Stay conservative at 80% LVR or max it out?!

[Taku]

Hi gang,

I really need some advice and insight.
I bought my first IP last year, in October 2015. The purchase price was $380K and I laid down a 20% deposit ($76K).
I'm super keen to purchase my next property, in June, because that's when I get off probation at my new job.
If I was to get a bank valuation in around 3 months time, I think I'd get a conservative valuation of circa $400K - so hardly any equity that I could dip into.
I've saved another $20K and by the time June comes around I would have $30K cash saved up.
I've been told to save up 20% deposit to avoid LMI but if I continue to save 20% deposit every time I want to purchase, It'll take me forever to build my portfolio.
I'm 26yo, single, no commitments (i.e. family and/or child to support) and FT employed on average income.
I'm seriously contemplating getting a 90% deposit for my next purchase, and if the bank's allow me, I would like to get a 90% deposit for my next four.
Then I would look at getting smaller deposits because by that time I would be on a higher income (save quicker) and I could dip into my equity.
So stick with the 80% LVR or get into LMI territory?

Thanks for your advice!

 

[Mick C]

1. I would suggest you go for LMI....by the time you save 20% the property would have gone up $40-60k ( presuming 18-24 month if your lucky) - VS the LMI ~$4-8k added to the loan

2. LMi is tax deductible

3. Your best to plan your loan and strategy early on ....as LMI gets more expensive and hardier to apply for when you grow a portfolio ...so take out LMI EARLY!

4. Once you put 80% its hardier to go back to 90% on the same property..not impossible but just a dame lot harder than a new "90% purchase"

5. Consider a mix of 85% No LMI and depending on ur job/ situation 90% NO LMI loans


6. Equity/ Valuation shop - probably in 3 -6 month time..

7. PLAN

8 PLAN

9. Keep a cash buffer.

 

[Taku]

Hey Mick,

Appreciate the advice..

Sounds like you have a bit of experience under your belt.
My instincts are telling me to go for LMI, and now I just have to map out a strategy that will get me to my 2nd, 3rd 4th?? 50th property and so forth.

Having a strategy laid out early is really key, I need to go speak to some experts.
Can anyone recommend someone to talk to, to map out a strategy - either paid or unpaid.

 

[hugh72]

You have been speaking to one

 

[Taku]

You have been speaking to one

Haha this is true.

Any advice/thoughts from your self Hugh72?

 

[Richard Feynman]

As hugh suggested, a great mortgage broker is the person to talk to

 

[Redom]

Haha this is true.

Any advice/thoughts from your self Hugh72?

Depending on your goals, utilising LMI early is probably a good idea. By the sounds of what you've laid out it is a good way to build up a portfolio quicker.

In terms of who to speak to, a broker is a good idea in first instance. One of the best i've personally dealt with in the industry has already responded - hit up MickC and build a plan to match your goals.

Cheers,
Redom

 

[Jamie M]

Then I would look at getting smaller deposits because by that time I would be on a higher income (save quicker) and I could dip into my equity.
So stick with the 80% LVR or get into LMI territory?

Thanks for your advice!

You're young with an income that's likely to rise over time. If you're wanting to aggressively invest in IP's than higher LVR's make sense. Perhaps look at 88% lends as the LMI fee is reduced by quite a bit.

Cheers

Jamie

 

[almostthere]

Yeah , look for LMI sweet spot..I really like 88% LVR

 

[Taku]

Many thanks guys.
The more advice I can attain from people who've been there and experienced first hand how to build a portfolio of multiple properties is golden!

Considering I have $76K invested in my first investment property, should I dip into this deposit, therefore, leaving as much cash sitting in the bank as possible?
This would mean, I'd have to start paying LMI on that first investment property I purchased.


Cheers,

Taku

 

[Jess Peletier]

Who's your first loan with? You might be able to bring the LVR up and use LMI, or depending which bank you're with it might be worth refinancing completely if they either won't do it, or aren't a great investment lender (eg Bankwest.)

It will all depend on exactly what you're trying to achieve and how quickly.

 

[Taku]

Who's your first loan with? You might be able to bring the LVR up and use LMI, or depending which bank you're with it might be worth refinancing completely if they either won't do it, or aren't a great investment lender (eg Bankwest.)

It will all depend on exactly what you're trying to achieve and how quickly.

Hi Jess,

I'm with Westpac.
Would you happen to have any insight around them?


Cheers,

Taku

 

[Jess Peletier]

If you've got a bit of room serviceability wise, you should be fine. It will depend how you service. If you are going to access the equity and buy a new IP, they'll want to make sure you service with the whole new IP debt as a liability, not just the extra loan they're giving you.

Not a big deal, especially b/c you can also include any new rent from the IP but good to know before you apply.

