Additional income to increase serviceability?

Study for a qualification (for my current job) and educate myself on property investment, which will hopefully come into practise soon, including reading this forum .

 

Would it be better to buy a CF+ IP rather than use the servicibility from another job? I've read they usually take 80% of the IP rent and 30% of gross income, is that true? So adding a CF+ IP with rent of $30k pa it would add $24k to your servicibilty whereas getting a $20k raise/working second job would only add an extra $6k of servicibilty.

 

I'd be really interested if anyone could shed some more light on this. Seems backwards to me!

With regards to the main topic of the thread, I've always had more success focusing on my job and making myself more useful there. Its never an immediate payoff but it compounds, in my experience.

 

Wow... I obviously hit a nerve. Firstly, I never intended to offend you. As a member of this forum (& its predecessor) for over 10 yrs, I think I have a reasonable grasp of our etiquette.... well, at least I thought I did.

Secondly, I am happy for you to question what I said & even disagree with it. Really, I am. With regard to individual taxation for those with multiple employers, I'm only conveying my experience.... I'm not an accountant, I'm not a tax lawyer, I'm not the ATO. BTW, they've all been fine with using a specified tax rate (including employers) so I ignore my mate's comments down the pub (this is not a dig at you... to be clear). Owning & managing a property portfolio requires knowledge of many things so that you can either do it yourself, know when to get advice, know when to get a professional to do it, know when to solve the problem a different way. Most of us have learnt the hard way... through experience which in some cases has been very costly. Read into that what you will because you can't teach experience.

As for the plumbing washer (or tap washer) I have a very different view. It is common practice for tenants to be responsible for changing amongst other things, tap washers, light globes etc....So if we expect our tenants to do it, I proffer that it must be a rather simple action. To get a tradesman in to do such things in your PPOR would indicate to me that either the home owner was either very wealthy, their time was far more valuable than paying a plumber for a 5 min task, or they were not very adept at basic household maintenance tasks. Either way, to build a property portfolio, some property maintenance aptitude will go a long way to maintaining your investment vehicle.....& ensuring you don't get hosed by any trades you employ. (once again, this is not aimed at you personally... this is a forum & this is a general comment)

Enjoy the journey

Indi

 

A cash flow positive property makes very little difference to improving service ability. My banker told me interest rates are calculated at 7% and yields are calculated at a max of I think 8% and they only count 70% . 20k could add 140K to service abilty. $1 earned could add $7 to serviceability

 

Thanks for your reply. Maybe I was having a rough day I dunno.

As for the above. It surprises me, Tenants are responsible for changing washers? Light globes i get but I wouldn't have thought washers? I do however have a nice mental image of some old biddy wielding a monkey wrench and shaking it angrily at a tap .

Only reason I say this is because I am a fairly average person in some ways and I wouldn't want someone like me changing washers which are responsible for not letting water throughout my house.

Of course it's individual choice but I will be paying for maintenance on my IP's outside of what I deem "general" wear and tear ie light globes, basic garden maintenance etc. In essence, I won't trust my tenants to maintain my property to the standard I would do it.

 

Almost certainly not. While you may be getting $30k pa (or $577pw) income from rent, at a maximum of 8% yield taken by many banks your purchase price is $375k and you're probably paying $17k in loan repayments at 105% and $9k in ongoing fees and stuff. So to the bank you are getting $24k, but paying out $17+9=$26k. So your serviceability is worse.

If you can go with a bank that doesn't limit your yield to 8% or so AND you can get a property for $300k that rents for $577 (yield = 10%), then you may be able to increase your serviceability a little with the purchase. But it's only going to be a few thousand dollars per year and probably won't make as much difference as hounding your boss (or yourself ) for a raise. Of course, some of those lenders that don't limit the yield in their calcs are those that - merely by having them - may limit your serviceability with the big banks.

 

All true, but barely scratches the surface. Raising rents helps (when the market allows it), but it's not going to have a dramatic change.

Increasing the rent on a property this year might add another $20/wk income, which equates to $1,040 per year, but after the 80% rule this is really $832.

A second job might add $10k per year. An order of magnitude more.


Sadly the biggest boost that I see to people's serviceability is to get a stay at home mum to go back to work. This is usually very well received by lenders and is usually on a very low tax threshold, so every dollar goes further.

 

Doing this every 6 months or so could really help then...Mormons/polygamists only?

 

Couldn't agree with this more.
Little example -

Applicant #1 $80k p.a PAYG
Applicant #2 $0 not working
1 child
Borrowing capacity ~$340k

Applicant #1 $80k p.a PAYG + $20k second job
Applicant #2 $0 not working
1 child
Borrowing capacity ~$480k

Applicant #1 $80k p.a PAYG
Applicant #2 $20k part-time
1 child
Borrowing capacity ~$570K

When the income is in the 2nd applicants name, no tax - increased $90k borrowing capacity over the 1st applicant earning $20k extra.

 

Can another family member thats working help in servicing but not be on the title/sale?

 

Your spouse (husband/wife/defacto) can assist with servicing and not be on the title. They do need to be on the application.

Kids, parents, siblings need to be on title and application.

 

One way this can be structured without being on title is with trusts.