Does anyone have any experience with having only rental income as your only source of income?
Say you own 4 houses that are cash flow positive, which make you $50,000 per year.
Is there any sort of discount applied to your income, based on it not being a salary?
What I’m getting at is how do you know you can quit your job, and still be able to buy more properties….
Thanks.
No there is no difference between rental income and salary for the purpose of obtaining a loan. Banks will look at your historical income (rental/salary/business), to judge its stability, and any current loans you might have.
What I’m getting at is how do you know you can quit your job, and still be able to buy more properties….
That depends on how much income you will need to cover your expenses and service your current/future loans.
Andrew
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auHate to say that is not quiet correct and indeed there are many a lender who would consider you as being rent reliant and discount accordingly.
Going back some years lenders used to only take 30% of the Gross rental income where it was your sole form of income.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yes but not all lenders will accept this.
An example of this is Westpac and their 50% rent reliant policy – so essentially if the rent is 50% more than your total income than it makes you rent reliant and they do not accept over 80% and take it case by case if its under 80%.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Yes I did not mention that they won’t use your gross rent but will apply a discount factor to take into account agent’s fees, council rates, strata levies, repairs and vacancies (which makes sense).
A general rule is 20% discounting but it varies between lenders. Best approach would be to approach different lenders and provide them with your financial statements for the last two years to show your profits.
superAndrew | Property Analyser and Finder Tool
https://property-analyser.com.auAmp Bank are another one.
If you own 10 properties they will not touch you full stop even if there are no loans in any of them.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yeah it’s a shame about AMP – particularly for those with large portfolios. Guess it’s a matter of using them a little bit earlier than leaving them for last.
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]
Generally standard resi IP income are discounted by 20%.
But as Richard mentioned; if your unemployed ( Under 50) and your using rental income only to service the loan;
1. Not all lenders will allow this as your def high(er) risk
2. It will be approved on a case by cases basis ..based on your LVR, overall portfolio, risk buffers, age and your rental yield ( Max 6% with some lenders)
3. Rental reliance policy will kick in ( rent > 50% of your income)Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Wow thanks for all the great responses everyone.
I don’t understand the banks’ approach to this…. why isn’t rental income considered to be more secure than a salary? Someone could get sacked at any moment, but a house would rarely burn down….?
Also why would AMP have a policy of not lending to anyone with more than 10 properties?
Bank policy isn’t always logical, which is the bane of many a brokers existence. In the end they are the king makers however, as they control the money and the rules.
Risk matching obviously tells certain lenders that reliance upon rent is a higher risk factor than a salary, likewise AMP believes owners with 10+ properties are a higher risk to their business.
Sometimes this may be due to larger secondary issues, for instance on the rental reliance issue lenders consider a ‘worker’ to be able to replace their incomes without too many issues, whereas extenuating circumstances for an individual with a portfolio and no income, may come undone (ie, divorce, litigation perhaps).
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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