Positively Geared Properties Query

[fenix]

Hello everyone,

I was wondering if some of the more experienced investors on here could shed some light on the following question:

What stops a person from acquiring a positively geared property taking into account all the costs etc.?

If I came to a bank with a contract for a positively geared property, what would hold me back in regards to acquiring the new property.

I know a lot of banks take 80% of the rent to cater for costs and vacancies etc., but even if that still provided a positive flow, what are the limiting factors in this situation?

This is my first time on this forum and I must say I'm quite impressed.

Regards.

 

[Pablo]

Fenix

Hi and welcome.

Just remember you have to meet the banks debt to service ratio and loan to value ratio. Providing you can do this I don't see them giving you much trouble with the above example. But the big question is can you find a property that gives you that yield??

take into account the banks calculate the interest rate at 2% higher than the current rate and they work on all your credit cards and LOC's being fully drawn. I think they count 80% of the rent just for vacancies, they then add the holding costs on top of that.

Cheers Pablo.

 

[Perp]

I think, Pablo, that Fenix means that she/he earns about $55K in salary and has a PPR that's worth $335K.

Fenix, I have some thoughts but I'm not an expert. I suggest that you should get a mortgage broker, as your income is not high for your level of proposed debt and you will be needing to look at some innovative products/lenders. I don't think these waters can be competently navigated by we amateurs, or even by mortgage brokers who are more accustomed to dealing with the major banks; you need a mortgage broker competent in aggressive lending.

 

[GoAnna!]

Hi Fenix

In theory what you are saying is absolutely true.

If a property is sufficiently cash flow positive then you could easily finance it as it would not impact upon your servicability at all. The trick is to find such properties

My family income is not that high but due to high yielding properties (purchased some time ago) I have borrowed millions. So it can work in theory and fact.

You may also need to take into account that rising interest rates would have impacted upon your servicability for your current loans.

 

[skater]

Like Ozperp said, speak to a good Mortgage Broker. There are some very good ones on the forum. Beware that there is a world of difference between a good broker who deals with many investors & one that only deals with owner occupiers.

When we started out, we had a low income but managed to purchase many cf+ properties. We saw quite a few lenders & brokers & found it near impossible to get the funds, then I did a sensible thing & contacted one of the brokers on the forum. Have had no problems with funds since.

 

[Pablo]

I think, Pablo, that Fenix means that she/he earns about $55K in salary and has a PPR that's worth $335K.

Whoops I just assumed it was from the IP, I was getting jealous wondering where he was looking at these properties with massive yields

 

[Perp]

I'm sure if Fenix finds some of those yields, he/she will share them with us!

 

[skater]

Maybe yes, maybe no. The answer to the question would have many variables depending on where it is, what condition it is in, etc.

 

[sash]

Fenix

In the current environment...banks are seriously looking at peoples serviceability. So if you have a positively geared property your case is that much stronger.

I have reasonable portfolio which is self servicing.....so far I have not hit the serviceability wall. This maybe because the properties are funded via rents not via my salary.

Good luck in your endeavours.

 

[Twitch]

1 bedroom Villa - asking price $120k
Current tenant: 3 year lease at $217 /week

Gross yield 9.7%
Nett yield 5%

Even on a cheap purchase, 4.7% seems a lot for non interest costs. Why is it so high?

 

[fenix]

Exact numbers aren't quoted.

But I'm guessing the usual body corp, rates, etc.

My initial post more referred to the question of this:

If I have equity in an existing home, can the bank refuse me in buying a CF+ property
if the nett yield > 0.

In theory this means that I can put no money of my own in, and the tenant is paying my loan off.

What is the limiting factor in this? If there were 100 positively geared (nett) properties on the market, what stops me from getting a few?

Just a general question about positive gearing.

 

[The Y-man]

You may not get a 100% or even a 80% loan - in fact for a very +ve cash flow property (say 10%-15% yield mark), the LVR would likely be much lower (60%-ish) so you need a bit of capital.

Cheers,

The Y-man