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  1. #1

    Default Self manage portfolio, High Equity Low serviceability -difficulty getting a new Mge

    Dear Team

    Need some advise

    We are mom and dad investors who own and manage several residential investment properties in Auckland/Waikato etc.

    My husband is a professional on salary, and I recently quit my salaried job ($60k pa) to manage better our property portfolio as it was very difficult with my salaried job managing the properties better etc as it needed more time and quality input.

    Ours is over 20 residential investment properties and we have very high equity and cash positivity to provide comparable salary for a PM as a permanent staff.

    We are needing to buy one particular property, and bank says that we do not have enough serviceability as it is only my husband who works on salary.

    Can our company (LTC) pay me a 'salary' , say $50k pa, and would this satisfy the bank as an income to raise the serviceability for a new mortgage. What are the pros and cons. And any other suggestions/ideas/thoughts at all on this line.

    Many Thanks in advance.

    Anita





  2. #2
    Join Date
    Jun 2004
    Posts
    10,426

    Default

    You could pay yourself $x to manage the properties so long as the salary is reasonable for the work done but whether that would satisfy the bank would be up to them.

    All seems a little odd for a high equity/ cash positive situation.

    Also why did you go for a LTC for cash positive when you have to pay tax for the company at the higher marginal tax rate (I assume your husband earns over $70k).

    Are you a shareholder in the LTC or just your husband? There are rules around shareholder earnings that I am sure an accountant will pop up with.

  3. #3

    Default LTC and cash-flow positive

    Cashflow+ and LTC make little sense to me. Properties with income I would run in QC and engage services on contract, these expenses are tax deductible and you might get paid on PAYE, too.
    The issue with banks is that they look at all loans related to you, and as shareholder, guarantor etc and the LVR should support I+P

    Running a separate GST registered trading company that provides services to your investment properties or services or e.g. for my business would increase your accepted cash-flow.

  4. #4
    Join Date
    Apr 2008
    Posts
    2,086

    Default

    Here's a revolutionary suggestion: Avoid the bank and use the equity in the Auckland properties. According to the experts, this procedure has been used successfully in the past - and I believe that the technical expression for it is "selling". (Hope I've spelt it right.)

  5. #5

    Default

    Green Fish; Selling or Losing – What is the difference?
    Life is not about money – it is about something you can enjoy. It might be a business – and using the sufficient cash-flow for a good life, I call it freedom. Are you free or in slavery of your job?

  6. #6
    Join Date
    Apr 2008
    Posts
    2,086

    Default

    Don't follow the first question: She won't lose in the current Auckland market. If you're referring to future capital gains, that's a myth that's debunked every seven years or thereabouts.

    I'm not sure about how much a good life this couple is enjoying. Instead of using the word "yield", the phrase was "cash positivity". That, I think, is derived from the phrase "cash flow positive" which was used by those people who used to run seminars, a few of whom aren't bankrupt. All that phrase means is that the rent covers the interest - at 5% - but not at 7%. And in making the calaculation, no account would have been taken of the 4% interest that would have been earned on the Auckland equity were it in the bank.

    As for lifestyle, the wife has had to quit her job to drive between Auckland and Waikato dealing with tenants and fixing problems. She's hardly sitting back and smelling the roses.

  7. #7
    Join Date
    May 2008
    Location
    Torbay, Auckland
    Posts
    3,902

    Default

    You must be structured wrong, you should have done this before you quit.

    Get valuations on all properties (the free ones like CV / bank desktop valuations).
    Take that to your bank(s), get them to advance 80% of this value.
    Have the extra funds sit in a fat R/C account, that you can access and do what you want with, ala new properties.
    A line of credit if things go bad with a left field event.

    If you have 20 houses with high equity, you should have more than 500k in your line of credit.
    Use that to buy the house.
    Hey if you buy well you can take the new RV to a different bank and get 80% of that which could be close to the purchase price.

    Otherwise, just say you are taking your business to another bank, and they will quickly change there tune.

  8. #8
    Join Date
    Apr 2008
    Posts
    2,086

    Default

    No-one has ever made money buying properties unless they have sold some. That's the whole reason to get in, and to get out. Any Auckland investor should be getting out, while the going's good.

  9. #9
    Join Date
    Sep 2012
    Posts
    227

    Default

    Quote Originally Posted by Bluekiwi View Post
    You must be structured wrong, you should have done this before you quit.

    Get valuations on all properties (the free ones like CV / bank desktop valuations).
    Take that to your bank(s), get them to advance 80% of this value.
    Have the extra funds sit in a fat R/C account, that you can access and do what you want with, ala new properties.
    A line of credit if things go bad with a left field event.

    If you have 20 houses with high equity, you should have more than 500k in your line of credit.
    Use that to buy the house.
    Hey if you buy well you can take the new RV to a different bank and get 80% of that which could be close to the purchase price.

    Otherwise, just say you are taking your business to another bank, and they will quickly change there tune.
    Well said.

    Anita... do you have an accountant?

  10. #10
    Join Date
    Apr 2010
    Location
    Auckland
    Posts
    307

    Default

    Quote Originally Posted by Anita View Post
    Dear Team

    Need some advise

    We are mom and dad investors who own and manage several residential investment properties in Auckland/Waikato etc.

    My husband is a professional on salary, and I recently quit my salaried job ($60k pa) to manage better our property portfolio as it was very difficult with my salaried job managing the properties better etc as it needed more time and quality input.

    Ours is over 20 residential investment properties and we have very high equity and cash positivity to provide comparable salary for a PM as a permanent staff.

    We are needing to buy one particular property, and bank says that we do not have enough serviceability as it is only my husband who works on salary.

    Can our company (LTC) pay me a 'salary' , say $50k pa, and would this satisfy the bank as an income to raise the serviceability for a new mortgage. What are the pros and cons. And any other suggestions/ideas/thoughts at all on this line.

    Many Thanks in advance.

    Anita



    20 properties - That is impressive

    With that manny properties the bank will see you as rent reliant. This means they tighten there lending criteria as they see your as more risky.

    I would talk to a mortgage broker. They will have more clout when negotiating or know of better opportunities to secure the mortgage.

    You could pay yourself a salary but it would not change the serviceability unless you came across a naive bank manager.


 

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