Borrowing capacity

Hi guys,

I've just arrived love this site very informative .
I'm kind of hit a wall at the moment with servicing , I have 3 properties one being an vacant block and the other 2 a unit in parramatta and a house with granny flat in Penrith.
All 3 loans are with cba .
My borrowing capacity is $125,000
The advice I was given was that my next two properties should be double digit yielded to increase my borrowing capacity .
Can somebody explain to me the ratio between income increases relative to borrowing captivity increase ??
What I calculated with two high yielding properties was around an extra 7k per year .
At the moment my portfolio before tax is costing me $100 a week.

 

I think a very rough rule of thumb was 5 times your annual salary.

Its a bit different for rental income though - bit tough (nearly impossible) to find properties that actually increase your serviceability after all costs and opportunity costs are factored in.

 

Hiya

Who provided the servicing assessment? If it was a banker - you might still have hope.

Cheers

Jamie

 

If it was a CBA banker that would be odd, considering they cap yields @ 6% anyways!
In reality, yields don't increase your servicing as much as changing lenders will. If you've been dealing with a CBA guy, chat with a broker and a whole world of new opportunity might await

 

My broker ,it's 145k sorry .

 

Vacant blocks are a killer of servicing - similar to a PPOR

No income coming in, no tax deductability.

Have you looked into building on the vacant block?

 

It might pay to get a second opinion - I'm not sure who your broker is and they may be amazing, but not all brokers are created equal when it comes to investment lending and there may be some tricks you can use to increase servicing.

Are you looking to buy a PPOR or an new IP?

 

That vacant block is not going to be doing much for your servicing.
Can i ask why you have a vacant block of land? Do you plan to construct, develop?

 

On new borrowings, banks will calculate the additional expense you incur @7-7.5% P&I rates. Depending on the loan size this equates to double digit income yields to have your borrowing capacity remain unaffected by purchasing property. Obviously this is very difficult and near impossible on most ordinary properties.

The upside is - if you switch lenders from CBA to another lender, all your existing debt that you have across your existing portfolio can be assessed far less harshly. This means switching lenders expands your borrowing capacity.

Also as Brady mentioned, building on the vacant block may help - the additional income that you receive relative to the build construction cost can indeed service the new lend in some cases (ie additional rent/build loan can be a high figure that doesn't reduce capacity).

 

Yeah I have the rents are too low and rental vacancies are high , my first investment didn't know what I was doing and paying for it know.
I didn't want to be stuck with costs to sustain the loan.

 

I'll describe my situation and if anyone can give advice that will be great .
3 loans with Cba: 1- land $67000, I have a private rental contract for $200 a month .
2- unit 402k owing with $450 rent and $3200 a year strata .
3 -house and granny flat $610k owing with $710 rent , this one is fixed until October 2019 .
My earnings are $90k with almost half overtime , employed 16 years . Monthly expenses $1500 plus staying with family to improve portfolio board $50per week. .
Value of land is $45k
Value of unit is $490k
Value of house/granny flat is $700,
I applied for a top up loan with cba and the servicability was not there , my broker doesn't agree but told be my borrowing capacity was $145k .
That's when he assuming I could get a top up loan with cba buy double digit yield property to improve my borrowing capacity .
I have learnt that the cba will on cal. 6% yield into servicing so I am confused what I should do to get out of this mess and keep moving forward .

 

Can anybody provide a link to explain how cba calculate servicability and borrowing capacity so I can work this out myself

 

As has been already suggested you could build on the vacant land and use future rental income to bolster servicing. Assuming its a spot you can easily rent? If not then consider selling it as this may also assist with borrowing capacity.

As a very rough guide you need to increase income by 45k per annum in order to increase borrowing capacity by 1 mill.

 

Brokers have access to the actual calculator and banks being banks wont allow it to be distrubuted to the public. No offense meant here but its a tricky one to use as manual calcs are required plus a few other quirks.

Complete a broker fact find with ALL info requested supplied and you can get a second opinion.

As @Jess Peletier said we are not all created equal and many brokers will stick to one or two lenders as its a virtual info minefeild in broker land.

 

What do think of my financial situation should I sell and start again or is there a way forward?

 

Not enough info and need to be careful about advising outside my professional jurisdiction, which is finance structuring

 

All the loans are individual not crossed all in my name and the $610k loan is fixed until October 2019 all with cba .

 

Do you think there is any truth to increasing my borrowing capacity by buying cash flow properties even if the bank caps it around 7%

 

Did your current broker just check servicing capacity with CBA?

 

No , but he thinks it best for now to stay with cba as the big four give the highest valuations .

s