Buying 10 x IP's at once.

Hopefully that headline got some attention

I'm a novice in the field of property investment so forgive me if this is the most ridiculous thing on the internet today.

Let's say, in some utopian world, that I wanted to buy 10 x $700k IPs that were all cashflow positive straight out of the gates (all the numbers are crunched like costs / vacancy rate etc and it still checks out on top).

And for each one, I only needed $65k in purchase costs (5% deposit of $35k and $30k stamp/other costs).

So hypothetically, If I had $650K cash would banks lend me the money to buy all ten of them (on the grounds that they are all cashflow positive and my income wouldn't even matter?).

And if personal income wasn't a factor, couldn't one just rinse and repeat this for as long as they could come up with the purchase costs up front?

10 x properties could turn into 11, 12, 13 if I kept putting up $65k each time?

Or do banks have some sort of 'ceiling' on the amount of properties one can own?

If this is a ridiculous thought, feel free to flame

 

No they wouldn't

 

The banks will question your servicability. They will discount the amount of rent received etc. Don't get decision will not be made solely as to whether the deal is positive or not.

 

Yes it is a ridiculous thought it's not anywhere near how banks assess serviceability.
even a positively geared property in reality, isn't when you plug it into a banks servicing calc due to buffers applied to the debt and shading of rental income and capping of rental income.
Not a ceiling on number of properties as such, a ceiling on total borrowing capacity.

 

You can call it responsible lending... but at a principal level you need to be able to show how you can service the debt within certain parameters/policies, and how you're going to pay back money that you borrow

 

There was a time when this was done, or done to a greater degree than is possible now.

But..... we can only work with current reality.

 

Not so much a ridiculous thought, but a million miles from reality right now!

 

You would probably need to be earning $1mil/PA to pull off a debt of $6.65mil.

as above, banks shade rental income etc.

 

Yeah, drop the 0 from the thread title.

 

I have always wondered - could you get 10 financial instituitions and 10 properties all settling on the same day (ie : They each think you are buying one with them - when in matter of fact, you are buying 10)?

 

They all show up on your credit file

 

Lets's talk about APRA and ASIC and the changes since 2015/16. To pass a serviceability test you need to demonstrate that you can service the debt at a rate that is "at least" 2.5% above the rate you are applying to borrow at , AND the banks must assess your repayment capacity based on Principal and Interest, AND they must assess it based on the remaining P&I loan term, something which is a significant game changer . It means that if you apply for a 30 year loan term at 3%, and request IO for 5 years , the bank will assess your ability to repay that loan based on an assessment rate of 5.5% P&I over 25 remaining years.

Here's a real world example that will help you understand what that means for your hypothetical idea ; using your example of a 95% lend against a 700K purchase, you'd be applying to borrow 665K. Besides the fact pretty much no lender will lend you 95% LVR on an IO basis, let's pretend for a moment that its available for this exercise. If you borrowed that amount of money at 3% IO for 5 years , the repayments during the IO term would be $1663 per month.

That figure is important to YOU but not the bank. It is the figure that has convinced YOU that you can afford to hold the property because the rental income from the property can service the loan repayments. But what YOU haven't understood in coming to that conclusion is that THE BANK doesnt care about that figure. Because they are required by APRA to assess your ability to repay the loan based on a "sensitised" P&I repayment schedule, they use a very different figure. Firstly, it's helpful to understand that when the 665K loan reverts to P&I after 5 years , the "actual" repayment reverts from $1663 per month to $3154 per month ... and that's assuming rates haven't increased. But as significant an increase to the "actual" repayment as that may be, that figure isn't what the bank uses either. Remember , they are required to add a minimum of 2.5% to the rate you are "actually" paying , so in this example they would be required to use 5.5% P&I, not 3% P&I. And repayments based on 5.5% P&I over 25 remaining years are @ $4084 per month, or $49,008 per annum, which we can all agree is a whole lot more than the $1663 per month you had been repaying during the IO term, and a decent chunk more than the $3154 you will actually be repaying after reverting to P&I. But whatever you think of the rules, they are nevertheless the rules, and that is the figure THE BANK will use and care about

If you want to get uber technical, that means the effective assessment rate is approaching 7.4% ie $49,008 of "deemed" repayments against 665K of proposed debt.

Aaaaand.......even if you got those sorts of yields/ returns, (and you will not) we haven't even started the conversation about living expenses, or the fact you would be seeking to borrow at high LVR's using properties that yield more than 6% , and using 100% rental reliance.....

What I'm trying to demonstrate is that cashflow positive to YOU is not necessarily cashflow positive to THE BANK - because of the rules APRA has imposed in recent years. This is a space I specialise in - cash flow and debt reduction... and I would suggest you'd need yields exceeding 10% to even have a snowballs chance of a rinse and repeat model like you have suggested .... and even then you'd very likely need 20% deposits each time because rental reliant deals wont get LMI support for very long... and you'd need lenders to accept the yields as exceptions to their normal yield caps.... and even then you'd run into aggregate exposure issues at lenders.

In summary - it would require something quite exceptional - and I do mean really, really quite exceptional, for a model like this to get off the ground, let alone continue to work , without running into roadblock after roadblock after roadblock after roadblock.

If you really want a large dollar portfolio, focus on buying 1 or 2 properties with your available borrowing capacity. Buy cash cows and then focus on paying down debt as aggressively as you can. Use P&I loans not IO. This aids borrowing capacity marginally for the reasons demonstrated above. When you have retired enough debt that you have both the equity AND the borrowing capacity to buy again, do so.... Then repeat the debt reduction. Call it Dividend Reinvestment or Debt recycling ...all kinds of ways to describe it, but unless you earn mega bucks, it is the only realistic way to circumvent the servicing calcs over time..... it is not fast though. It takes a 15-20 year view and discipline.

 

For the figures suggested in the initial post, you'd probably need an income of over $1M / yr, plus at least 30% deposits and purchase costs.

Sorry, but this would be out of reach for most of us. These days buying 10 properties at this price point is the work of a lifetime.

 

If you pay cash, you can buy as many as you like.

 

That's only three units, not seven.

 

I believe that's called fraud

 

If one owned their PPOR and did manage to pull this off, then one would end up with 11 x IPs (and free accommodation funded by the Government) .

 

I think you can in QLD Logan area - $65K deposits would surely provide positive cashflows

Seen so many good deals people posted