looks interesting in many areas and possibly hit the peak in others, making the city still worth a look for CG and increasing rental yeilds IMO.
I’m now thinking my next Investment will have to be a deal where i value add in many of the ways available and sell it (or part thereof)to realise a profit, thereby increasing my serviceability and keeping the bank happy.
Its a numbers game isn’t it; working out if we stay at current holdings and property doubles every 10 years then in another 10 years we’ll have near $2M in property and around $600k in loans..the goal is to expedite the goal in the best manner.
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorOriginally posted by redwing:Flatout-
If you buy up North and get good returns, you may be able to buy another IP in Perth as well depending upon the increased income wouldn’t you..kind of along SiS’s Offset Gearing.
Country WA property still looks interesting in many areas and possibly hit the peak in others, making the city still worth a look for CG and increasing rental yeilds IMO.
I’m now thinking my next Investment will have to be a deal where i value add in many of the ways available and sell it (or part thereof)to realise a profit, thereby increasing my serviceability and keeping the bank happy.
Its a numbers game isn’t it; working out if we stay at current holdings and property doubles every 10 years then in another 10 years we’ll have near $2M in property and around $600k in loans..the goal is to expedite the goal in the best manner.
Redwing, you hit the nail on the head. It highlights the importance of having an investment strategy and building up the portfolio carefully. Per your suggestion we could buy further north and probably still afford to buy another IP around Perth where we still believe the market has plenty of growth left in it.
However, IMHO I don’t see rental yeilds increasing for awhile yet. It’s an interesting issue though because historically low median house prices in WA made home ownership possible for virtually any income level. That means Sandgropers aren’t used to paying rent long-term. But rising prices are definitely forcing many low income earners out of the market and they will have no option but to rent until incomes catch up (could take many years). Is it possible/probable then that around Perth and the SW we’ll see enough demand for rental accommodation to result in imcreased rental yield???
Already happening Flatout..
we’ve raised our rents not long ago and the tenants were happy with the slight rise..
There is another thread where a few of us have raised rents to meet current market rates, interestingly the vacancy rate in Perth/WA is quiet low in many areas (Wanneroo etc) and rents can be raised without concern to the new levels.
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorHi Wasp,
There are some lenders which will service the loan on a their low fixed rate if you fix it for a period and they also add no margin.
Regards
MarkThurston & Associates Mortgage Brokers 07 5528 3220
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