Strategies when you are at borrowing limits

[mgs4]

I'm sure many people have reached this as well, where you've got a couple of IPs and reach borrowing limits, even if the IPs are cash flow neutral to positive and hence the acquisition of additional IPs doesn't actually cost you anything on a monthly cash basis.

Are there any useful resources or approaches people have used to increase their borrowing limits?

 

[Peter_Tersteeg]

- Diversify to other lenders (if you haven't already). You'd be surprised how many people think they've hit a wall when they really haven't.
- Reduce expenses.
- Increase income.
- Value add to achieve previous two outcomes.
- Liquidate poor performing properties.

 

[Rixter]

Are there any useful resources or approaches people have used to increase their borrowing limits?

For the more experienced/advanced investor, a cashbond structure.

No good for someone who has already hit the DSR wall though.

 

[Rolf Latham]

9 out of 10 people that come to us with an " early in the portfolio" borrowing/serviceability issue don't actually have one.

The issue is usually related to their existing choice of lender, product, structure and or broker.

There is usually a way under or over the issue if the other basics of lending and credit are ok


Ta

Rolf

 

[Aaron_C]

Unlikely to be the case that a change of lender won't fix.

 

[mgs4]

Thanks for the feedback. Any other good pointers for folks who have abn sole trader income that are hitting these borrowing limits?

 

[Rolf Latham]

Thanks for the feedback. Any other good pointers for folks who have abn sole trader income that are hitting these borrowing limits?

Borrow cap issues for a self employed person really aren't any diff to a Payg

As an abn holder that's reg for gat you may have access rp some lo doc products that a Payg may not

Ta
Rolf

 

[Dazz]

Other techniques may involve exposing your existing Tenant to a market review and be in the fortunate position of being able to double or even triple the rent being paid....

It's very nice when it comes off and allows extra borrowing capacity.

This technique is not possible with residential properties.

 

[Jamie M]

Some simple ways that don't involve refi/restructure are:

- Set up all loans as IO.

- Reduce credit card limits.

- Consolidate debt (this does involve a refi or top up).

Cheers

Jamie

 

[Deltaberry]

Just had two tenants ask for market review (thinking we'd be shafted).

Rent went up 20-30%. They had to bite the bullet, their own bullet.

 

[Peter_Tersteeg]

If you're self employed you're likely in a better position than the average person to increase your income than most people on a PAYG salary.

The main verification of income for the self employed is via their tax returns. People who are self employed have a tendency to be reasonably aggressive in claiming deductions, nobody wants to pay more tax than they should. By being less aggressive in the pursuit of tax deductions, the self employed will likely pay more tax, but will be able to borrow more.

 

[mgs4]

For the more experienced/advanced investor, a cashbond structure.

No good for someone who has already hit the DSR wall though.

Was just looking into cashbonds, so structures looks to be you withdraw some equity that you invest in cashbonds/annuities where you receive principal and interest payments, this boosts your total income and therefore the total amount you borrow.

One potential issue, wouldn't the interest you pay on the debt be more than the interest you receive on the annuity, hence this investment actually looses money? Would the bank actually consider the principal payments on the annuity as income?

 

[Rixter]

Was just looking into cashbonds, so structures looks to be you withdraw some equity that you invest in cashbonds/annuities where you receive principal and interest payments, this boosts your total income and therefore the total amount you borrow.

One potential issue, wouldn't the interest you pay on the debt be more than the interest you receive on the annuity, hence this investment actually looses money? Would the bank actually consider the principal payments on the annuity as income?

Ive posted extensively on the structure in this Cashbonds for Dummies thread.

All the answers to your questions are contained within it.

 

[D.T.]

Was just looking into cashbonds, so structures looks to be you withdraw some equity that you invest in cashbonds/annuities where you receive principal and interest payments, this boosts your total income and therefore the total amount you borrow.

One potential issue, wouldn't the interest you pay on the debt be more than the interest you receive on the annuity, hence this investment actually looses money? Would the bank actually consider the principal payments on the annuity as income?

It's a waste of time and money

 

[Aaron_C]

One potential issue, wouldn't the interest you pay on the debt be more than the interest you receive on the annuity, hence this investment actually looses money? Would the bank actually consider the principal payments on the annuity as income?

You are basically losing money to borrow more money. I personally think there are much better ways of improving cashflow.

 

[Rixter]

I personally think there are much better ways of improving cashflow.

A CB is not a structure that is created to improve cash flow. You are effectively purchasing an income stream to increase your borrowing capacity.

This increases your asset base, which in turn increases your exposure to capital growth providing thats what you have positioned yourself for.

This increase in capital growth more than outstrips the cost of purchasing the income stream in the first instance and allows you to continue building your portfolio.

It is not for the inexperienced who is just a couple years down the investment road with minimal equity behind them.

It is a last resort strategy (for more experienced investors with substantial size portfolio & equity holdings) at one's disposal after less impacting options (as previously mentioned in this tread) may have been exhausted.

I hope this helps.

 

[tobe]

If you're self employed you're likely in a better position than the average person to increase your income than most people on a PAYG salary.

The main verification of income for the self employed is via their tax returns. People who are self employed have a tendency to be reasonably aggressive in claiming deductions, nobody wants to pay more tax than they should. By being less aggressive in the pursuit of tax deductions, the self employed will likely pay more tax, but will be able to borrow more.

You must be joking. What kind of dirty socialist are you???!!!

Pay more tax, as if.

 

[Peter_Tersteeg]

I've got no problem with people claiming as many deductions as they're legally entitled to (and let's face it, many people go way beyond this). The problem is some people get very creative and effectively trade at a loss or almost no taxable income at all.

You can pay a negligible amount of tax or you can borrow money. It's fairly tricky to do both.