Hey all. My brother said this would be a good place to read stuff by investors and maybe even get some help. So here I am.
I'm a noobie (newbie) here but I need some help please. Ive already got 5 CF+ properties, but I cant get any more. My bank told me today that Ive maxed out my available equity by borrowing as much as ive already gotten.
So now what?? What do I do now?? Do I turn into a sitting duck, spend less, pay off loans while doing extra overtime?? Or is there something I'm missing here?
My mortgages are principal and interest, the tenants are slowly chipping away at the balances for me. The properties are either in out-lying suburbs or in larger regional areas, so there's almost no capital growth.
Help me please!!!!! I'm tearing out my hair over here.
Lisa (Noobie)Lisa,
Are you with the same bank?Sound like a case of cross collaterilisation itus.
Richard Taylor | Australia's leading private lender
Hi Lisa – Welcome to the forum – BIG CONGRATULATIONS on a nice portfolio. It does not have to stop there tha'ts for sure. I'm guessing you are all with the one lender eh? THought so. And it's a bank too? Yup thought so too. See another lender, and probably a non bank or different bank if you must. Some banks (which bank) only count 75% of your rental income as income, and they 'load up' the interest rate for your loan servicability assessment on all the loans you have with them, at the P&I rate and payments – even if they were interest only. So unless you have a rental return of astronomical amounts, you will run out of steam so to speak…. A minor hurdle for someone who has achieved five properties already Lisa! Let us know how you go, or if you need any more specifics. All the best.
Some lenders take 100% of the rent into consideration where they are not taking the property as security and calculate your repayments at the actual charged rate rather than using a sensitised rate.
This alone will increase your serviceability Big Time.
Richard Taylor | Australia's leading private lender
I don't have servicing problems. And they're not cross-collateralised as a whole – just some. Cash flow is just fine. I'm with Westpac. They offered me a 0.7% discount on my loans but I can only go to 80% loans on the values of each house because I don't have any financials to show them. They won't let me borrow any more because that would take me over 80%. The guy at the branch says to wait until I have more equity before buying anything else.
That's where I'm stuck. Where do I create more equity?
I'll give you an idea what I've already tried:
My first unit I bought with only 5% deposit plus the FHOG (I had financials then!). I painted it, new kitchen, new floor boards, new curtains, moved out put a new tenant in. Had it revalued and bought another unit. Renovated that one, had it revalued. These two are cross-collateralised.
Then I built two houses. I got the land cheap and got a discount on the construction, then had them valued at actual market value instead of cost. So the cashflow was great the moment they were complete. But there's no more room to build equity as they're already new and completed now. These two are cross-collateralised, but separated from the others.
I had them revalued at a lot higher and bought a new house in a regional area. This one has now been renovated/fixed-up and revalued. This one I paid a deposit on, taken from the line of credit against my own home.
But the bank says I can't go over 80% so I can't borrow any more and I don't have any more funds to take out of my line of credit.
The smart @$$ at the bank said "work some more, spend some time paying off the loans and wait another year or so to try again".
I don't like his answer, so I wanted to know if there's another way to do it.
Thanks!
Lisa (Noobie)Hi Lisa. Yes, with Lo-doc loans that 20% deposit bit does hold back – shame your westpac boy did'nt congratulate you on the work you've done but……… My only suggestion would be as follows-
1) Is there any 'meat' you could pull out of the first two units if you refinanced with another lender and a favourable val? Depends how long ago were done, and any exit fees form the lovely folk at westpuk. You could look into that perhaps. Might get a few xtra grand that way.
2) I know of one lo- doc loan that is 85% lvr, which can be done as lo or no doc, at a very reasonable rate loading of .2% (7.99% @ 80% and 8.19% @ 85% LVR) Other than that, while there are 90 and even 95% (for metro) lo-doc options, they can be postcode restriced, and boy do you get fleeced on the interest rates.
