Thanks again euro
Learnt so many new things from ur post
How does adelaide bk via mortgage managers compare with firstmac
or even me bank in terms of assessing its own debt and max borrowings
Given loans.com.au is owned by firstmac, can u do 2mill with both, or just 2mill total between the two
Thanks
ME Banks rates are sharp, but their servicing calc is NOT remotely near the top of the pile. If you must use them, use them early on INV properties only ( you'll see why in a moment) , get what you can from them at 90 - 95% LVR and then move on. Their low rates will assist you later on when it is treated as "actual' by one of the more investor friendly lenders, but their usefulness ends there as far as building a portfolio is concerned. And because of their useless cash out policy, treat that property as set and forget as you wont be drawing equity from it for several years, until it gets well below 80% LVR.
Broadly speaking , the classic scenario I see over and over and over is investors who have started in more recent years, telling me they have 2,3 or 4 properties, have seen good growth and now want to have 6,7,8 investment properties or more, but they have a sizeable non deductible mortgage and just cant understand why they have hit a servicing wall. There's an assumption that equity equates to borrowing power. Worse still, typically these types of scenarios involve clients who are generally obsessed first and foremost with "lowest rate" Now, reading this series of posts about something as simple as the removing of "actuals" by AMP , and the almost panic like reaction by some to that news, only further serves to demonstrate how important ready access to credit is.
So let me begin by addressing rates. Lenders such as ING, ME, Bankwest may have the sharpest rates but they also have ( by quite some distance) the worst calcs, worst cash out policies and are basically guaranteed to snooker you in the fastest possible manner In the end it always eventually comes down to a choice ... does the investor (or wannabe investor) want to be stubborn and hold out for miniscule differences in interest rates or brand name , or does that investor want to be able to buy more properties and get the money to do it? There's no right or wrong answer expected - each person needs to take stock of their personal appetites and ambitions, but if you are an investor who has reached or nearly reached your capacity and do want to know how to go beyond what most brokers will tell you is your limit, here is how;
1. you need to have strong equity ( which is quite different to borrowing capacity)
2. you need to be willing to embrace NRAS
3. you need to be willing to embrace Firstmac and Adelaide Bank (via mortgage managers).
If these 3 things arent of interest, then all the normal conventional limitations that have been posted about on here already will continue to apply to you and this post will serve no value. But if you are open to points 1,2 and 3 here are the way to use these lenders as an alternative solution to your capacity wall and continue to grow a portfolio
Firstmac. Potent borrowing capacity if you play it right. You have to be willing to refinance your PPOR to them, before they will allow you to use the NRAS credit. You dont have to cross collateralise, but you do need to have your PPOR with firstmac (not loans.com.au - it has to be firstmac) . If this was a strategy you were to adopt, you would be well advised to take the VIP package at 4.19% with offset and 10 free sub accounts. Each can have its own offset ( which I think you'll find most brokers aren't aware of as firstmac does not promote it, but you can definitely have 10 splits and 10 offsets if you ask hard enough ) and each split can be 10 years I/O. They take 65% of market rent for NRAS deals ( 80% of the NRAS rent, which is 64% of market rent but they round it up) . They take actuals on all other debt ( including their own ) They take neg gearing. And then the game changer - they take 80% of the NRAS annual credit (which just went up to $10,917) but interestingly it is added as untaxed income . The net result of these policies? Well, when you consider how few other lenders apply the big 3 - actuals on other lenders debt, actuals on their own debt AND neg gearing... and then you inject the NRAS credit as tax free income as well, it doesnt take long to realise this policy offers SIGNIFICANTLY superior capacity to the next best servicing calc available.
Please note - the NRAS credit can't be used on loans requiring progress payments, at any LVR. So you need to use Firstmac for NRAS apartments, townhouses, completed houses etc. You do NOT want to use them for NRAS construction loans.
