Maximum limit of debt for a person

[Ealbech]

I want to start building my investment portfolio in property, I need to understand will my future debt in IP hinder my ability to buy more expensive PPOR?

I'm a contractor so it's not an easy to get good loan nowdays. Do banks calculate total debt for a person before approving him a loan? For example, my current place where I'm living is being refinanced as 630K with 20% downpayment and I want to buy 3-4 IPs in 350-500K mark and after 2-3 years to buy new house as PPOR and rent out my exisitng apartment. Taking into consideration zero capital growth and -30K per year to service negative gearing will it stop me buying house in the future? I don't want to sell any property to reduce my debt at all for next 10 years.

 

[Peter_Tersteeg]

If you believe you're looking at zero growth and years of negative gearing, perhaps you need to reconsider your investment choices.

Lenders do consider all of your existing debt in their affordability calculations. They also look at your income and rental income at the time of application. People usually get pay increases over time and rents also tend to increase. This will help you afford more property in the future.

What sort of contractor are you? Are you a PAYG contractor or are you doing it via an ABN (in which case you're self employed). It's not a big deal to qualify for a loan as a contractor if you select the appropriate lenders and if you make sure your documentation meets their expectations.

 

[Rolf Latham]

cliched piece of string

there are diff ways to structure things from the outset, where serving is less of an issue, than if the structure hasnt been optimised from the start.

if you have proof of your income in the form of payslips and or tax rtns being a contractor isnt generally any problem.

Pete who posted above is great with self employed peops


ta
rolf

 

[skater]

Taking into consideration zero capital growth and -30K per year to service negative gearing will it stop me buying house in the future?

Sorry, nothing more to add.

 

[D.T.]

Sorry, nothing more to add.

LOL
but making a loss is so much fun!

 

[Redom]

I want to start building my investment portfolio in property, I need to understand will my future debt in IP hinder my ability to buy more expensive PPOR?

I'm a contractor so it's not an easy to get good loan nowdays. Do banks calculate total debt for a person before approving him a loan? For example, my current place where I'm living is being refinanced as 630K with 20% downpayment and I want to buy 3-4 IPs in 350-500K mark and after 2-3 years to buy new house as PPOR and rent out my exisitng apartment. Taking into consideration zero capital growth and -30K per year to service negative gearing will it stop me buying house in the future? I don't want to sell any property to reduce my debt at all for next 10 years.

Sounds like you need to sit down with someone and form a lending plan around your goals. Understanding how banks will view your situation now, and over time, will allow you to plan accordingly. Simply structuring your finances right and making a few tweaks can 'turbo-charge' your borrowing capacity. Alternatively making a few wrong moves can get you to your 'servicing wall' much quicker.

In terms of your current situation, being a contractor may not be the problem. Its also difficult to give complete accuracy of your capacity to borrow over time, as this will depend on: interest rate changes, income changes, circumstance changes, lender policy changes, etc. But a broker/finance manager should be able to sit down with you and form a plan taking by making a few assumptions (e.g. a 1% rise in the interest rate, etc).

One quick tip; to maintain maximum tax deductibility, it may be best to go IO on your PPOR and use an offset - especially if you plan on turning it into an IP down the track.

Cheers,
Redom

 

[Redom]

LOL
but making a loss is so much fun!

Haha...I think OP was just making some conservative assumptions.

Using ATO data though and making some observations, it appears that 'hit and hope' strategy of buying negatively geared property and hoping for capital gains is very limiting - most investors run out of steam after 1-2 properties.

 

[Ealbech]

By years of no capital return I meant only the possibility of making the wrong choice with first IP. Sometimes investment may not provide rental income and capital gain which you've planned but that shouldn't mean that you have to sell it at a loss, right? I'm just analysing my risks.

Right now my current loan is IO and it's fully offset. I'm paying zero interest for my current PPOR property which in future I plan to rent out when I get another PPOR. My plan for next few years is to buy a house for my family with descent view which will end up in significant spending In theory I can buy that house now, however in terms of cashflow it will end up in large sums of money paid as interest for PPOR which will be not tax deductable. Plus I think that Sydney Northern beaches house prices are over roof and I'm not expecting significant capital growth in my area.

As for affordability calculators majority of banks do not calculate cash you have which you can use to service your loan. My previous discussion with some lenders ended up in amount which is good to buy 1-2 apartments but not a 1.5M house. My plan is to get assests which will produce some descent income in the future and I think it's better to diversify these assets, so I prefer to buy two cheaper townhouses than freestanding house for myself. I may be wrong, all ideas are welcome.