How to increase one's serviceablity via property acquisition

[DavidMc]

Hello SS brains trust,

I have been told that for the purposes of calculating DSR's, lenders these days value debt at 7% and only count around 80% of your rent. Obviously this is just a rough average and all lenders are a little different.

Given this, what type of yield/property would one need to purchase to actually increase your serviceability? Someone mentioned 8% minimum, but even that seemed a little low.

 

[Jamie M]

Hi Dave

Not all lenders value debt at a rate higher than the actual. Some lenders take into account the "actual" repayments from debt held with other financial institutions rather than adding an extra couple of percent on the rate.

These lenders are very handy when the borrower is coming close to hitting a serviceability wall.

A property would need to be CF+ by a fair bit to have a decent impact on your overall borrowing capacity - but any additional income always helps. Also, keep in mind that some lenders also cap the yield that can be used from IPs - particularly for IPs held in mining areas so even though you're getting an 8% yield - they might only take into account 6%

Cheers

Jamie

 

[Aaron_C]

I have been told that for the purposes of calculating DSR's, lenders these days value debt at 7% and only count around 80% of your rent. Obviously this is just a rough average and all lenders are a little different.

Quite the opposite. Only the really conservative lenders load up your debt by that much. Most take it as the existing rate/repayments.

Given this, what type of yield/property would one need to purchase to actually increase your serviceability? Someone mentioned 8% minimum, but even that seemed a little low.

None really except ones that yield 12%+.

 

[Peter_Tersteeg]

It varys depending on the makeup of your portfolio and existing loans, but from a lenders prespective 12% yeild on purchase price is about where the rent starts to increase your serviceability.

 

[Rolf Latham]

id agree with the 12 % peg AND add <or= 80 % lvr

ta

rolf

 

[sash]

David the never ending Tim Tam starts when you are buying property between 7-8% with a view of improving this yiled to about 8.5 -9% in 2-3 years.

Serviceability also increases if you find lenders who will use your actual payment plus a small margin say 1%. If you lock in low rates then it also helps.

The other thing which tips things in your favour is when you present you case in a business like fashion by highlighting that you are low risk.

A carry a large amount of cash in offsets - over 800k. This helps as you can argue even if anythinh untoward happens you can ride it out.

I have not hit my ceiling yet....

Hello SS brains trust,

I have been told that for the purposes of calculating DSR's, lenders these days value debt at 7% and only count around 80% of your rent. Obviously this is just a rough average and all lenders are a little different.

Given this, what type of yield/property would one need to purchase to actually increase your serviceability? Someone mentioned 8% minimum, but even that seemed a little low.

 

[tobe]

Sash, that sounds impressive, but its irrelevant.

Your business case is only as good as the numbers inputted into a banks calculator. Fixed rates arent assessment rates for many banks, and only when the fixed rate is the loan being applied for. Having a couple of previously fixed loans wont help, except with those lenders that use actual repayment for other bank debt.

Cash in offset also doesnt help. Obviously banks have to take account of the limit, not the balance of any loans.

Whoever told you these things help are either mistaken, or deliberately misleading you so you dont change lenders, or some other unknown reason.

 

[tobe]

Hello SS brains trust,

I have been told that for the purposes of calculating DSR's, lenders these days value debt at 7% and only count around 80% of your rent. Obviously this is just a rough average and all lenders are a little different.

Given this, what type of yield/property would one need to purchase to actually increase your serviceability? Someone mentioned 8% minimum, but even that seemed a little low.

buy a commercial property

buy dividend paying shares and show them in your tax return for 2 years

I cant think of an example of residential security that will increase capacity, and wont have downside risks of mining towns etc as alluded to earlier.

I do know the right finance structure can massively increase capacity, as can debt repayment (obviously).

 

[Marty McDonald]

Perhaps Sash has a private banker with his / her own rules.

