Hey everyone,
I currently own two IPs,
PPOR: Bought for $580k in 2011, now worth $1.6 mil, owing $160k, P&I
IP 1: Bought for $520k in 2017, now worth 700k, owing $520k, interest only (100% LVR), cash-flow positive
IP 2: Bought for $600k in 2019, now worth 700k, owing $600k, interest only (100% LVR), cash-flow positive
Annual working salary of my wife and I: $146k per year
Total salary= working salary + rental from IPs: $200k per year
I’ve currently hit my borrowing capacity limit and can’t borrow any more to purchase IPs according to my broker. However, I’ve heard of people with lower incomes just keep borrowing money and end up owning 10+ properties?
My understanding was that serviceability was based on income so therefore someone earning less than me shouldn’t be able to borrow any more than I have.
Is there something I’m missing here? For those who have purchased 10+ properties, how did you do it? Especially recently with the tighter lending rules these days. Most of the stories I hear of people owning multiple properties was done back in the day when banks were much more lenient and gave out loans like candy.
Any advice would be greatly appreciated!
Cheers
Don’t believe everything you hear is the first thing.
Second thing is that lending tightened up significantly in 2009 when the NCCP Act came in and again in around 2017 when APRA started trying to cool the market down by curbing lenders. So ask the people when they acquirered their properties.
If you have already tapped out it might be too late, but if you had companies borrowing you could have extended further by not being the borrower but the guarantor.
And some non-bank lenders will have easier servicing so has your broker tried the firstmacs, resimacs, pepper and liberty?
And it is not how many you own that counts. You could sell your main residence and buy 16 more cheap properties potentially. But this may not be a good move.
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!
Is there no way for me to setup a company and be the guarantor instead of the borrower once I’ve maxed out? Is the only choice to sell my IPs?
If you don’t qualify to borrow then you won’t qualify to guarantee…
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 new here so hello everyone
Firstly wan0151 great job to you and your wife what a awesome team knocking off the principle on your PPOR in 10 years.
Looking at your scenario from my eyes I feel your frustrations re being told you have no more loan serviceability. Its important to note (and Terryw or your broker may be able to elaborate), from my knowledge and personal experience that a lender is only allowed to let you borrow up to 30% gross of work salaries at their determined interest rate. Ie you may have a 3.99% on the loan but the assessment may be on 6% and they may allow you up to 80% of the IP income. That said 30% of 146k sal + 80% of rental income then less other commitments like Car and/or Personal loans and CC linits. With more detail of the IP income you could roughly work out where your at with your lending ratio. I have no knowledge of whether the100% LVR on both IP’s is helping or hindering your case in the lenders calculating of either / both your equity and rental income. (They may be secretly happy you now have a 80% LVR rather than the 100% LVR you had for both.)
In response to your query re people have 10+ IP and how they do it. Using what I said before say a couple have 10 properties with avg rent $200p/w per property and combined sal of $80k p/a. The maths would be 104000 x 80% = $83200 + 30% of $80k = $24000. The total for servicability is $107200. In your scenario from rough info 30% x $146k= $43800 and 80% x $54k = $43200 servicability $87000. Plus if a couple have bought 10+ that could have been at the rate of one per year and the first year property might have been $100k and the 10th year property could be $280k. And remember rules and rates would have changed over that 10year+ period.
Lets bring the focus back to you and what you as a couple are after. Capital growth, passive income, a special number of IP’s. You two have got to work on that answer.
Im not a professional giving advice but too late to bring a company on board as I imagine heaps of extra stamp duty to pay everywhere.
Terryw is right its not the number of properties and yes you could sell and buy 16 cheap properties. You could sell both IPs pay off your PPOR and be debt free use the excess funds to start again with a setup via compan(y)ies. (Keeping your PPOR safe from cross collateralisation) or Sell the 1IP to be PPOR debt free and keep the other IP and use LVR balance to start a passive income portfolio while keeping the capital growing IP. Sell both IP’s and borrow up to 80% LVR and buy a commercial property outright in a compan(y)ies and just have the PPOR paid off with your sal and the passive income ( in keeping with Steve’s idea of owning commercial property debt free amd doing thing for income not fortax saving).
There are many possible combinations of scenario’s but it has got to fit your goals and risk levels.
3.85% gross yield on current market value of properties doesn’t give you a lot of head room after investment property expenses and interest (and buffer for interest rate rises … we’ve only really got one way to go from here in the next few years).
Not sure if its worth considering a rent review. Alternatively, have either of your investment properties got opportunity to increase yield (e.g. cosmetic reno, granny flat etc.).
Make sure you’ve got a good depreciation schedule for each IP as that has an impact on your cash position after tax … lots of people overlook this but even a couple of grand a year adds up of the long run.
Check all the other factors that are taken into account when you apply for finance (limits on your credit cards, loans on depreciating assets eg. cars, boats, school fees etc).
Otherwise, keep grinding and focus on getting that PPOR paid off 100% and getting rid of the non-deductible debt before you then start to reduce your IP loans (IMHO, do this with offset so you can more easily access the funds later for a deposit for that 3rd IP).
Rejoice in the fact that you’ve got 2 more investment properties than most Australians.
that a lender is only allowed to let you borrow up to 30% gross of work salaries at their determined interest rate. Ie you may have a 3.99% on the loan but the assessment may be on 6% and they may allow you up to 80% of the IP income.
Its a bit more complex than this but very rough this is the case. Lender calculations are hidden behind the scenes though. They will also use living expenses worked out on the higher of what you are spending or one of the spending indexes.
In most cases borrowing capacity is only 6 to 8 times the borrowers pretax annual income. If you earn $100,000 pa you would be limited to $700,000 – very rough
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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