borrowing more money

Hi All,

First timer here. My wife and I would like to make our money work for us. We have about 120k equity in our PPR and would like to get investment property.

We spoke with banks and they told us we can service another 700k. We found a place for 600k which with some renovations will become cashflow positive and has good potential capital growth. Will the bank look it this property as self serviced?

How will this affect us in future borrowings? we have found another property for 500k which with renovations can become cashflow positive too. Will the banks give us this additional 500k? considering that with our salaries we can service only 700k?

Apologies if my question is not framed well.

Thanks
ABL
 
How much you can borrow changes from one lender to another. It also increases with each property purchase because the rent from each property contributes to your borrowing power. They won't see it as 'self serviced' but your upper borrowing limit is probably more than what you've been told, simply because what you've been told probably doesn't project future property either.

$120k in equity is probably going to be a limiting factor. You've got to cover at least 10% deposit and 5% purchase costs. A quick rule of thumb suggests that this would put you into about $800k of total IP purchases.

Renovating could create equity in a future purchase which might help, but keep in mind you've usually got to set aside funds upfront for the renovation as well.
 
Borrowing power is usually not a problem for people like yourself it tends to be the equity.

You have to set aside enough money to do the initial purchase plus leave extra equity for the renovations which you will most likely have to pay for with cash rather than having it funded directly by a bank.
 
Hi ABL

much depends on your resources and your goals.

is it even appropriate for you to spend that amount of cash and tie up the equity in the one asset............. Im not questioning the investment, just asking as to if it actually fits your strategy?

As to self servicing ............

most lenders will allow 80 % of the rent to be used for serviciing and then assess the loan at 7 ish % pi over 25 years.

So to be self servicing in the lenders eyes( or neutral) the asset needs to produce 9 to 13 % gross

ta
rolf
 
Will the Bank require quotes for the reno work being carried out?

Well if you fund it with cash from the LOC (which is what I suggested) then you don't need to provide quotes. I think you are thinking of a direct construction loan funding which would require a quote/contract which would only be done if you don't have enough equity in the beginning.
 
The bank will definately require quotes unless you stipulate the funds are for minor, non structural renovations.

Banks dont like their security being changed materially without their consent/knowledge.
 
Hi ABL without knowing the full income/liabilities my thoughts are if you have spoken to a couple of banks and they said Ok to 700K you could probably do both with the right structure and use of lenders. You will also have extra rental income from the second property the bank would not have taken into consideration when giving you the estimate. It would be a good idea to talk to a broker as they know the credit policies of most lenders.
Hi All,

First timer here. My wife and I would like to make our money work for us. We have about 120k equity in our PPR and would like to get investment property.

We spoke with banks and they told us we can service another 700k. We found a place for 600k which with some renovations will become cashflow positive and has good potential capital growth. Will the bank look it this property as self serviced?

How will this affect us in future borrowings? we have found another property for 500k which with renovations can become cashflow positive too. Will the banks give us this additional 500k? considering that with our salaries we can service only 700k?

Apologies if my question is not framed well.

Thanks
ABL
 
...is it even appropriate for you to spend that amount of cash and tie up the equity in the one asset............. Im not questioning the investment, just asking as to if it actually fits your strategy?
rolf

IMHO $600-700k isn't a big ask if you're talking Sydney (outer suburban house/inner city apartment), sure it goes further in other cities so not really that much to tie up in one hit. (Maybe I lead a sheltered life and would struggle on $245k ;) )
 
Thank you all for your responses. It is much appreciated.

We would like to make our money work for us.

My father is in construction, my wife's family in painting other family members do other various things which can be used for renovation inside or outside of house. We got 120k in equity from renovation which cost us around 30k. This is mainly due to family helping out as it was our first place of residence together (very nice gift from them). I have come to realisation that it would be wise to repeat the same process. However this time most of the things would not be free, however because of all the connections the cost would be greatly reduced and which could potentially add more to value of property and equity.

Our strategy would be to renovate older houses (both structurally & cosmetically) and rent them out and just keep them in our portfolio. For renovations we would have cash set aside but it might be better to borrow that money and use it as destructibility for tax.

This is why I was asking how far can I go asking for loans from banks if I always use 20% deposit. I have heard from friends (not the best source) that when you go over 2 million borrowed banks become a lot more strict when it comes to lending?

We will be talking with our accountant to see how it would be best to structure all this before we begin this journey. This is also why we joined this forum to try and learn as much as possible.

Thanks
ABL
 
Hey ABL,

Just be sure to allow for the vacancy of the property in all your sums whilst you do the renovations. Whilst it may be CF+ after a good renovation, you could be looking at 2-6 months time before it's even completed and then you need to find a tenant.
 
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