 

[Taku]

If I wanted to dip into some of my equity (the 20% deposit i put down - $76K) from my first IP purchase, what sort of difficulties may I run into?
Will my lender (Westpac) allow me to do this?

Ideally, I'd still like to keep a minimum of 12% deposit in my first IP to ensure I stay within the LMI sweet spot.


Cheers,

Taku

 

[Redom]

If I wanted to dip into some of my equity (the 20% deposit i put down - $76K) from my first IP purchase, what sort of difficulties may I run into?
Will my lender (Westpac) allow me to do this?

Ideally, I'd still like to keep a minimum of 12% deposit in my first IP to ensure I stay within the LMI sweet spot.


Cheers,

Taku

Not always easy to do high LVR cash-outs, but definitely possible if servicing is OK. Westpac's decent in this space.

Be prepared for:

1. Evidencing WHY you are seeking the funds. A contract of sale for your next property will do. They MAY (worst case scenario) seek a pre-approval for that property or an approval letter from another lender. They may not seek evidence at all and just take your words if you state 'future investment use'. Its a bit grey this area and often depends on the assessor, other brokers may have more insight into Westpac. I find ANZ are best in this space though (Westpac/CBA not too far behind).

2. Servicing the whole new debt (existing debt, cash out part and the new IP) on Westpac's borrowing power calculator. Because you already have debt with them, they'll load your mortgage expenses at a higher rate - so you'll need to have reasonable borrowing power to get it over the line.

3. Potential valuation on your IP.

4. Make sure if you get your finances through Westpac again, they don't cross your properties.

Cheers,
Redom

 

[Taku]

Not always easy to do high LVR cash-outs, but definitely possible if servicing is OK. Westpac's decent in this space.

Be prepared for:

1. Evidencing WHY you are seeking the funds. A contract of sale for your next property will do. They MAY (worst case scenario) seek a pre-approval for that property or an approval letter from another lender. They may not seek evidence at all and just take your words if you state 'future investment use'. Its a bit grey this area and often depends on the assessor, other brokers may have more insight into Westpac. I find ANZ are best in this space though (Westpac/CBA not too far behind).

2. Servicing the whole new debt (existing debt, cash out part and the new IP) on Westpac's borrowing power calculator. Because you already have debt with them, they'll load your mortgage expenses at a higher rate - so you'll need to have reasonable borrowing power to get it over the line.

3. Potential valuation on your IP.

4. Make sure if you get your finances through Westpac again, they don't cross your properties.

Cheers,
Redom

Hi Redom,

This is golden info that I hadn't thought of myself - thanks heaps!

What do you mean by "they'll load your mortgage expenses at a higher rate - so you'll need to have reasonable borrowing power to get it over the line."??


Cheers,

Taku

 

[Jess Peletier]

When banks look at your servicing, they look at current expenses but give them a loading - 2% or so, on top of what your actual repayments are - and often on top of what your P&I payments 'would be' if you're currently paying IO. It all varies from bank to bank.

So if you do a cash out through WBC, they'll look at the current IP @ 88% with repayments at their assessment (loaded) rate, PLUS the loan for the new IP at the same assessment rate, even if you're not going through WBC for the new IP loan.

This is where things can get problematic and why using conservative lenders really early can cause issues for those on lowish incomes.

Just speak to your broker and ask them to run it through their servicing calc - it's not a drama.

 

[Shahin_Afarin]

2. Servicing the whole new debt (existing debt, cash out part and the new IP) on Westpac's borrowing power calculator. Because you already have debt with them, they'll load your mortgage expenses at a higher rate - so you'll need to have reasonable borrowing power to get it over the line

Actually this is the opposite - its better to have existing debt with Westpac provided that its IO. Westpac will not load the mortgage expenses at a higher rate.

They also have a decent servicing calculator.

Sounds like you want to grow your portfolio quickly so going LMI is a no brainer.

88% is a sweet spot but do the numbers as depending on how many properties you want to purchase - you may NEED to go higher say 95%.

 

[Taku]

Hey Jess,

Appreciate the clarification around "loading".


Cheers,

Taku

Actually this is the opposite - its better to have existing debt with Westpac provided that its IO. Westpac will not load the mortgage expenses at a higher rate.

They also have a decent servicing calculator.

Sounds like you want to grow your portfolio quickly so going LMI is a no brainer.

88% is a sweet spot but do the numbers as depending on how many properties you want to purchase - you may NEED to go higher say 95%.

Hey Shahin,

That's great news around the Westpac lending criteria!
Yep, spot on - I definitely do want to grow my portfolio relatively quickly and as long as the banks lend me, I will continue to purchase as many as possible.
Appreciate the insight.

Cheers,

Taku

 

[teddy1]

Cant you only borrow 10% max for investment properties- if your not a doctor,engineer etc?

Cheers