Financially comfortable but can't get more finance and can't even refinance

75% LVR and cash flow positive? Are you sure?

That's a hell of a feat if you are.

We only have 4 ip's in Sydney (all 2 and 3br apartments) and are just about cash flow even with 52% LVR.

Are you sure you are including ALL expenses in your calculations? eg our annual average repairs pa is $1.2k per property, some years higher....some years lower but over the many years we've owned property this is a pretty accurate average for apartments (houses obviously would be higher as a lot of repairs are covered by Strata payments in an apartment complex) with your 7 ip's.....you should be allocating $7k+ a year for this in your calculations.

Are you also taking into account state property taxes? eg we are paying out 5k pa on this for just 4 properties....and don't see it going down anytime soon

I think banks have the servicing calculations about right at the moment, the pendulum will swing back in 3 - 6 years from now but until then taking into account rents at 70% when calculating serviceability is about right.

 

I would add that banks consider asset based lending to be low risk - lending at 75% LVR to a background of falling rents and property prices to someone with massive debt to income is not particularly low risk.

 

Yes, I've thought about that but as you know, it's not tax effective to go low LVR. In an ideal world, we'd borrow at 110% LVR!

Nearly all my loans are P&I and I'm meeting the repayments comfortably. Cash flow is still strong and I'm still saving the majority of my salary after expenses. I was lucky in that I locked in a large portion of the loans at 3.79% P&I for investment.

Yes, one of the loans is effectively "cancelled" out due to savings sitting in an offset to the loan. Most of the loans are on P&I. The properties are spread throughout multiple states, so the portfolio isn't concentrated.

As another poster pointed out, it doesn't make sense to base your calculations at 8% interest and then say there's no fat for when "interest rates rise". You're already assuming rates have risen to 8% on day 1, and there's already fat to meet those repayments today.

In my own case, over $4M.

The properties are spread across several states. Most of the loans are already P&I. No need to sell as there are sufficient savings to service the loans even if refinance isn't possible.

Yes, I'm sure. I think it's due to a number of factors. My portfolio is spread across several states to reduce / eliminate land tax. I agree that if all the properties were in Sydney, the portfolio wouldn't be cash flow positive. I've also "cancelled" out one of the loans due to cash savings sitting in an offset to the loan.

 

not bad,

we only managed $1.5m conditional offer from my broker with similar income.

but i have kids, thats a big difference.

might need to get a new broker xD

 

Have you heard of the concept of a 'related party loan'?

 

Completely understood. I will likely face the same issue for my next buy. I guess the way I look at is making money vs saving tax. If a deal is profitable then I would rather make the money than save a bit of tax. Of course I would much rather do both!

 

Terry, are you talking in the context of a SMSF? Or an arms length, documented loan between family members? Can you please elaborate?

 

Not in relation to a SMSF or necessarily family members. related entities.

 

The banks definitely see them as "bad debts" that would reduce my serviceability!

What's that saying?

Kids are the worst financial decision you can make.

When it comes to the wife, just short cut the process, find a woman you hate, and give her (at least) half your assets!

 

I agree, I will trump making money or having another worthwhile investment over saving tax. I look at tax as part of running my property business. Sometimes we get stuck in concentrating on minor details over major....or forgetting life and situations change, hence we require change to adopt.
We cannot change the circumstances but we can change ourselves.
As my mentor Jim Rohn said, "Learn how to separate the majors and the minors. A lot of people don’t do well simply because they major in minor things."

Paying off one IP and being able to secure funding for next worthwhile investment may not be so bad at this current lending situation (a minor setback for a major result?). I have a plan to increase our incomes and reduce debts in the next two years and then to refinance to a maxim amount we can, even though temporarily we may pay more tax (in the next two years).

My LVR is around 27% and many more IPs or much larger asset base but I have also an exist strategy. I think some forget about the Exit strategy down the track....?

 

That's not 75% LVR then.....

Though point taken about how we are paying 5k more pa for 4 properties in Sydney instead of Vic/SA (QLD wouldn't save us because we are expats and QLD absent landlord rules).

 

Like many of us, I'm in a similar position regarding serviceability in this new lending world. Just over a year ago, I made a decision to release as much equity as I could via a LOC. Ending up paying an exorbitant interest rate and fees with a 'lender of last resort'. However, it does give me access to quite a bit of funds for investment, which I would almost certainly not be able to get if I applied for it now.

Sometimes it's worth paying more for optionality.

 

@Bruce Lee Great post and ive seen my borrowing capacity go down slowly over the last 3.5yrs

Which bank providers you using for funding right now?

I have been offered to go to an 2nd tier lender and but have to move all my loans over, but borrowing capacity increases substantially