Borrowing Capacity for Buying Many Investment Properties?

[mattinvestor]

I'm keen to buy several positive cash flow properties (more than 10!) for financial freedom... However, most people buy only 1-2 investment properties because of a lack of borrowing capacity. I have read that lenders will only lend about 30% of your income.


So if I wanted to buy several cash flow positive properties, how could I borrow more from lenders?

[drelly]

That's a pretty old guideline. My understanding is that they tend to look at disposable income these days. Get the best cashflow you can, add value to increase your equity, revalue and buy more.

[mattinvestor]

ahhh.. so if I do buy 1-2 positive cash flow properties, lenders will see my disposable income and continue to see that I sitll have money (since my properties have been giving me money not losing me money), so they will lend me more money to continue to buy more positive cash flow properties indefinitely?

[drelly]

Sorta. Banks all have their own tolerances. Some get nervous once you hit 5 properties. Others $1m of debt. You'll possibly need to use multiple banks to continue borrowing past these limits.

[mattinvestor]

hmmm fantastic! thanks drelly...are those tolerances different for commercial properties as opposed to residential? Are banks and other lenders more tolerant of commercial than resi?

[eri]

i think it's the other way round

[mattinvestor]

oh.. the reason i thought they were more tolerant of commercial was because of the steadier tenancy and longer term tenancy too - also i had read that more advanced investors tend to move from resi to commercial

[JonnoM]

mattinvestor,

Banks and other financial institutions are more hesitant to lend money for commercial loans rather than residential loans, due to poor performance and uncertainty in the Commercial and Industrial property market of late. You will need 30-50% deposit for commercial loans, depending on length of lease, security of tenure, location, ability to re-lease the property etc etc.

Residential loans will be given with 10% up front as long as your serviceability meets the lender's requirements. You may even be able to achieve a 95% LVR for residential property in some situations.

I would strongly suggest that you talk to a mortgage broker who is familiar with property investment, to ascertain how much you can borrow and the best structure in which to do this, to set you up for further investments in the future.

Good luck with it all!

Jonno

[NovInvestor]

Great advice from Jonno and others here.

It all depends what you buy, ie high cashflow ones (8%+) will extend your serviceability and allow you to buy more, but you also need the equity as well.

so it's more about growing your equity and cashflow in good balance.

Kiwibank recently has hinted that our incomes (ie serviceability) are not enough when we had 7 rentals, but we still got finance to buy our 8th and 9th this week from ANZ.

Multiple banks is definitely a key to keep buying.

[JonnoM]

I agree with NovInvestor. There needs to be the right balance of growth and yield.

[mattinvestor]

mattinvestor,

Banks and other financial institutions are more hesitant to lend money for commercial loans rather than residential loans, due to poor performance and uncertainty in the Commercial and Industrial property market of late. You will need 30-50% deposit for commercial loans, depending on length of lease, security of tenure, location, ability to re-lease the property etc etc.

Residential loans will be given with 10% up front as long as your serviceability meets the lender's requirements. You may even be able to achieve a 95% LVR for residential property in some situations.

I would strongly suggest that you talk to a mortgage broker who is familiar with property investment, to ascertain how much you can borrow and the best structure in which to do this, to set you up for further investments in the future.

Good luck with it all!

Jonno

Thank you Jonno for the great advice. I ended up going with residential property. I got 4 houses so far and doing pretty good:-)

[JonnoM]

Great work, mate - sorry, I just realised this is an old thread!

What sort of strategy are you using to acquire property? Is it cf+, metro, regional etc.

All the best