Calculating changes to your borrowing power
- Thread starter Redom
- Start date
Great post it should be stickied to the top of the fourm
+1 - this is super useful!
just wanted to know how is overtime assessed? I assume each bank is different on how they asses overtime?
Pending the senario if it's not needed most times wouldn't be used.
If it's regular most won't have issues using it.
It can vary from one lender to another. The common theme tends to be that it's acceptable if it's an ongoing and normal part of the job.
How this is assessed is where the difference between lenders occurs. Some will want to look at past PAYG summaries to see a consistent long term history. Others will use a year to date figure on a payslip as long as it covers more than 3-6 months.
Jobs such as sales where there's a commission element have similar treatment.
Yeah, I've been doing some rough forward planning on how to achieve my 2015 IP goals and this guide has been really useful - especially the changes in income calcs.
Thanks a lot for your responses and redom for the thread.
Another quick question can you still hit a serviceability wall if you constantly buy positive geared properties?
Another quick question can you still hit a serviceability wall if you constantly buy positive geared properties?
Technically yeah - if they're only CF+ by a little bit.
They'd have to be CF+ by quite a bit to assist in your overall servicing (because lenders take into account 80% of gross rent). However - lenders are also starting to move towards capping the yield they allow for servicing too.
Cheers
Jamie
As Jamie has touched on, lenders assessment calculators require a property to be heavily CF+ to provide a positive impact on your servicing position, however growing a CF+ portfolio and leveraging the policies of multiple lenders will allow you to still increase your MAXIMUM borrowing potential compared to a neutral/negative portfolio.
True story, it works for me
Good advice here, one way to generally think about this is if 80% of the rental income > mortgage repayment, it shouldnt do too much harm to your overall servicing. This is a simple analysis, but a general guide. Another common one used is 8.5%+ yields would be needed to add to your borrowing power.
However as Corey noted, intricate use of lender policy can be used to extract more servicing power for yield plays (eg AMP).
Cheers,
Redom
thanks again for your responses.
Say for example my max borrowing power is 450k and I purchased a property that is now worth say 550k and it is positive cash flow about 70 per week. Would I be able to borrow the same amount again? I assuming it will fall due to the 80% of rent only being calculated as income?
Say for example my max borrowing power is 450k and I purchased a property that is now worth say 550k and it is positive cash flow about 70 per week. Would I be able to borrow the same amount again? I assuming it will fall due to the 80% of rent only being calculated as income?
You would be better off borrowing the full amount and having less than $70 per week positive cashflow as most calculators can add back negative gearing.
IMO tipping cash into a purchase to make it positive is a false economy, it doesnt account for the return on deposit, or the opportunity cost of the funds.
To answer your questions however, we need the actual rent, not just how much its 'positive'.
This IMO should be everyone's outlook on this. If you had a massive deposit and purchased a single property at 40% LVR then ofcourse it is going to be highly CF+. Not much investing sophistication required to do this.
If however you purchased 3 IP's instead at the same value each at 80% LVR and still highly CF+ then your doing something right.
Definitely. Best way to compare properties on an even footing.
Thanks for this Redom.
I am in the happy position of losing 2 dependants over the last 2 years (they grew up) so it's nice to know that my serviceability will go up. Add that to paying down our maxed out cards and we will be ready to rock'n'roll in about 12 months and look at a development or at least another purchase, or un- cross all our houses.....YAY!!!
I am in the happy position of losing 2 dependants over the last 2 years (they grew up
) so it's nice to know that my serviceability will go up. Add that to paying down our maxed out cards and we will be ready to rock'n'roll in about 12 months and look at a development or at least another purchase, or un- cross all our houses.....YAY!!!Thanks for this Redom.
I am in the happy position of losing 2 dependants over the last 2 years (they grew up
Haha good on you, love the enthusiasm. Reducing dependants, cutting credit cards = pretty good combo to increasing borrowing power without income rises.
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