I have a quick question in regards to LVR. I think that is the term? I am wishing to create a portfolio of property and I think I have hit a snag.
My current property is valued at $290k and I have $150k owing. I pay 6.94%, P&I, which is app $1450 a month. It will soon rent for $290 a week. I understand I can access some of the equity and purchase a 2nd investment property.
After speaking with a property investment company who were showing me certain properties, I asked the question of once I buy my 2nd property, when can I buy my third, and their answer was you can't because of your LVR. (BTW their plan was to say withdraw $80k from the property, put it in a sepparate bank account, approach a different bank with the $80k cash and use it as a deposit on the 2nd property – which sounds like an appropriate way to invest and not cross link loans).
Now on an income of $65k (soon to be 70k in 2012), no other loans, no dependants etc, I have been told that once I purchase a 2nd Investment property (say at $350k) the banks won't loan me any more money (for further investment properties in the short term) due to not being able to meet the LVR ratio of 100%. This would be due to having a low income and large outstanding home loans. I may not have explained this in true terms as I don't 100% understand all the jargon due to being new to investing terms. I hope you guys can understand?
What I am trying to develop is an understanding of what ways I can invest to negate (if possible) being denied further bank loans for 3rd, 4th properties etc. Or, a plan which shows how many months/years etc I would have to hold properties before my LVR allows me to purchase my next investment property?
Sorry this is long but am I reluctant to purchase a 2nd property until I can get an understanding and plan for future investments.
Thanks in advance guys,
Tristan
Instead of LVR, do you mean servicibility? Your income will only service so much debt, so you will be limited in the amout of properties you can purchase.
If you bought at $350k, interest only, your total monthly repayments would be about $3500 (including your current loan) Your gross income is about $5100 a month, plus rent.
There is no way to tell when your servicibilty would improve enough so that you could purchase property no. 3. It wouold depend on the increase in your income, rents etc.
Hi Tristan
Firstly welcome to the forum and I hope you enjoy your time with us.
What you have to bear in mind that each lender has its own method of calculating serviceability and the variables that make up this formula are vast.
Some lenders take your existing external liabilities at the rate you are paying the other lender whilst others work off a sensitised rate which can be 1.5 – 2% higher.
Then you have the variable of living expenses. Whilst most lenders work off the same HPC table there can be a difference in the scale adopted.
A percentage of the amount of rent you receive can vary between 75-100% and this couple with the negative gearing effect (some lenders dont factor this in) can make a huge difference.
All in all you probably an independant mortgage broker to review your current position and make some recommendations.
Even down to the fact that your current loan is a P & I loan rather than Interest only will make a difference.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Tristan, its comes down to your serviceability of the loan and the rental amounts from your IP
Hi Tristan,
LVR and debt servicing are mutually exclusive & you have to tick the boxes on both.If you have currently $150k owing on $290k property AND you add another property worth $350k using an additional loan of say $360k your total borrowing is $510k on $640k total security = 79.7% Loan to Value Ratio. Yahooo, being under 80% means no mortgage insurance costs ; you pass go.
On servicing the debt assuming no other debt (this includes no cr cards) on the info provided, plus a decent rental, you should also be OK. If you aim at having a 3rd property and are going to rush …rush slowly.
Let me know if I can help.
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