Hi when can we afford to buy our first rental property,I Michael am 40years old on a disability pension & Helen is a 35 mother of our 5 children 3 to 11years old.
Currently we owe $187,000 on our mortgage(house worth $280,000 to be a low guess)we also owe my parents $40,000 we pay off in there name.
We have a combined income of $40,500 plus I buy & sell anything which we live off comfortably(Great aussie battler)
We live in Hastings,Victoria,3915 in the best part of,We know in 2010 that the port of Hastings will begin plus it still seems to be going well here anyway,I would think if I keep renovating here slowly that in 5 years this property to be worth $500,000 approx with the port comming.
Any help appreciated.Originally posted by mihjakon:Hi when can we afford to buy our first rental property,I Michael am 40years old on a disability pension & Helen is a 35 mother of our 5 children 3 to 11years old.
Currently we owe $187,000 on our mortgage(house worth $280,000 to be a low guess)we also owe my parents $40,000 we pay off in there name.
We have a combined income of $40,500 plus I buy & sell anything which we live off comfortably(Great aussie battler)
We live in Hastings,Victoria,3915 in the best part of,We know in 2010 that the port of Hastings will begin plus it still seems to be going well here anyway,I would think if I keep renovating here slowly that in 5 years this property to be worth $500,000 approx with the port comming.
Any help appreciated.Hi mihjakon,
good to see you are having a go!
If you approach a bank to borrow money for an I.P, they will want to know a few things;
1. what is your current total household income (and recent proof via payslips/ group certificates/ pension statements).
2. what is your total debts/loans/credit cards still outstanding.
3. they will usually calculate your credit card payments on the CREDIT LIMIT of your card/s – not what you owe. So a good idea before you start is to try and reduce your available limits on your credit card/s if possible.
4. they will want to know what the rent return is – a good guide is the bank will add around 60-80% of the rent to your current income to work out your loan servicability. This varies from bank to bank, and you will need to ask what the bank’s policy is on this figure.
Generally, banks will only allow you to borrow up to about 35% of your TOTAL income for repayments on loans (before I.P income is added). Personally, I think anything over 30% is risking making it tough to make ends meet. Any existing loan repayments are factored into this amount.
Based on the figures you have provided, you may be close to that percentage already I’m afraid.
Your income would allow approx $14k per year in repayments (using 35% of your income). At 30% of income, you can repay approx $12k.
The outstanding balance on your own mortgage ($187k), using the current interest rates (say 7%) is $13,090 – and that’s interest only. You would want to factor in at least another 1.5% on the interest rate to cover any ‘surprises’.
Michael, this will put you over the 35% limit and I haven’t mentioned your repayments towards your parents’ home, or any credit cards or car loans yet.
Your equity in your house could be used towards the purchase, and the banks will generally let you use up to 80% of your house value, less any outstanding loans. This will vary from bank to bank. Based on your figures, you don’t have any available equity you could use towards the purchase – house value $280k,
80% = $224k. You owe $227k on your own house & parents house. (cc’s and car loans not included yet).
I think at this stage you need to clear the loan to the parents at least, before you can do something. It would also be adviseable to clear the cc’s and the car loans too. Sorry.Cheers,
Marc.
[email protected]Hi Mark ty for the reply.[biggrin]
We do not have any credit cards or car loans & the original parents loan was $50,000 have paid off $10,000 & trying to get rid of more(bank does not know about this loan from parents).
My problem is that with me buying & selling things it is up & down with some times $500 a month & then maybe $2,000 the next month then maybe zero the next so I cannot rely on it as I must take money from our buying & selling money to live sometimes (5 beautiful children) then cannot buy anything to sell so I must source things to sell before I have paid for them then start again but I will get up there with you guy,s its a matter of time or maybe a good backer lol.
cheers for your help, Michael & HelenOriginally posted by mihjakon:Hi Mark ty for the reply.[biggrin]
We do not have any credit cards or car loans & the original parents loan was $50,000 have paid off $10,000 & trying to get rid of more(bank does not know about this loan from parents).
My problem is that with me buying & selling things it is up & down with some times $500 a month & then maybe $2,000 the next month then maybe zero the next so I cannot rely on it as I must take money from our buying & selling money to live sometimes (5 beautiful children) then cannot buy anything to sell so I must source things to sell before I have paid for them then start again but I will get up there with you guy,s its a matter of time or maybe a good backer lol.
cheers for your help, Michael & HelenGood to hear you don’t have the ‘usual’ loans holding you back.
The problem with all the ‘buy and sell’ income is, if it is on the side, you can’t use it towards applying for a bank loan. I am assuming you haven’t declared it and paid tax on it? (don’t answer that).
Also, it is inconsistent so even if you did declare it, the bank may not consider it in your figures. It’s a bit like casual employees applying for loans – it’s harder for them to get one.
Keep plugging away.Cheers,
Marc.
[email protected]
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