Bank % of Rental Income & Suggestions?

[regan]

Hi All,

I've recently been told by ANZ that they only count 75% of the rental income for a property when calculating a loan.

I not so subtly pointed out that my average over 19 years between my properties is 99.999 (lost 1 week on 1 property while I was cleaning it) and perhaps they should base their figures on reality for individual clients rather than applying blanket theoretical figures to everyone.

Can anyone tell me what % other banks are using?

I'm also interested to hear of a good mortgage broker - I'm on the North Shore, Auckland.

Regan

[PTILoveYou]

I understand BNZ looks at 80% of rent, but most banks only look at 75%. In harsh economic times like 2008-2009, I won't be surprised if they reduced that to 70% or something.

The bank makes its own rules, and as a player/property investor we just have to suck it up and play it.

[aay]

I not so subtly pointed out that my average over 19 years between my properties is 99.999 (lost 1 week on 1 property while I was cleaning it)

That's very impressive! Do you manage the properties yourself?

[regan]

That's very impressive! Do you manage the properties yourself?

yip

............

[Shane D]

Hi All,

I've recently been told by ANZ that they only count 75% of the rental income for a property when calculating a loan.

I not so subtly pointed out that my average over 19 years between my properties is 99.999 (lost 1 week on 1 property while I was cleaning it) and perhaps they should base their figures on reality for individual clients rather than applying blanket theoretical figures to everyone.

Can anyone tell me what % other banks are using?

I'm also interested to hear of a good mortgage broker - I'm on the North Shore, Auckland.

Regan

Regan,

And to make the serviceability calculations even more skewed.... the banks don't take your present interest rates, they project out a couple of years and use that figure. So Presently their serviceability figures would be around 7.5% on principal and interest payments.

All this on top of discounting 25% off the rent you receive.

[regan]

And to make the serviceability calculations even more skued.... the banks don't take your present interest rates, they project out a couple of years and use that figure. So Presently their serviceability figures would be around 7.5% on principal and interest payments.

Yip, I noticed that too. I work out the numbers based on 8% I/O + rates + insurance so they're all +cashflow (or at a minimum neutral) based on that figure before any allowance for depreciation.

[BigDreamer]

Extremely impressed with your 99.999% tenancy rate.

May I ask what 'class' of properties you invest in? Properties in lower socio-economic areas such as WINZ clients or in a central location etc?

In regards to your original post, I have come across 75% calculation only.

[regan]

May I ask what 'class' of properties you invest in? Properties in lower socio-economic areas such as WINZ clients or in a central location etc?

They'd be classed lower socio, tenants typically have seasonal work. I don't think I do anything special? Just chase rent if it's 1 day late and if they give notice get'em out quick - tell them you've found another tenant already and it could save them $ if they get out like "yesterday". I've found that normally if a tenant gives notice they've already found a new house so everyone wins. Usually the exiting tenants knows someone who likes the house so we don't have to advertise it either (as long as they stack up). The properties typically have had a twist to allow a second house or reduce the initial purchase cost. ie. a burnt down house on a subdividable section. Rural house with a dam that could be cut off and sold to the farmer neighbour to reduce the initial purchase cost. Existing house on a 10 acre block that could have a separate lot cut off for a second house. That sort of thing. I'm just finishing off the relocated house on the subdivided 10 acre block at the moment and already have 3 potentials who want it (I haven't advertised it at all word of mouth seems to work quicker). The house only got moved about 2 weeks ago so someone will move in as soon as I have it ticked off by council in around 4'ish weeks, with the provision that I'll finish the grounds etc while they're living there. They get the house - we get the rent while we are still finishing it - everyone wins.

[Viking]

They'd be classed lower socio, tenants typically have seasonal work. I don't think I do anything special? Just chase rent if it's 1 day late and if they give notice get'em out quick - tell them you've found another tenant already and it could save them $ if they get out like "yesterday". I've found that normally if a tenant gives notice they've already found a new house so everyone wins. Usually the exiting tenants knows someone who likes the house so we don't have to advertise it either (as long as they stack up). The properties typically have had a twist to allow a second house or reduce the initial purchase cost. ie. a burnt down house on a subdividable section. Rural house with a dam that could be cut off and sold to the farmer neighbour to reduce the initial purchase cost. Existing house on a 10 acre block that could have a separate lot cut off for a second house. That sort of thing. I'm just finishing off the relocated house on the subdivided 10 acre block at the moment and already have 3 potentials who want it (I haven't advertised it at all word of mouth seems to work quicker). The house only got moved about 2 weeks ago so someone will move in as soon as I have it ticked off by council in around 4'ish weeks, with the provision that I'll finish the grounds etc while they're living there. They get the house - we get the rent while we are still finishing it - everyone wins.

75% is ANZ's number. And I get peeved at the principal bit as well for most of us refinance to avoid that.

[regan]

Who do/have you refinanced with? I'm open to looking at other options.

[ivanp]

75% is their estimation of gross rental minus expenses. So, you won't get 99.999% if you pay rates and insurance on your houses.
You may try BNZ - probably they have something like 80%. All majors (ANZ, ASB, Westpac) use 75% as far as I know.

[regan]

75% is their estimation of gross rental minus expenses. So, you won't get 99.999% if you pay rates and insurance on your houses.
You may try BNZ - probably they have something like 80%. All majors (ANZ, ASB, Westpac) use 75% as far as I know.

Thanks ivanp I'll look at BNZ. I was referring to my % of gross rent collected obviously. If I minus insurance and rates I'm still generally around 84% so their estimates (for me at least) are an overkill.

Is everyone just using the major banks for finance?

[BigDreamer]

I have only used major banks.

[brendan]

Just had a look at one of my properties. Insurance, Rates, Repairs (allow 1500 p.a.), Fixed Water Charge, and Accounting Fees are equal to 18.7%. If I had one week empty, it would drop to 20.6%, so BNZs 80% like a fair approximation.

99.999% (five nines) means you had it vacant for about 100 minutes. I'm interested to know if you ever re-painted or replaced the carpet during that time?