How do i buy multiple properties

I've read so many books, articles, etc - then i ask myself a simple question and don't seem to come up with the answer. So before i go back to the books has someone got a simple explanation for the following question:

My husband is self employed - we need low doc loans. I am not working.
I want to buy IP's, lots of them not 1 per year - my strategy is buy, renovate, keep or sell. Let's assume they will all be cash flow positive.

How do i keep buying properties? Won't our serviceablility for the loans run out? Can I get 20% deposit on low doc (my bank says 60% but I don't think so for all banks). What am i missing?

Thanks
 
leah said:
Won't our serviceablility for the loans run out?

If you assume all of your properties are cash flow positive, then by definition, it isn't possible for serviceability to run out. Available equity on the other hand may be an issue at some point.
 
Hi Leah,

You don't need to go low doc just because your Husband is self employed. Only if he hasn't done his tax returns. Otherwise you can make a 'normal', fully documented, application.

Cheers, Medine
 
leah said:
How do i keep buying properties? Won't our serviceablility for the loans run out? Can I get 20% deposit on low doc (my bank says 60% but I don't think so for all banks). What am i missing?

Thanks

Serviceability will depend on how positively the property is geared, and how much of it you can get the bank to recognize..... remember that the deposit may come from another source (personal loan, family loan, friend loan..... :eek: )

Also remember that income for serviceability calculations may not be from property - i.e. other investment income streams.

Cheers,

The Y-man
 
Hi Leah,

How long has your husband been self employed for? If at least two years and he has the appropriate business documentation needed, then LoDoc may not be necessary?? If you did want to go down the LoDoc path, ANZ now has LoDoc 80.
 
G'day Leah,

Yes I know where you're coming from, serviceability clacs by the lenders usually work on a % of the rental income and a % of your husband's income. Thus even if your IP are cashflow positive, which in itself is quite an achievement, the lenders may not be as impressed.

Even if your husband was a salaried worker serviceability will kick in, though perhaps a tad later ... but not too much later. There have been many threads here about "serviceability" dare I suggest a search would give you a much better picture of how it affects all of us at some stage.

Self employed people always get a slightly stricter scrutiny ... it's a fact of life that businesses fail at an alarmingly high rate ... it's simple caution on the lenders' side. If we were lenders we'd probably do the same. however it doesn't stop you ! It just means you have to put a stronger case than you would otherwise ... you CAN do it. I too am self employed but not in Oz, so there was an added hurdle ... but hurdles are for jumping ... or sometimes going around. Either way you can get to your goal.

As a final note building a large portfolio quickly isn't easy, certainly not as easy as printed in many books. It can be done, and circumstances can assist those who are looking ... there are many stories here to attest to that. It however isn't easy, so serviceability is just one of the issues you'll have to deal with if you wish to have many IP, and it may pop up many times during your investing life.

Good luck
 
Merovingian said:
If you assume all of your properties are cash flow positive, then by definition, it isn't possible for serviceability to run out.


I am not sure if whether a property is cash flow positive is enough to say that it doesnt eat into your servicibility (after all, cash flow and servicibility are two different things).

I had a conversation on this topic with one of the brokers on the forum once and my vague recollection was that he mentioned that for a property to not affect servicibility in the eyes of most lenders, at a minimum it has to have a gross yield of around 12%.

Obviously depending on your LVR and holding costs, a property could be CF positive at a yield well below 12%.

Comment from one (or more) of the brokers, please?

Mark
 
You can get lowdoc loans at 80% LVR from quite a few lenders. The questions is where does the money for the deposits and costs come from?

Generally speaking, many people go down the path of lowdocs because it is so easy; however, the ATO is currently targeting lowdoc loans to cross-check whether the applicants have lodged their tax returns. BEWARE.
 
Rolf Schaefer said:
You can get lowdoc loans at 80% LVR from quite a few lenders. The questions is where does the money for the deposits and costs come from?

Generally speaking, many people go down the path of lowdocs because it is so easy; however, the ATO is currently targeting lowdoc loans to cross-check whether the applicants have lodged their tax returns. BEWARE.

Excuse my ignorance, but what is it about low-doc loans that 'encourages' people to not lodge ATO documents correctly? I can't quite make the connection. I know that lo-doc loans are just that — loans that require less documentation/requirements than standard loans.

I'm sure the answer will hit me in the head as obvious, though. :)

Thanks in advance.
 
Pitt St said:
I am not sure if whether a property is cash flow positive is enough to say that it doesnt eat into your servicibility (after all, cash flow and servicibility are two different things).

I had a conversation on this topic with one of the brokers on the forum once and my vague recollection was that he mentioned that for a property to not affect servicibility in the eyes of most lenders, at a minimum it has to have a gross yield of around 12%.

Obviously depending on your LVR and holding costs, a property could be CF positive at a yield well below 12%.

Comment from one (or more) of the brokers, please?

Hmmm, interesting that you mention this.

I thought that since a cash flow positive property is putting money in your pocket each week, then a portfolio consisting entirely of cash flow positive properties would hence be putting money in your pocket each week also, meaning serviceability wouldn't be an issue.

Pitt St said:
Comment from one (or more) of the brokers, please?

Yes, please. I'm interested to see the answer. :)

Thanks.
 
Merovingian said:
Excuse my ignorance, but what is it about low-doc loans that 'encourages' people to not lodge ATO documents correctly?
It's not so much encouraging people- it's more that people getting traditional loans need to verify income- the PAYG payslip and the tax return are ways of verifying. People who have difficulty verifying income include people who get cash in hand or other forms of non verifiable and undeclared income may have trouble verifying- these are the people ATO is looking for.
 
Hi Mero

Whats +ve cashflow in reality and what the banks consider revenue neutral are 2 different things.

Using an average of most lender service models, youd need 12 % + rental just to break even, and 14 % plus to be considered positive. Hard, but not impossible.

ta

rolf
 
Merovingian said:
I thought that since a cash flow positive property is putting money in your pocket each week, then a portfolio consisting entirely of cash flow positive properties would hence be putting money in your pocket each week also, meaning serviceability wouldn't be an issue.
Typically, banks only accept a percentage of rental income (say 70-80%) allow for worst case rental vacancy periods. My bank allowed 100% on my DHA property because they recognised that it was 100% occupied.
 
Leah

All the people who have built up large portfolio's that I know have taken

Time

I know some who have been working for a while who have built up equity prior to investing , and have bought fairly rapidly , but they took time to build up the equity.

Those who have done it purely via property , have taken several years at a time when the market was ideal for their strategy.

See Change
 
When I say my husband is self employed so we use low doc loans - more clarification. We do lodge our tax returns and have the relevant paperwork - we also do up houses - this doesn't help the income for the business!!! Well it does for our cashflow but not when you look at the tax returns.

I will make up a portfolio for the banks to try to explain the income is from other sources. There are so many "renovators" out there that really don't know what they are doing so saying that's what you do doesn't seem to impress the banks for some reason!

Thanks for all your replies
 
When reviewing your acquisition, renovation, hold/sell plan, remember also to be mindful that any such systematic and regular activity may subject any profits on disposal as "ordinary income" for taxation purposes and not as capital gains. Without the benefit of the 50% CGT discount you will need to properly plan the reinvestment of proceeds from sales into new properties to ensure that you can adequately fund the relative increased tax on these ongoing disposals.
 
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