 

[Corey Batt]

If you're buying at 90% LVR's min and 8%+ yields your serviceability will slightly degrade with the conservative (rate stacking) lenders per purchase, whilst the actual repayment lenders will creep up in serviceability. You won't be increasing your serviceability at purchase, but you will be able to substantially extend your borrowing capacity beyond 'normal' limits with ~5% yields.

Not many people are using 10%+ CASH deposits and buying 8%+ yield purchases though.

8%+ doesn't have to be high risk at least, compared to 12%+ yields (for resi).

 

[buster]

Sash it is just a waste of money having money sitting in a bank, you are better to buy shares in the bank, they yield more, get CG, count as assets, are liquid and the income improves serviceability, diversifies.

 

[DavidMc]

Thank you all for your answers! Very helpful!

Out of interest, who are the conservative lenders? The 2nd tier ones? Or is the Big 4?

 

[Aaron_C]

Out of interest, who are the conservative lenders? The 2nd tier ones? Or is the Big 4?

Out of the big 4, ANZ and WBC.

In the smaller lenders - ING, Citibank, Heritage.

 

[devank]

I included water charges in one of our ip which has a granny flat. So the rent looks like a little higher

 

[Jamie M]

Out of the big 4, ANZ and WBC.

I'd throw CBA in there too.

Cheers

Jamie

 

[Shahin_Afarin]

Me too - once you go over a mil with CBA then the world becomes a less happier place.

Ultimately all lenders can be deemed conservative - it all depends on the particular policy.

Also it depends on what you mean by conservative? Servicing? Policy? Cash out? Security?

 

[Peter_Tersteeg]

Thank you all for your answers! Very helpful!

Out of interest, who are the conservative lenders? The 2nd tier ones? Or is the Big 4?

Out of the big 4, ANZ and WBC.

In the smaller lenders - ING, Citibank, Heritage.

I'd throw CBA in there too.

Cheers

Jamie

For multiple property investors, ANZ consistantly becomes conservative fairly quickly.

Westpac & CBA can be either conservative of quite generous depending on the circumstances. Westpac usually out ranks CBA a little but they've got additional policies which can make them difficult to deal with but this don't show up on a serviceability test.

NAB consistantly rates towards the top, but there's been a few scenarios where they drop down as well.

The bottom line is there's no easy answer that fits everyone. The best mix can be quite subtile.

 

[devank]

presenter from the money magazine was going on and on about 'Ubank'. Any thoughts on that?
I thought bankwest & AMP are good if we are stuck.

 

[Peter_Tersteeg]

presenter from the money magazine was going on and on about 'Ubank'. Any thoughts on that?
I thought bankwest & AMP are good if we are stuck.

I think you'll find that Ubank is quite conservative in their policies, but their rates are undenyably cheap.

AMP is probably one of the most generous lenders out there but they come to a grinding halt once you've got 10 properties. Regardless of debt levels, you'll have trouble getting more money out of them.

BankWest appear to have made some changes recent to their calculators so I'm starting to wonder if they're worth looking at again for niche deals. The problem is with their history in the treatment of borrowers, I just don't trust them.

 

[sash]

Not impressive just practical....I was told that I could not put down 10% and not pay mortgage insurance once a property was built. I convinced one bank to do this.

I am able to sell my deals and my very low risk profile. That is why they are lending. I am also buying reasonable quality in larget cities instead of woop woop. I aim for 30% CG in 2-3 years.

There are always exeptions to rules..so I beg to differ.

As for Private Bankers...managed to get myself kicked out of CBA's one...what a bunch of bankers. Pouncy....bankers who do not understand credit...real amateurs...only good for corporate types on 300-700k who think they are the bees nees....

Sash, that sounds impressive, but its irrelevant.

Your business case is only as good as the numbers inputted into a banks calculator. Fixed rates arent assessment rates for many banks, and only when the fixed rate is the loan being applied for. Having a couple of previously fixed loans wont help, except with those lenders that use actual repayment for other bank debt.

Cash in offset also doesnt help. Obviously banks have to take account of the limit, not the balance of any loans.

Whoever told you these things help are either mistaken, or deliberately misleading you so you dont change lenders, or some other unknown reason.