Discussion in 'Property Finance' started by Redom, 4th Mar, 2015.
Well, Datto started it
Thank you Redom
Hear hear! The alternative, do nothing approach is just not an option.
This thread rocks - this sort of information brokers tend to keep under wraps. Thanks for being so candid.
Just reading brady's posts... for the unitiated when it comes to lingo, what is the 1.1% off being thrown around the SVR???
Is this 4.35% interest rates being discounted a further 1.1% down to 3.25% as it is the second, or third loan with the same bank? Or just in general when you borrow off different lenders and already have a portfolio up and running?
Do these figures/strategies suggested work with buying and building land? I'm assuming the main feasible way to go forward is buying existing as it's available for immediate rental vs building and waiting... could be wrong?
Is 6% yield also a reasonable metro rent expectation? outside of mining towns, I'm based in perth, looking to start my first step in the property ladder with a land purchase, and subsequent build.... looking at more inner suburban suburbs... there's definitely no way any of them with their bumped up prices would fetch 6% rental yield ( i assume gross, let alone net yield).
For example to buy my land, it'd be 295k, plus i'm assuming 240k all up to get a 4 x 2 to turnkey?? So 6% on 540k would require about $623/week rental.. which is a fair ask for the majority of 450-520 rentals being advertised int he area.
Established suburbs are just , if not worse it seems around here? I can only imagine Sydney and our East coast counterparts are far worse from what i hear on the news re: housing price growth there.
Think of it as recycling the borrowing power you have for your first property for your 4th/5th property by switching lenders.
If you purchase at 6% yields, you may be able to refresh that original $500k borrowing power by switching lenders to those that take actual repayments At todays rates, a 5.5% yield may even do the trick (rate has to be <4.4%).
Definitely not an easy yield to achieve, especially in the Sydney market, but by no means unachievable. Nonetheless, the aim of investing should be to make as much of a return as possible, stretching borrowing capacity is only one feature of that equation.
I'm using a 100% debt figure in those calcs too. Paying down debt over time, rental increases, etc - will all help stretch it.
Brilliant post, Redom! Thank you....don't quite understand a couple of terms yet but I guess the clarity will come further down the journey
I do understand that an average income is not a show stopper though
Thanks, Sash, for your pointers as well
No, wait a minute, a multi million dollar debt portfolio is great.
You can package it up, get a ratings agency to stamp it "AAA" on the box and flog it off overseas to some unsuspecting buyer.
In three years time it will classified as junk but YOU will be living the high life anywhere you like. Nothing new here lol.
Fkn genius! I reckon we can get some Wall Street bankers to do our dirty work too.
I suspect you'll find many brokers aren't deliberately keeping this information under wraps - they just don't think this way. It requires the capacity and the willingness to tell you things you may not want to hear, to challenge you, to say no to you even. It requires the capacity to actually advise you and guide you with firm recommendations, rather than just being an order taker. And it certainly requires a willingness to look beyond the majors and the brand name 2nd tiers. ING, Bankwest and the majors (NAB aside) arent going to get you where you want to go when the rubber starts to hit the road with servicing constraints.
Reading the posts of many brokers who regularly contribute might lead some readers to form an expectation that most brokers think like the contributors here - but that would be a mistake. The forums leading broker contributors are the exception, not the rule. They see the long game, not the easy transaction in front of them right now. Just another reason investors who are at the beginning of their journey , or part way through it, or nearing the end of it , should be talking to one of them about their needs.
foundation banks and mid tier banks
Hi redom. Fantastic post. Love all ur posts. They r all so informative
As for foundation banks apart from anz, which r the other bigger banks to your knowledge and for the mid tier apart from cba , which others
Do st george and westpac rank as foundation or mid tier
Thanks in advance
Thank you remingbi - glad its useful.
It terms of 'foundation' lenders, I typically like to go to lenders that treat debts that you hold with them similar/the same as debts you hold with other banks.
So: St George, ANZ, Suncorp.
You'll also need to keep in mind their equity release policies to ensure flexibility is there if you need cash out soon after purchase (e.g renovations, etc).
You can add CBA/Westpac to that list too, or a 'middle tier' lenders (they can easily fit under foundation lender definition too). They both insert buffers to debts that you hold with other lenders, but I typically don't find their buffers as large as the others above.
