Definition of Income

From: Michael G


Wondering around in a daze a thought popped into my head and I wanted to see what you guys think about it.

One of the bigger issues with wraps and I guess any IP deal is that of finance and borrowing.

Issues of servicability, debt service ration, loan to value ratio etc.

And I'm sure most of you have heard of being too "rent reliant" when getting "rental property loans". I like the banks wish I could get self funding loans which didnt require tenants either. If anyone knows of this magical "non-rent reliant, investment property loans" that the lenders are always comparing us to, please tell me.

Anyway, I my thought was that, most of us will more than likely have our "wraps" under wraps in a trust or company right? (sorry couldnt resist the pun).

And if thats the case, we are working in a business like manner, right?

Well here's the question I wish to put to the mortgage brokers out there (you know who you are)...

"what's the most favorable form of income for the banks?"

We know personal income is discounted to about 30%

Rent is sometimes taken down to 70% or even 30% when added to personal income.

How is business income treated? or even dividends, or unit-trust payments?

The reason I ask is because if you have a business like set, them you CONTROL how you will recieve the income.

For example, if we take my favorite wrap hypothetic of;

Wrap house bought for $45k - 10% deposit = $40,500 loan. 30yr PI @7% = $62.18 per week

Wrap house sold for $65k no deposit = 65,000 loan. 30yr PI @9% = $120.69 per week

gross cashflow = $58.51

Then we can do all sorts of things. How about this...

Rental income = $60/wk

Management fee = $50/wk (2 hrs labour /wk at $25/hr)

Incidentals = $10.69 (office supplies, phone charges, etc)

Well what do you know, it comes to $120.69/wk which happens to be the same as our original wrap repayment.

Of course these figures are completely flexible. What I want to know from some of the brokers here, is what breakdown would maximise our servicibility potential?

Just a thought...

Michael Gruber
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