Hello everyone.
I have a question about how to increase your borrowing capacity?
I currently have a PPOR with my partner that we paid $295,000 for in September 2012 which is in both of our names.
I am saving a cash deposit for an investment property which I hope to get mid to end of 2014.
My income is $90,000 PA and my partners is $50,000.
I am looking at putting the investment property and any other future properties into a family trust for asset protection and to save tax on rental income.
I am also thinking of transferring our PPOR to my partners name to free up my full income to buy IPs although I will probably have to go guarantor anyway.
If we go ahead and get the IPs, then combined with our PPOR does this mean we will be capped out on borrowing power? Will be putting a 10% deposit down on the IPs for around $250-300,00 and paying costs with cash.
Any advice is appreciated.
Cheers
Rick
Hi Rick
As opposed to saving for the next 12-18mths for a deposit, have you considered purchasing a property that pays for itself on 100% finance? That would then enable you to direct your surplus salary income into your home loan. Best of both worlds.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
How does 100% finance loan work?
If I went down that path would I not be considered high risk for future IP loans?
100 percent finance would work via the banks or normal lenders lending 95 percent of the property value. Ie 200k purchase price they lend you 190k and charge you 2.65% for LMI on top of that so another 5k.
You then get a separate loan for the shortfall of stamp duty closing costs and remaining 5 percent. Say 20k.
This is pretty effective if you are earning good money but low on equity. You can then focus your income into reducing the higher interest 20k loan initially.
It is also effective if you target properties that are as close to cash-flow neutral as possible even when calculating the extra interest for the smaller higher percentage loan.
Increase your borrowing capacity by
– refinancing loans to a lower interest rate
– removing credit cards or lowering credit cards and store limits
– paying off personal loans
– getting a second job or other income source
– get a new job that pays more
– reduce debt on your ppor (although not as strong as the above)
-buying properties that rent for greater then the loan repayments. Ie property loan 100k interest rate 5% interest per year 5k. Property rents for $200 week (10,400 a year), Banks consider 80% on average of rental income. Therefore income for serviceability is $8320 therefor increasing your INCOME by $3,320 a year and your borrowing capacity by (If we say interest rates at 5%), by $66,400 a year.
Hi Rick
There are so many things you need to consider before rushing out and transferring the property to your partners name.
That strategy in its own right might cause you more trouble in the long run especially as the value of your PPOR increases.
As JacM has mentioned why wait to save up for a IP deposit (which in itself is not a sensible strategy as you want to increase your deductible interest and reduce your non deductible interest) when structured correctly it would be possible to start investing now.
Although Wilko is correct normally you would secure 90% lvr on the security of the property itself and look to raise the balance of the purchase price and acquisition costs from a separate loan we have been successful is arranging 100% loans for clients at standard housing rates on selected properties.
Personally if you are starting out i would dip my toe in the water and start off slowly.
Look to buy in your own personal names to start with and claim the deductions you can which will assist you in paying down your PPOR.
I am working with a couple from the forum at the moment in a very similar position to yourself .
We have sourced for them their first investment property and arranged 100% finance for them including their acquisition costs on the security of the investment property itself.
Property is yielding > 6% and they are ready for us to go again.
Can be done just need to start slowly.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Rick
I wrote some pointers on increasing your borrowing capacity for API magazine – here's the article.
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]
Thank you everyone for the advice and cheers for linking that article Jamie.
The 100% finance sounds like a good idea but I am concerned about being labeled as a high risk and how it will impact on future investments.
I am guessing that the shortfall loan would be a personal loan? We already have a couple of car loans that we are paying down so it would probably be easier to refinance our car loans and add the shortfall but then we pay a higher interest rate.
If the shortfall loan is kept seperate and is used only for the IP costs and deposit does that mean that the interest would be tax deductible
Cheers
RickBe very careful with the above strategy. Too many unsecured debts will create an uphill battle for finance. Plan careful and talk to your banker or broker before talking any further loans. Tell them what you want to achieve longer term and they should be able to create a path for you to get there. Quite often this could mean that you need to wait and save.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Rickduff wrote:Hello everyone.I have a question about how to increase your borrowing capacity?
I currently have a PPOR with my partner that we paid $295,000 for in September 2012 which is in both of our names.
I am saving a cash deposit for an investment property which I hope to get mid to end of 2014.
My income is $90,000 PA and my partners is $50,000.
I am looking at putting the investment property and any other future properties into a family trust for asset protection and to save tax on rental income.
I am also thinking of transferring our PPOR to my partners name to free up my full income to buy IPs although I will probably have to go guarantor anyway.
If we go ahead and get the IPs, then combined with our PPOR does this mean we will be capped out on borrowing power? Will be putting a 10% deposit down on the IPs for around $250-300,00 and paying costs with cash.
Any advice is appreciated.
Cheers
Rick
Get some legal advice on the implications of transferring your share of the house to your spouse – stamp duty, asset protection, succession, control etc. And then get some legal advice on the trust side of things too. A trust set up wrong will provide little protection.
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
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