Financing first investment property

[mattinvestor]

hey all
i've made an offer already on my first investment property, but im still waiting on my mortgage broker to get back to me about how much money I can borrow. I'm pretty sure that i'll be able to borrow the amount I offered, but what can I do to make the job of my mortgage broker easier?

should I give him the letter of intent and the acceptance from the seller as proof to show the purpose of the loan?
What ahot sharing with the broker a letter from the real estate agent giving estimates about projected rental income?
anything else?

[eri]

pretty dangerous game

an clauses in your offer, like subject to finance?



or would you just pull out...

[Ahar]

Matt.....if you are borrowing for an IP then the bank will almost certainly want to know what the rent will be.....banks usually add about 80% of the rent to your income, thus increasing the total amount you can borrow.

So yes, get estimates about projected rental income......but what an agent says is not always what the property will rent for...............use your common sense.....and check on trademe etc to get a feel for what the current rent should be.

And the mortgage broker/bank might want to at least sight the agreement.....banks might want you to get a valuation depending on the address or some other factor

Another thing.....never ever tell the real estate agent/bank/broker/laywer that you are buying for the capital gain.

This would make you a developer and thus all gains for any property you buy/sell will be taxed

Remember.....you are an investor......buying for the "continuous income stream"

[mattinvestor]

thanks for the tip ahar.
eri - yes I did make the offer, but I made sure to put the "subject to finance clause"
been organising with my mortgage broker, and the financing seems to be going well.. just waiting on the loan application now

[JimmyP]

Good work Matt, i'm just about to settle early next month on my first rental property too. Was a bit of a drawn out process but I got there in the end. I'd be interested to hear more on how you've found the process to date. Any issues you've found? I ended up using equity in my current home as deposit, but thinking about it now, it might have been a better idea to just take a loan out of the equity and keep the two properties disconnected. Anyone have any thoughts on this? Does it matter?

[mattinvestor]

one issue that I've come across is the issue of how to borrow even more if I want to buy even more properties. I'm still unsure how and what needs to happen so that my borrowing capacity doesn't get capped. How can I ensure that lenders will continue to lend me more money to buy more positive cash flow properties to build a portfolio of several properties?

[Ahar]

IMHO you will only be able to find finance if ....

• your properties have a great yield.....this I believe to be the biggest and hardest obstacle to overcome
• you are not too highly leveraged, i.e. you've bought at a discount, and/or property values have gone up
• AND you have a good income...from other sources that is.....banks don't like "rent dependant" PIs

In fact finding finance to buy further properties is a problem common to most PIs

But it can be done.....lots of folk have done it

Some go to successive banks to obtain additional finance...... and some don't tell the whole story....this is to my mind is a risky strategy.

It's not too hard to for a bank to check and discover what your other borrowings are and remember, banks can call in your mortgage at any time.

Lie to them at your peril

[mattinvestor]

at what point do lenders consider you "ren dependent"? and how much of a good income do you need from other sources?

Thanks!

[Ahar]

at what point do lenders consider you "ren dependent"? and how much of a good income do you need from other sources?

Thanks!

No idea sorry.......just know that's what my mortgage broker said to me....he was commenting on situations where the rent was high compared to income from "other sources" such as a job.

Of course I think I'm considered to be "rent dependant" because I don't work.....just live off my investments

[mattinvestor]

thats my aim!.. just live off investments.... bso what's you're strategy to be able to borrow more and invest in more property??
Do you then put some of your income aside and invest them in other asset classes such as stocks, bonds? Curious what's your strategy to be less "rent dependent"

[Ahar]

Back in 2008 I arranged the largest RCF that I my bank would advance me.....rather cunning I thought....I could see how things were panning out.

I intend to use this as deposit money.....the bal to be sought from other banks....and of course I will disclose all assests held by me.....probably won't tell them where the deposit came from tho'

Other than trying to get the very best rental yield I can......atm I'm still hanging out for the magical 10%

But must admit I'm not looking too hard......I'd like to see some improvement in overseas economies etc before I saddle myself with a large amount of debt.

Caution being the better part of valour and all that

[mattinvestor]

whats an RCF?

[Ahar]

RCF = revolving credit facility

[mattinvestor]

which service provider are you with for your RCF? were you able to use it as deposit money as planned for your IP?

[Ahar]

which service provider are you with for your RCF? were you able to use it as deposit money as planned for your IP?

With National Bank

And no haven't really been looking too hard for another property.....as I said I'll be happier when the world economy looks less precarious

No idea when that will happen of course......in the meantime quite happy to find myself in the spot I'm in......retired and enjoying the fruits of my past labours