Mike
Reply: 1
From: Mike .
Re: When to purchase next IP
From: Mike
Date: 09 Dec 2000
Time: 17:30:46
Hi,
To answer your question I've reproduced two excellent explanations by other forum members. I hope they help. Things to consider are: how much "free" equity do you have in your current properties with which to use as a deposit on another IP? Take this figure as 20% and multiply it by 5 to give you the upper limit of the purchase price. Now can you satisfy the lender that you can service all combined loans. Your current properties should be close to positively geared ie rent paying all interest, because Banks will only consider approx 30% of your gross salaried income and about 75% of the rental income of the new property. More clarification below. I hope it helps.
The following is reproduced from an article by Buzz: To calculate your Loan Value Ratio (LVR) simply divide your total debt by the total value of your properties. eg. Total Loans (Debt) $300,000 Total Value (Properties) $400,000 = 75% LVR To calculate what you can borrow take the total value of your properties minus the debt. The bank will give 80% of that which becomes a 20% deposit on an investment property. eg. $400,000 - $300,000 = $100,000 x 80% = $ 80,000 If $80,000 is the 20% deposit you can purchase $400,000 worth of property. ie. $80,000 deposit, $320,000 of borrowings Now your LVR is $700,000 Debt divided by $800,000 worth of properties = 87.5% LVR. Of course if you spend $400,000 on investment properties and they value up higher your LVR decreases, increasing your wealth.
The following is reproduced from an article by Les: DSR (your Debt Servicing Ratio - which lender's need to know before they'll lend you more money). DSR varies slightly from lender to lender, but a conservative approach would be to do the following:- Calculate 30% of your combined incomes. Calculate 75% of rental incomes. Add these together. Some lenders may allow slightly higher figures here. That's your Income figure that they deem can be applied to Housing/Investment - NOTE: any Credit Cards, Personal Loans, etc. will be SUBTRACTED from this figure. Next:- Add together your Outgoings (mortgage interest) - MANY lenders here ADD 2% to the current mortgage Interest Rate (just to allow a buffer, in case of future Int. rate increases). So, you do the same. Then:- Subtract this last figure from the first figure. In your case there is still a positive result around $5000 - $7000 Example: If you bought another house like #2, then purchase price is $270,000 + costs of $15,000 gives $285,000. Interest on that at 9% is $25,600, minus 75% of rent ($10,700) leaving $15,000 needed to satisfy this lender.
