Buying another investment property

[TomW]

I try and answer as many questions that I can be helpful on as possible on here but this time i am needing help with a question.

We currently have $3.6m worth of residential property with $2.2m worth of debt against it (approx). We also have a freehold(no mortgage) $400k family home.

We want to purchase a $950k investment property/residential flats which show a 8% net yield and around a 10% gross.(Net takes into account rates, insurance, 3 weeks vacancy, lawns etc). Property is located in Grade A bluechip location.

I think we are currently at our max lending that the bank will lend to us (excluding the $400k family home). Current LVR is around 60% excluding the family home.

What are your suggestions for trying to secure the $950k property or are we stuck aka maxed out?

Thanks in advance

[jadelotus]

shop around.
if one bank says no another may say yes.
at 60% LVR you are far from maxed out.

bear in mind though that banks look at your servicability.
regardless of what low rates you may have looked in on your existing loans they will calculate the loan interest base on the current 2 year rate plus a margin. ANZ uses the 3 year rate plus 1/2 percent.


if you have other income apart from rent that helps.

if no luck with direct approaches, try a mortgage broker.

[TomW]

Thanks for your reply.
We would rather stay with the same bank.
Is selling a property, paying the debt on it back too the bank and then using the profit as a deposit on the $950 property an option with another bank? I hear some banks take the profit back anyway.

B) Surely selling a property then paying the debt bank to the bank and using the surplus to use as a deposit with the same bank has no purpose?

[TomW]

Forgot to mention. All properties average out at 9.5% net return across the $3.6m portfolio.

[NovInvestor]

If you spread your lending across 4 banks, so that each bank have less than 1m of loans, you should be able to borrow to 80% LVR (excluding ur home).

Sticking with one bank is a sure way to reduce your LVR you can borrow to...

[ENP]

If Bank A says they won't give you a loan but Bank B would be happy to then go to Bank B.

Simple.

[One]

I'd try getting a revolving credit against the current properties for 20% of the new property price, then taking that to bank B as a deposit. That way you should be able to secure the new property with nothing but itself.

If necessary, could you buy the new one under a new entity?

[Pegasus]

One - when you suggest buying the new one under a new entity, do you mean to do that as a way to not have to tell the new bank about your exising loans? Can you do that?

Do investors go to the second bank in order to avoid telling about loans at first bank, or is it because each bank only wants to lend to a certain level?

If you get a revolving credit then take that as a large deposit to the new bank I understood they will still look at your servicing ability across all your loans and will see the revolving credit deposit as an 'asset lend' and discount it.

I would appreciate any feedback as I am also keen to learn more about this, thnx

[AMR]

Do investors go to the second bank in order to avoid telling about loans at first bank, or is it because each bank only wants to lend to a certain level?

Also a way of putting down firewalls between each property, so the bank can't take em all if one goes down.

[One]

No, I was thinking asset protection in wondering about a different entity, rather than making it easier to get a loan.

I'm at nowhere near that level of borrowing, so may have no idea what I'm talking about, but 60% seems like a pretty low LVR. As long as Tom W's target property has good net yield, I'd be surprised if he can't find another bank prepared to take it on.

Or is finance really that hard to get atm?

[revdev]

Tom, whats your theory/reasoning in staying with only one bank?

[spurner]

Is everyone overlooking the simple solution?
Mortgage the family home. Easy as that.

And if anyone is averse to mortgaging the family home, then I'd say:
A) The bank probably has access to it anyway through your guarantees, even without the mortgage.
B) If you're investing in something that makes you afraid of losing it, then you probably shouldn't be investing in it in the first place.

I can understand the rationale behind staying with 1 bank, that will be the bank that knows you better than any other, and once you lose many years of good history with them it will be gone for good. Refinancing multiple properties with multiple loans on a variety of fixed terms is a real nightmare too. Having said that, if it's a great property and another bank will do the deal when the current one won't, then it's time to wave bye-bye to them.

I think most people who have $1m ++ portfolios are on ~60% or less LVR, it is also to do with debt servicing as well as the LVR. If you have $300k debt and interest rates go up 3% then most people would cut back and find the $9k pa to service the extra repayments. But if you had a $3m debt it would be tougher finding an extra $90k pa. Hence the more you borrow, the lower the LVR tends to be.

My 2c.

[TomW]

Tom, whats your theory/reasoning in staying with only one bank?

Simply easier. Have read many articles about larger investors such as liz harris etc stick with one bank only. Also cant see how bank would allow you to move a property to another bank without wanting more equity from somewhere else.

[TomW]

Is everyone overlooking the simple solution?
Mortgage the family home. Easy as that.

And if anyone is averse to mortgaging the family home, then I'd say:
A) The bank probably has access to it anyway through your guarantees, even without the mortgage.
B) If you're investing in something that makes you afraid of losing it, then you probably shouldn't be investing in it in the first place.

I can understand the rationale behind staying with 1 bank, that will be the bank that knows you better than any other, and once you lose many years of good history with them it will be gone for good. Refinancing multiple properties with multiple loans on a variety of fixed terms is a real nightmare too. Having said that, if it's a great property and another bank will do the deal when the current one won't, then it's time to wave bye-bye to them.

I think most people who have $1m ++ portfolios are on ~60% or less LVR, it is also to do with debt servicing as well as the LVR. If you have $300k debt and interest rates go up 3% then most people would cut back and find the $9k pa to service the extra repayments. But if you had a $3m debt it would be tougher finding an extra $90k pa. Hence the more you borrow, the lower the LVR tends to be.

My 2c.

Thanks. We have properties in a family trust and have always wanted to not have the family home mortgaged. If it comes to the point where that will make the deal happen, then we would seriously need to look at this option. Would much prefer some other way though. Cheers

[revdev]

Simply easier. Have read many articles about larger investors such as liz harris etc stick with one bank only.

Fair enough. However, we have all read plenty of articles where "the bank" has pulled the rug out from under people. With only one bank your options/flexibility/exit are limited IMHO.

Also cant see how bank would allow you to move a property to another bank without wanting more equity from somewhere else.

Move a property?? Take out a LOC against an existing property(s) with your current bank. Hopefully the same as the deposit for the block of flats. Withdraw the LOC, take the $$ to bank B and secure the new property against itself.