Borrowing against future rental income.

[Zipper]

Hey all,

I've been looking into a dorm style property close to a university. It is 12 bedroom with ensuites, communal laundry, kitchen and rec room.

The current return per room is more than enough to cover the repayments of the loan, even for PI. If at least 8 rooms are occupied.

I don't have the equity or income to cover the loan without using the rental income.

Would anyone loan me the money based on potential earning ability?

Cheers,

Zipper

 

[Aaron_C]

Zipper - what does this property look like? Is it a house converted into student accommodation? Is it a block of flats / units? Lenders of course lend on future rental income but it really depends on whether the income is business or actual 'rental' income. The two are not necessarily the same.

 

[Rolf Latham]

Typically, on a commercial transaction, the projected rent if backed by the valuer can be used, esp if there is existing evidence from the seller.


You mention equity..........on that front, 65 to 70 % might be a good LVR, and a 80 to 90 may be sensational ( cos the higher lvrs would mean resi terms)

ta

rolf

 

[DaveM]

Some lenders will use 100% of rental income for servicing - a broker like Rolf or Aaron can point you in the right direction.

Just be aware for uni student rentals you typically rent the room including costs such as power, internet, water usage etc. You may also need a cleaner to maintain the property, lawns and gardens, maintenance etc, so these costs need to be taken into account. Power on a 12 room place with computers, heaters, cooling, tv's etc etc will be high.

 

[Shahin_Afarin]

Using the rental income is not going to be an issue. Generally, 80% or 75% of the rental amount is used. 2 big problems with the above is going to be the security type which sounds like a student accommodation which will have several finance restrictions and equally important the LVR (as you have stated that you don't have an equity). Finance aside I don't think they are good investment properties.

 

[Zipper]

Thanks guys,

It looks like a house that has been converted. I'd have to have good look into the outgoings like power, net, gas and the like before I had a serious look. I just saw it online and was curious as to the viablility of that investment type. I don't think I'm quite ready for a $1.2M property as my first IP!!

I guess the place would be a business, leasing out individual rooms. The management would be a pain and I'm sure the insurance wouldn't be fun.

At least I have a better knowledge on the finance side of things.

Thanks again.

 

[Shahin_Afarin]

The big question is if the house has been legally converted or not. I would check with the council.

 

[Aaron_C]

A house that is converted into student accommodation and which is no longer considered a 'house' is not a good security.

 

[Zipper]

Thanks for all the advice guys, muchly appreciated.

I'll keep on looking around. I was more curious than seriously considering it. I've just seen a few online and was interested to know more.

I think I'll wait until I move out or my PPOR and turn it into an IP before I look at buying my first actual IP.