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Hi Everyone,
Just thought I would make a post tonight/this morning as I have arrived home from slaving the night shift, which earns me just over $20 per hour.
Reason being as I currently have 2 properties and should be able to spend a further $750k based on 80% LVR of recent valuations, but I don’t want to get stuck moving forward.
I have come up with a list of some of my questions that I have. The aim with these questions is to develop a more in-depth understanding of how the banks assess serviceability to support more loans. I think understanding serviceability requirements and how to structure loans will be the key to getting sufficient leverage to get to financial freedom and past this. Not sure if there is a broker out there who would have the answer to all of these questions, so I thought I would just post them on here and hope to get feedback from people who might know the answers to particular questions. No doubt I will develop more questions as time goes on.
1. What have people calculated to be the required rates of returns/cash flows for property purchases, in order for them to be completely cash neutral in different ‘banks eyes’?
E.g. For ASB it seems like 75% of rental income needs to be able to cover principal and interest payments using their current 5 year fixed interest rate on a 100% mortgage. Is this the sort of thing other people have found for lending criteria still within ‘retail’ limits?
2. When you haven’t got sufficient income to support a line of credit in the banks eyes, is there a way to get around cross-collateralising your loans for future purchases?
E.g. If you have a couple of properties with rental income and personal income, but this income in not enough to support a line of credit to get cash as a deposit for another property, can you use proposed rental income from a potential purchase to support a line of credit and then get the cash out and not cross-securitise the new loan? – Don’t think this can be done, so not sure if there is a way to solve this one. Is there a workaround? E.g. cross 3 properties, then refinance the third somehow and remove the cross? – If so, how would this work?
- If you can’t do this, how easy is it to break up say 10 properties that are all cross-collateralised, into individual loans? –Anyone had experience with this?
3. Does anyone know how quickly you can bring a new registered valuation to certain banks and borrow on increased equity? E.g. Straight away/whenever you want for one particular bank, 3 months for one bank, 6 months for another etc. This question applies to properties that have not had work done to them, just increased in value or bought below market value to begin with.
4. Do renovated properties need to be rented i.e. providing an income, before applying for more finance, or can a current rental appraisal sometimes suffice? – (so you don’t have to wait to move tenants in etc. before you can move on to the next deal).
Been thinking about this one, because when you propose a new deal, the bank can accept a rental appraisal, so would have thought this could be the same for properties already held that have just been renovated. Suppose it might depend on how risky you are to the bank – e.g. they might only want to assume you will obtain the appraised rent on one, rather than two properties?
5. In the plan of building a large portfolio, I have been told that if you have properties cross-collateralised/securitised and you want to revalue one of them to borrow on your gain in equity, you can be required to revalue all of your properties and the banks will only loan on any change in the value of your entire portfolio. So if you have two properties, one goes up by $50k in value, one goes down by $50k, you won’t be able to borrow any further capital. Has anyone had this experience and could share their knowledge?
6. When looking to see if I could get a loan for renovation, it was looking like I would have needed a registered valuation done prior to getting the loan to get evidence of what the value would come to after the reno, then the bank would lend on this value. Is this the only way to do it or is there some faster/easier way to do it? - Besides getting a line of credit, or funding from cash (what I just did).
7. Has anyone been able to buy a property below market value and finance this with a particular bank, get a registered valuation done straight away with an increase in equity and then refinance with another bank? If so, have you been able to do this on multiple properties or is it not possible?
My apologies to anyone who senses my ignorance with some aspects, only 19 so still learning the ropes with this stuff.
Any responses would be much appreciated!
Cheers,
Jonathan
Just thought I would make a post tonight/this morning as I have arrived home from slaving the night shift, which earns me just over $20 per hour.
Reason being as I currently have 2 properties and should be able to spend a further $750k based on 80% LVR of recent valuations, but I don’t want to get stuck moving forward.
I have come up with a list of some of my questions that I have. The aim with these questions is to develop a more in-depth understanding of how the banks assess serviceability to support more loans. I think understanding serviceability requirements and how to structure loans will be the key to getting sufficient leverage to get to financial freedom and past this. Not sure if there is a broker out there who would have the answer to all of these questions, so I thought I would just post them on here and hope to get feedback from people who might know the answers to particular questions. No doubt I will develop more questions as time goes on.
1. What have people calculated to be the required rates of returns/cash flows for property purchases, in order for them to be completely cash neutral in different ‘banks eyes’?
E.g. For ASB it seems like 75% of rental income needs to be able to cover principal and interest payments using their current 5 year fixed interest rate on a 100% mortgage. Is this the sort of thing other people have found for lending criteria still within ‘retail’ limits?
2. When you haven’t got sufficient income to support a line of credit in the banks eyes, is there a way to get around cross-collateralising your loans for future purchases?
E.g. If you have a couple of properties with rental income and personal income, but this income in not enough to support a line of credit to get cash as a deposit for another property, can you use proposed rental income from a potential purchase to support a line of credit and then get the cash out and not cross-securitise the new loan? – Don’t think this can be done, so not sure if there is a way to solve this one. Is there a workaround? E.g. cross 3 properties, then refinance the third somehow and remove the cross? – If so, how would this work?
- If you can’t do this, how easy is it to break up say 10 properties that are all cross-collateralised, into individual loans? –Anyone had experience with this?
3. Does anyone know how quickly you can bring a new registered valuation to certain banks and borrow on increased equity? E.g. Straight away/whenever you want for one particular bank, 3 months for one bank, 6 months for another etc. This question applies to properties that have not had work done to them, just increased in value or bought below market value to begin with.
4. Do renovated properties need to be rented i.e. providing an income, before applying for more finance, or can a current rental appraisal sometimes suffice? – (so you don’t have to wait to move tenants in etc. before you can move on to the next deal).
Been thinking about this one, because when you propose a new deal, the bank can accept a rental appraisal, so would have thought this could be the same for properties already held that have just been renovated. Suppose it might depend on how risky you are to the bank – e.g. they might only want to assume you will obtain the appraised rent on one, rather than two properties?
5. In the plan of building a large portfolio, I have been told that if you have properties cross-collateralised/securitised and you want to revalue one of them to borrow on your gain in equity, you can be required to revalue all of your properties and the banks will only loan on any change in the value of your entire portfolio. So if you have two properties, one goes up by $50k in value, one goes down by $50k, you won’t be able to borrow any further capital. Has anyone had this experience and could share their knowledge?
6. When looking to see if I could get a loan for renovation, it was looking like I would have needed a registered valuation done prior to getting the loan to get evidence of what the value would come to after the reno, then the bank would lend on this value. Is this the only way to do it or is there some faster/easier way to do it? - Besides getting a line of credit, or funding from cash (what I just did).
7. Has anyone been able to buy a property below market value and finance this with a particular bank, get a registered valuation done straight away with an increase in equity and then refinance with another bank? If so, have you been able to do this on multiple properties or is it not possible?
My apologies to anyone who senses my ignorance with some aspects, only 19 so still learning the ropes with this stuff.
Any responses would be much appreciated!
Cheers,
Jonathan
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