Thanks for that redeem
I just wanted to ask a few more questions. your post has cleared up everything so well that it makes me think of more questions
When i got my home loan on poor i maxed to 80% lvr with nab not knowing any better and used the extra proceeds for deposits on 2 investment properties which i have settled and 10%deposits on 2 off the plan apartments due for completion late 2016
1)So now i have ppor lvr<80% with nab, IP no1 <80% with nab, IP no2 with stgeorge<80% and 2 10% deposits for off the plan apartments not yet settled
As the loan amount is high and i have several properties, going back the other way to a foundation lender and refinancing from nab may not be possible because of lack of serviceability.
I was wondering because i would have taken out equity from the foundation lenders or refinanced later anyway, would it make a big difference if i max out nab now first without using the foundation lenders
If that is the case, and if also the mid tier banks, cba wbc don't allow serviceability either then is it better to max out nab first and then go the other 5 easy lenders or should i share it around.
I was thinking more along the lines of 1-2 more with nab, which brings ip number to 4 and then foliowed by amp till i hit 10 because of their generous servicing and 100% rent use , back to nab and finally macquarie at the end as a long term plan
Of course, this all relies on sufficient deposit and servicibility and other property considerations
2) with the easier lenders e.g. amp nab macquarie as they take actual payments from ofi rather than buffered, is that the same with their own lending
Also would fixing interest rates in todays environment as they are significantly lower than the banks sir, would that increase borrowing power with them
3) with apra threatening to intervene with the banks, do u think nab, amp macquarie and co ,will start adding a buffer for ofi in the foreseeable 2 yrs
if so, would that mean all the structure will d
4) do these easier last stage lenders calculate interest only or as P&I for ofi and their own lending
5) What regional banks does Adelaides funding line cover
6) after how many inv properties do firstmac start calculating rent at 70%
Many thanks and sorry for dragging on
I have so much to learn. What are the rules of thumb (or limits) for release of equity?
The loan for my PPOR is split 50/50 fixed and variable with Suncorp. I'm approaching 30% equity ( based on my estimate of current valuation in the hot Sydney market ). That could go to about 38% in 12 months.
( rookie mistake may have been splitting my loan 12 months ago when construction of my PPOR was finished )
Most lenders will allow you to release equity up to 80% LVR without hassle.
Some will allow you to go up to 90% LVR - of those lenders, certain ones will make you jump through hoops whilst others (ANZ, AMP for instance) are more relaxed and will do it based on the purpose being "to purchase future investment property."
See above responses mate.
i'm sure everyone on this site appreciates your great detailed feedback and articles and the time u take to logically explain things
The most important thing, being a novice like myself i found was to get a broker who spends the time explaining in detail, and not focusing purely on the next deal ahead and keeping things to himself until asked
you answered all my and others questions nicely
i think you've got 2 new clients now, me(2 otp next yr settle and my sister(she is o/s but is started her portfolio (otp) in sydney settling in 2yrs)
could i get ur email so i can give some details beforehand
talk to u monday, maroubra
Thanks for the post, some great info. in there. Is there any light you can shed regarding credit history checks? I was told that if you continually go to different lenders which run a check against you will actually worsen your score hence affect your ability to borrow more money? Is this the case?
I remember asking exactly this about 2 years ago and the response I get is go speak to a broker. I am amazed how so many people are just in the forum to get business but not willing to share their knowledge.
Thank you Redom for breaking the chain.
Howdy, good question. Yes it will.
There are a number of factors that go into ones credit score/history. Different banks use different credit scoring models (Big 4), with many not using them at all (middle tier lenders usually). Summary of the factors:
1. Age of your file: The longer your file history, the better usually.
2. Clients age to file ratio: A 25 year old without much history makes sense, a 45 year old doesn't. The latter scenario is viewed as more risky than the former.
3. Unpaid defaults: This limits your lending options. Usually if its telecom and <$500, its easy to provide an explanation and get around. For other issues, appropriate lender choice/alternate solutions are necessary.
4. Number of credit hits over the last 12-24 months: This shows whether you've been shopping around for credit and your credit behaviour. As a general rule, the fewer enquiries the better. More than 5-6 in a short time period can do some serious damage for lenders that credit score.
5. Type of credit enquiries: Applying for multiple credit cards/balance transfers is typically viewed worse than home loans/utilities.
6. Employment history: Changing jobs all the time
7. Address history: Continually moving around shows less stability.
Going on the veda website and accessing one of their services is something I typically recommend for my aggressive investor clients. The service where you get notified for each credit alert is particularly useful.
IMO the 'character' component of lending is about 'prevention/protection'. You can't do much to improve it apart from letting it heal naturally, but you can take risk mitigation tools to protect your credit history.
Time is the best healer of poor credit histories generally.
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