Hi All,
I posted a similar question many moons ago, but just wondering if someone can give me an indication as to how much I can borrow now that my circumstances are a little clearer and those of the financial world are not…
- Gross Income: $44k + Overtime ($5k-$10k)
- No dependents
- Genuine savings: $9k (will add my tax return to this, expecting at least $2k)
- Minimal living expenses (I live in my parents house, taking care of the place while they work overseas, in lieu of rent)
- Credit card limit: $2,000
- Credit card balance: $0
- Current IP: Valued at $209k about 18 months ago – based on similar properties listed in the area, it hasn't changed much from this. Leased (furnished) at $270p.w. Owing on loan: $114k with ANZ @ 6.35% (variable).
I wasn't expecting to make a move so quickly, but a property has come up that I'm interested in purchasing as an IP in a regional city in NSW, listed at $265k, hoping I could get it around $250k – needs a little cosmetic work to add value down the track, but a tenant could probably move in from day 1 paying around $240-$260pw (or more) in its current condition.
Just want to know how much I can borrow, NOT cross-collateral if possible. Ideally I'd like to keep as much of my savings available aside to make any minor cosmetic improvements.
Many thanks in advance – if I've missed any necessary details, please just let me know.
Hi Streaker
Yep – on those numbers, a purchase of $265k is certainly possible.
There's no reason why you'd have to cross collaterise – but the bank will no doubt tell you otherwise.
Have you considered using equity for those renovations rather than your own cash?
Instead, you can keep that cash tucked away in an offset account and treat it as an emergency fund.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
As Jamie has mentioned i cant see an issue with the 265K but i am not sure i would be putting any of your own cash fund in to fund the cosmetic renovation rather keep these up your sleeve for a potential PPOR down the track.
Definately dont cross collateralise the 2 securities as your existing lender will love it.
Personally i think i would be looking to borrow to 80% of the existing security value to set yourself up correctly now ready for the next IP acqusition. Refinancing / restructuring will take a while to do it properly and you want to get yourself set up correctly both now and in the future.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks guys, much appreciated!!!
I will go and see the bank this week to see what they think…
One more question…
Online Stamp Duty calculator is telling me I'll be up for about $8000 – is this correct?
Tread carefully when dealing with the branch lender – chances are they won't have a clue about what it is you're trying to set-up. Some are good – but many aren't.
Stamp duty is about right.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks Jamie – I'll suss them out… My previous experience has been pretty good, but if they tell me it can't be done or seem confused I will look elsewhere.
Streaker i promise you they will not tell you it cant be done just 101 reasons why you would want to not do it that way.
Then they will tell you if you cross collateralise the securities they can give you an extra 0.0001 discount and all will be sweet.
Just ask the lending manager you see how many IP's he owns as that will give you a clue of whether he has any idea?
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Richard,
I was wondering, do you by any chance have a “borrowing power” spreadsheet or similar you would be able to share with me? I was able to develop a relatively simple one which worked for me in my first purchase, but since then it has become a lot more complicated. So I thought I would see if you would have anything useful.
Hi Streamline
The problem is that the variance between lenders is so vast these days and there are so many variable within each lender that anything meaningful by way of a excel spreadsheet is going to inaccurate.
As a rule of thumb if you take
1) Your net income and add
2) 80% of the gross rent on each investment property (include new IP to be purchased) and then subtract1) Your total monthly mortgage committments (including PPOR & IP loans)
2) Any other monthly repayment due under any personal loan, leases etc
3) 3% of your total credit card limit.
4) A living allowance based on the family number i.e single person say $1150 (couple say $1850 and then say $410 for each child)Divide the surplus figure by 7.35 and that will give you a very rough indication of the amount you can borrow.
As i say it is so inaccurate it is not funny especially where you have some negative gearing in there or similar.
Lenders vary in the way they interpret everything from rental income to living allowance.
Sorry not trying to be vague just it is not a matter of one formula fits all.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thats fine Richard, I thought that might be the case but I guess I was just hopeful.
Seems like it is not really worth developing anything significant as it might not be effective anyway, and probably better off just approaching lenders and seeing what they will allow, I guess at the end of the day it is them you have to satisfy anyway.
Totally agree but be careful contacting a lender to ask them as i have seen it happen to so often.
You make a quick enquiry on your serviceability and next thing they have undertaken a credit search.
<edit>Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Just to clarify, you guys would recommend taking out a LOC against my first IP, drawing out the money to pay for the deposit, stamp duty and any minor cosmetic changes on 2nd IP, with a new separate loan to finance the rest of the 2nd IP?
As this is all deductible debt, is it worth putting my "rainy day" cash into an offset account?
Many thanks again – finding this forum to be a very big pool of very valuable knowledge!
Good luck. I earn $170,000 per year, have a small personal loan. $20,000 in savings but because I got nailed to the wall in my divorce and had to sell the house and walked out with nothing, I have no collateral. I have had 5 mortgages with CBA and a perfect credit history and the banks dont want to know me unless I meet stringent criteria with deposits. Im reluctant to hand over all my savings as we still need to live, pay rent etc so dont listen when they say "you shouldnt have a problem ".
Streaker
In essence you have it about right. I would suggest an equity loan if your current lender charge a higher interest rate on a line of credit. The purpose of the funds will be for investment and therefore deductible.
Then make sure you use a separate lender for your IP's.
The offset account should be linked to the non deductible portion of your PPOR loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Like Richard said – an equity loan (or interest only loan) will generally achieve the same result as a LOC, albeit at a lower rate.
Do you really need to spend all of this time/effort trying to get up to speed with lender policy, products and structure?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie,
If I were in Canberra, I'd be coming to see you (or are we able to do all this via email???) – I think the mortgage broker who I got my first loan through has now gone on to do something else, and I haven't had a good experience with the few others in my area… So in the meantime I'm going to have to do a bit of leg-work – hence trying to arm myself with all this info so as not to be signed up to a structure that might cause me headaches in future.
"Know the answer before you ask the question" as the old adage goes.
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