THe xtra 5% may make a difference, depending on how much you are financing, but other than that if your equity is maxed out for now, it may well be a case of sitting back for a while, and getting ready to pounce once some funds are accumulated. All the best.Thanks heaps v8ghia. And thanks for the congratulations. You're the only person thats said that. My family think I'm insane
I rang a different wankpac … um … westpac branch and spoke with a different lending lady than my usual guy. She said i could maybe go up to 82% with no mortgage insurance to pay (at least that's what i think she meant… I'll check that out). Might not help – but 82% is 2% higher than I had before. She spent a bit of time going through what kind of things the valuers look for that might help get a bit better valuations too.
I wish the guy i normally use had done these things with me instead of the 'go away little girl' routine he used on me.
The new lady suggested I change all my investment loans to interest only payments instead of principal & interest. Then I should put all my profit from the rents back into the line of credit to help get that down that quicker, plus my own savings/payments into it. Then I should have money for deposits again sooner rather than later.
I'll have to ask my accountant if thats a good idea tomorrow though. I'm a bit unsure about how that works.
Does that sound like something I should do or not?
Thanks again
Lisa (Noobie)Hi there, congrats to your awesome portfolio. Just a short note on 'Cross Collaterilisation' never ever Cross Coll with any more properties, this is securitiy for the bank and less flexibility for you.
If your bank don't like it then terminate your relationship with the bank and take your business else where, his loss and someone elses gain. I'll prefer a morgage broker with experience in investments etc……………..see Qld007 ' Aka, Richard Taylor'
Keep up the great work with your portfolio
Thanks for the tips blueheeler.
I rang two other banks today, plus two local broker houses. They all told me the same thing – either I need more equity or I have to find deposits or I have to put up with higher interest rates to get more money out. Not happy with either suggestion and still stuck and confused.I rang a real estate agent who's been good to me in the past. She gave some great tips on small things that could increase valuations without spending too much money.
::sigh::: I guess I'll just switch over to afternoon shift rates, work a heap of overtime and spend a year paying down some loans then. That seems to be the only option people keep giving me.
Thanks anyway
Lisa (Noobie)
Hi Lisa,
I have no specific advice for you, but to be frank I don't think you should 'give up' and work harder. Working hard will get you nowhere fast. I think you should continue what you're doing (ie trying to get more property now) & read more, or invest more money in your education (seminars, courses). Buy a few of Steve's products from this website (I can personally recommend the Masterclass Pack), or go out & buy a bunch of investing books, or look into setting up a small business on the side… anything but working harder in a shift work job (I work one myself & know how hard it is). I don't know who said it first but "money is a great servant but a lousy master" may ring true with you. Don't give up after calling 4 people. Think about giving up after calling 40.
Also, if you don't educate yourself further, how will you know that the next investment property you buy won't do the exact same thing to you thats happening now?
Here's to thinking hard, not working hard!
JonVesson wrote:I have no specific advice for you, but to be frank I don't think you should 'give up' and work harder. Working hard will get you nowhere fast. I think you should continue what you're doing (ie trying to get more property now) & read more, or invest more money in your education (seminars, courses). <snip> or look into setting up a small business on the side… anything but working harder in a shift work jobLOL good points.
I do have a small business on the side.
I work part-time in Customs – afternoon-shift AND i own a publishing business that's been running nicely for 5 years (that's my "day-job"). I took the night job so that I could invest every cent I earn from it. It's my way of separating out the incomes nicely – one income for me and my personal home/lifestyle/savings/travel etc and the part-time income all goes into more investments. It's how I got where I am today.I see more opportunities for more worthwhile investments on a regular basis, but I'm just frustrated that I can't access more money. Yet.
Oh – and since I wrote that last post, I've rung a few more people around me – accountant, brokers, real estate agents, a valuer to ask what could increase valuations and a few more rental agents, asking what they would do to increase rents given the properties I have.
I'm working on it!!
Thanks again
Lisa (Noobie)Great comments from Vesson. Hang in there and dont be too disheartened, be patient and let your properties work for u, not u work for the properties.
Dont limit yourself on other peoples wisdom or vision 'Banks,Morgage Brokers', keep looking for the right people with the right attitude.
