Hi experts,
Can you please enlighten me on how accessible equity is calculated based on non-recourse commercial loan?
Let’s use a hypothetical example:property:
Equity (ie own risk money): $400K, represents 35%+6% = 41% of total price
All acquisition costs: 6% of purchase price
Max property price can be purchased: $400K/0.41 = $975,610.0
Max LVR: 65% (of $975,610.00) = $634,147.00
Yield: 7.5% = $975610 * 0.075 = $73170.00
Rent incremant p.a: 4%
Interest: 5% = $975610 * 0.05 = $48781.00
Net cash flow: $73170.00 – $47871.00 = $24389.00After holding property for 3 years, assume new valuation is at 7.25% of new rent of $79140.00 = $1,091,595.00
Is accessible equity calculated at 65% of new valuation minus existing loan amount, ie:65% * ($1,091,595.00 – $634,147.00) = $297,341.00 ?
Put differently, with a property with loan max LVR of 65% (non-recourse), can I only access 65% of the available equity?
Put more generally, with a property with loan max LVR of X%, can I only access X% of the available equity?Or can the the equity be accssed at a different LVR than the original loan LVR?
Thanks
FXDTo work out how much extra you could possibly borrow use this formula
(Valuation x LVR) – (existing loan)
So if the value is $1.092 and the existing loan is $634K you could borrow an extra $76K at 65% LVR
($1.092 x 65%) – $634kBut you will still have to pass other hurdles such as the valuation coming in and serviceability.
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
Thanks Terry. OK so my understanding is not too far from the truth ;-)
So if the $76K is to be used in conjunction with my own cash as equity for yet another new commercial purchase,
with another non-recourse loan at max LVR 65% and a net positive cash flow position, how will the original lender
(for 1st property from which I am to borrow $76Kequity) assess the servicing of that amount as it will be fully
serviced from rent income of the new purchase?I am trying to see if it is possible to achieve a perpetual borrowing situation without selling any property and
independent of income from a job.Thanks,
FXD-
This reply was modified 8 years, 2 months ago by
fxdaemon.
Hi FXD,
Why not refinance with lender 1 and get the extra equity, then use that (and your other cash) towards the purchase of the new property through lender 2?
You can use of course lender 1 for both properties but that might not be to your advantage.
Hope this helps?
Cheers,
EthanEthan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
HI Ethan
That’s exactly what I am talking about, refinance with original lender #1 for a LOC or something for that $76K
and use it + own cash for next buy. But to access that $76K lender will need to assess serviceability as what
terry said.My question is how will lender #1 assess serviceability for the $76K LOC when it will be 100% serviced by a new
purchase but *before* the new purchase is actually made. You see my point ? Will lender #1 say wait *after* you
buy then come back and we can re-assess, it’s really a chicken and egg situation.Also, I don’t want to lock myself into a position where all my borrowings are tied to same lender simply for the
ease of accessing existing equity.In theory it seems, it’s do-able but I just don’t know how to go about accessing existing equity *before* a new
purchase is actually made and yet that equity is needed for the new purchase.As I indicated before, I want to establish a strategy to achieve perpetual borrowing well into retirement without
having serviceability dependent on PAYG income because I will then have no PAYG income, therefore the thought of
using non-recourse loan to begin with.Anyone can help?
Thanks,
FXDI don’t do commercial loans so am not up to date, are non-recourse loans even available?
A lender, when applying for further borrowings, will assess you on your income, the rent from the property and the debt you have for this and other loans – with buffers on top.
Perpetual borrowing ability won’t exist as you will either run out of income or serviceability.
Values won’t increase like you expect.
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
The lender will take the existing rent and you income into account when getting the $76k loan. They won’t take into account rent from a proposed purchase unless this is happening at the same time – and then they will take the debt into account as well.
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
I’m not sure what you’ve been reading to be going about non-resource commercial loans in Australia, you might be confusing this with Lease Doc loans OR reading US based info sources?
To answer the actual questions though:
*To draw equity from an existing commercial property, pending lender policy if the numbers stack up to show you can afford the increase in debt for the deposit that will be all thats required – they will not factor in a new purchases rent OR new debt for the remaining future purchase debt.
*Commercial is a little different to residential lending, you don’t necessarily need to use multiple different lenders to spread the debt to maximise your borrowing capacity – especially if you’re looking to use lease doc loans.
There are some lenders which are great in this space, allowing you to borrow without assessing the personal A&L of the borrower, instead focusing on the purchases income vs outgoings, and likewise have simple equity release policy to allow future purchases. One of these I did last had a release on an existing lease doc to fund a deposit for new purchase, approved within 24 hours and in the clients account within a week. In comparison a standard commercial deal timeframe can take 6-8 weeks with lender turnarounds.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi all,
I wonder if fxdaemon might be thinking of Asset Based Lending, rather than non-recourse – you know, the kind where they will lend to 65% with no documentation re Income required at all.On this low LVR, if any problems were to occur, they can sell even at fire sale prices and reclaim their loan in full.
Benny
Hi Terry, Corey & Benny
Knowing all of you guys are experts and having your responses here is very enlightening to further educate my knowledge.
So when I mean non-recourse loan, indeed I mean a product with the following 2 features:
1. lease doc based on property income only, I should have made that clear.
2. max LVR of 65% where in situation if thing turns bad, the max one lose is 35% equity + other costs.The reason I am focusing so much on this right now is I am maxing out on borrowing and I keep
wondering how do other experts in the field seem to be able to achieve perpetual borrowing
well past official retirement age. That’s the goal I am trying to achieve without having
borrowing dependent on another income, eg: PAYG salary.If like what terryw said perpetual borrowing seems impossible, then may be it’s just me day
dreaming here. If the expert view is that I need to review my portfolio type, structure etc,
then I am happy to seek out for such professional advice and get myself set up properly
going forward.Perpetual borrowing is the main catalyst for me looking into commercial property and borrowing.
Sorry about confusion that the title and original question don’t come out clear enough.
Cheers,
FXDFXD
Sounds like you mean lease doc loans.
A non recourse loan is one where the lender will only take the security property but not chase the purchaser for any shortfall on sale. These exist but are rare.
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
FXD
Sounds like you mean lease doc loans.
A non recourse loan is one where the lender will only take the security property but not chase the purchaser for any shortfall on sale. These exist but are rare.Ok thanks I always assume lease doc also implies
non recourse and vice versa.Any idea anyone offers such product featuring both?
I assume the rate may be high even if it exists?Thanks
FXDlease docs are not non recourse.
I don’t know of any lender lending on a non recourse basis in Australia.
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
They’re definitely not non-recourse. If the property market crashed 50% and you went bankrupt, they’ll still come after you for any losses incurred.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
They’re definitely not non-recourse. If the property market crashed 50% and you went bankrupt, they’ll still come after you for any losses incurred.
Bankruptcy stops them from chasing the debt. If you default on the loan the mortgagee will still take possession of the property, sell it and then chase you for any shortfall and potentially end up bankrupt.
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
Does anyone do lease doc with LVR at 75% or is 70% the max in the market?
How about lowest ICR?Thanks
FXDNo 75% lease doc is doable and in fact even 80% depending on the type of security.
Like anything lowest interest rate does not necessarily best product for expanding portfolio.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
75% LVR is definitely possible, but remember there is a general trend of rate for risk in commercial lending – the higher the LVR the higher the interest rate.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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This reply was modified 8 years, 2 months ago by
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