Adelaide Bank only offers its NRAS niche policy via mortgage managers. It was basically a copy cat of Firstmac but they dont require your PPOR and they added two twists. Firstly, is NOT available via Adelaide Bank branded loans. It is only available via mortgage managers who are funded by Adelaides wholesale program. And the other twist? Unlike Firstmac, who do everything except construction loans for NRAS, Adelaide ONLY does house/land/construction deals. ie they do NOT take villas townhouses or apartments as NRAS . They will take single securities ( houses on blocks of land) ONLY. And just to be very clear - when I say house/land/construction deals, I don't mean loans for properties that aren't built yet and require construction, I mean loans for properties where you settle on vacant land first and then the builder specifically requires staged progress payments during the construction period. - that's what lenders consider "construction lending for residential mortgages so that's what I mean when I say construction loans. House/land packages where you pay 10% now and the balance on completion are NOT considered construction deals by a bank. They are no different to Off the Plan purchases. Construction deals are ONLY where progress payments are made during construction.
Adelaide's servicing calc is not quite as good as firstmacs... but it is still quite strong and certainly better than any non NRAS calc
Now some brokers will argue that the reduced rent received from NRAS will curtail your capacity. That would be an example of a half formed argument though. While it's true that the 20% reduced rent has an impact, that is FAR outweighed by the 80% of the NRAS income they give you back on their servicing calc, so those contentions are not accurate. Quick example.. 400K purchase. $400 market rent. Instead of accepting 80% of $400 per week (320) like they would for a non NRAS deal, they accept 65% of $400 per week (260) so they are using exactly $60 per week less for servicing, or @ $3120 less per year. Their calc then applies neg gearing to that figure so it's net impact is actually a touch under $2000. Then they add an additional $8776.80 of tax free income ( 80% of $10,971 NRAS incentive) as compensation. Note I said tax free, so its impact is actually equivalent to @ 12K - ie much higher than the $2K they are stripping out for the NRAS rent reduction. Even a person with limited mathematical skills can see that this allows for a net gain of @ 9-10K , which IMPROVES your borrowing capacity, rather than reducing it. In fact, because of this very very clever policy, with each additional NRAS purchase, your borrowing capacity continues to INCREASE over your previous capacity ... quite an anomaly I know , but true nonetheless... so if you can find 20% deposit each time , you can keep doing 80% NRAS purchases up to an additional to $2 million of exposure. That's enough to get 4,5,6 additional properties that you wouldn't otherwise have been able to
That will in turn deliver you an additional @10K tax free cash flow per dwelling from the after tax NRAS results , so 4 NRAS properties would get you @ 40K tax free, 6 would get you @60K tax free etc... which can then be redeployed onto your PPOR mortgage ( which is with firstmac, remember )... which further IMPROVES your equity position and IMPROVES your borrowing capacity, by aggressively removing non deductible debt -
This in turn allows you to continue to invest AGAIN, as you have created both the equity and the borrowing capacity to do so. The compounding power of the NRAS and Firstmac's ( and Adelaides) calculator is under appreciated or just completely misunderstood , but hopefully this helps readers understand the enormous compounding benefit of this property and finance strategy.
Moral of the story; if you have run out of capacity buying conventionally; if you do not think you will win the lottery ; if you do not want to sell off properties ; if you aren't assured of a huge pay rise, if you still have a good deal of equity available and wish to keep purchasing properties ; if you would like to pay off your non deductible mortgage fast and remove that impediment to continued investing; and most importantly if you do wish to continue investing in spite of all these barriers and limitations - this strategy is one worth seriously considering, because it will get you past those barriers. But you have to be willing to embrace points 1,2 and 3 for it to be of use to you. That fact is categorically non negotiable. Mathematically , what I explained here is accurate, irrefutable and works.
So, in a nutshell this is a high yielding, double tax man backed ( neg gearing and NRAS ) , fully franked dividend reinvestment plan, using property and low rate 30 year residential mortgages to pay off your PPOR mortgage uber fast and build a massively CF+ inv property portfolio where borrowing capacity constraints will never be your problem....
If your broker doesnt understand this- time to find someone new
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