Hi Noobie,
Go Girl! Bank Managers are interesting creatures. My bank manager told me one day that I should stop partying and find a RICH dirty old man and let him buy me another house. Needless to say I went out brought a R1 (motorbike), found myself a "poor" toyboy. Then every week day for a month I personally went and asked my bank manager if he had changed his mind. (my bank was close to work but phoning is effective too) Each time I asked another question or explaination. By the end of the month, he caved in and found a way. Persistence pays. To me, my bank should work for me not the other way around.
Moral of the tale… I still have the R1 and the toyboy (years later) and the same bank manager !!!! Poor Steve. Still cringes over that meeting.
My Dad always said … where there is a will… there is a way… hang in there.
Jen
So I went and did my financials for the last 2 years. I've been underestimating my income! Who knew. But I didn't have cashflow or servicing problems, so it really didn't change anything except now I can borrow more than 80% of the values.
The guy at the bank tells me I have to pay mortgage insurance if I go over 80%, but now I have access to more equity.
I decided to switch one unit's title and loan to a new bank and borrow against that equity to buy again.
As I see it, it doesn't solve my problem. Once I buy a new CF+ house (I already put an offer in on one yesterday) then I'm over 80% with my loans and will run out of equity yet again once I've eaten into the new equity I've unleashed.
What happens when I'm up at 100% of everything? I'm still out of equity and stuck for how to keep moving forward. At 100% borrowing, the fees are awful, so it's harder and harder to make any decent profit.
That puts me in the same position I'm in now but with less equity and more costs than before.
Now what??
Lisa (Noobie)lol lisa. I know how you feel. You've well and truly got the realestate bug. It's so exciting AND frustrating..
I'm in the waiting game at the moment also. I have 5 IPs and my PPOR that I'm in the process of renovating to free up more equity.
Certainly see what you can do in the way of improvements to increase equity, but sometimes we just have to wait for the market to improve.I agree with the advice you got from the woman banker. Switch to IO loans and save the money for a new deposit..And perhaps you might consider aiming for a high growth area for your next purchase. Yes i know they are expensive but it will be worth it if it increases 10%+ per year.
Anyway we all have different ideas about investing.
good luckOK Lisa, this calls for a new approach…here is what I suggest…
1. Take a look at the IP that has the most equity (or the least growth as you see it)…..sell this!
2. Take a look at your IP that has the second most equity (or 2nd least growth as you see it), sell this!
3. The remaining 3 IP loans should be changed to IO.
4. Use the gains from the sales to reduce the loan on one of the IP, so that it becomes increasingly cf+, until you have found a bargain to re-invest, when you should ensure you can redraw your money.This will give you "some" room for movement. I think if you are "stuck" by being maxed out, perhaps its time to consolidate, liquidate and start again….or in your case, not even start again, just take a step back before taking two forward…
Good luck
I feel the strategy should be lay back. Pay down the loans for now. Relax, look for deals. Once the equity starts building(your deposit) then you can get in quick to get a good deal.
Don't just do a deal for the sake of it. Do it to make money, find a bargain. Having good finance is part of getting a good deal/bargain.
Chris.
You've all been so helpful and supportive. Thank you
I've decided to take a multi-phase approach, based on everything everyone has posted and also on other research I've done.
1) I've switched all loans over to IO. All rent goes into my LOC, reducing that nicely. IO payments for the investment loans comes out once a month. The profit stays in the LOC and will build rather quickly now I'm not making P&I payments.
2) I've arranged some minor cosmetic work on each property. New security doors on one. New curtains in another. New basic landscaping on the older ones. Also all of the above on my own home as well. This should help raise valuations next time I'm ready.
3) I've increased the rent on the one getting new security doors. They were happy to pay more for security. The others are under review with my rental agent right now.
4) I'm saving the rest of my income madly into my LOC for future deposits on the next one.
5) I don't really want to sell anything right now. I need to learn patience if I'm going to make this work
Thanks heaps. I really appreciate it.
Lisa (Noobie)Love this thread… It would appear the speed at which you wish you to move you should also re-consider your investment strategy. Just another way of looking at it. eg:
1. What about starting and selling/part selling businesses?
2. What about more development?
3. What about some diversification into shares, collectables, etc?There could be another vehicle out there which suits your style much better…
As you are realising property relies on many more factors than your own imagination in order to get the value moving.
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