Grow Capital First

No need to prove anything....I comfortably able to do this.

The lenders are using my actual rates of repayments....I am not cirumventing anything.

Just because you can't do it does not mean others can't. Think possibilities not constraints. As I said..I have another 3 deals in pipeline...no sign of constraints yet. So long as I have the equity to cover costs and deposits.

Limiting beliefs son...limiting beliefs...

So just to use an example.....lets say one has $4.0m in loans and 700k income (includes PAYG and rents at 80%) to service. Allowing say 40-50% of income to service....do you think there is another 600k-1.2m in loans in it without even considering rents on the new properties??

Incidently...lots of banks will not use any returns over 6% on any one property. Thar you have it son.

By the way....most of new purchases are not pushing past 5.5-6.5% primarily because I want to trade return for quality.

Here my tips:

1. Look at lenders which will use actual repayments or have a smaller margin for calculations for serviceability
2. Have a look at lenders which look also at how diversified you are with your portfolio
3. Have a look at lenders which add back the tax affects of gearing
4. Have a look at lenders which consider your track record as an investor.

A recent example ..is that I refinanced to SunCorp at 3.99% IO for 3 years. Most people told me that they would not consider me as I already had ovr $1.3m with them and with new borrowings it would take me to almost $2m. I'll let you guess what happened...

 

Got that Peter... even mentioned some of those lenders in my earlier posts. FYI I write 20+ Million a year as a side business and have 15+ years in lending, so I'm fairly across every nook and cranny of the various servicing calculators out there, as I know you are ...

But that aside, I would put it to you that even when actuals are used on existing or OFI debt, the new money being applied for is still assessed at a sensitised rate each time, so you go backwards with every new dollar borrowed, every time.... its a mathematical certainty at 6% yields.

Against a rental yield of 6% , when only 80% of the rent is used against a sensitised assessment rate for the new money ( forget the OFI and existing debt for the moment) it's not going to go close to being break even...

Easiest way to demonstrate it is to pull out a lender calc that accepts actuals .. leave the salary income at a fixed level, and run a scenario where you borrow 400K for INV 1 and input a 6% rental yield (30K of 500K purchase price) . Then do it again, plug in a new loan amount of 400K at the mandated sensitised rate, and plug in the previous 400K at actuals, and the 2 rental yields at 6% ( 60K) , then do it a 3rd time, 4th time, 5th time repeat, repeat, repeat. The max capacity will diminish with each deal.

But my point more broadly, rather than having a debate about the intricate mechanics of servicing calcs, because I trust that you know your stuff- is that when anyone advises readers of the forum that's its as easy as just finding the right broker, right lender, right bank credit person etc and you can carry on borrowing without having the normal policies applied to you that everyone else is having applied to them, and that just 6-7% yields will not just beat the servicing ceilings, but will actually improve your capacity, and is then unwilling to provide any actual detail on how that is achieved, I'm calling it out. I'm saying that's an unproven claim , and until it can be verified, it should be regarded as incorrect.

 

I think I can agree with both Euro & Sash on this one. It comes down to where you get to play and with whom.

There's a set of rules that most people have to abide by, then there's another set of rules when you're talking a relationship in the order of $4M. The trick these days is getting to those higher numbers.

A year ago I could map out a path for someone on a decent income with some wise investing over a period of time. Today getting most people into more than a couple of mainstream IPs does require something that's not exactly mainstream.

 

Playing semantics again ... and changing your argument . Your income is not what is being queried here - your claims that 6-7 % rental yields improves your borrowing capacity , and will do the same for others , is being questioned...

 

Exactly right Peter. What surprised me is that ..the same bank could have so many brands. And the different brands have different risk profiles. Use this to your advantage.

 

It will if you have a small portfolio..if you have a large porfolio...they will cliff your wings and assess at a maximum of 6%! Again...I know people who seem to be to negotiate these things...they are persistent and don't take NO for an answer.

 

The frustrating thing I'm often seeing these days is those who have been investing for years still have quite a few options available to them. Those who are getting started tend to have very limited choices. One of the knock off effects of regulation has been to widen the wealth gap.

 

Yep see it all the time..I queries why I was approved..and not others...they indicated I have been doing it (investing) for years, have lots in reserves via offsets..my portfolio is very diversified...excellent repayment history...very stable job history and a track record of buying well....the question is this a consequence of credit scoring or something more subjective being applied by banks?

 

I agree, I do find his "blue chip" quite an amusing term.
Was he calling it that back then when nothing was happening?

 

Does it have a Toll Free number to call in every page of the book? Every article I read from MY seems to suggest only his company is the only company that can find worthy investment grade properties for his clients

 

His articles do have that ring about them, seems like he's telling people how it's done, not a good idea to be doing it yourself, a bit of a plug for his company at the end of the article.

 

I had a brainstorming session with CBA def said they ignore anything over 6% =(

Damn the lack of loopholes!

 

Close. He plugs his company every so often.

Better than Helen's 59 tips book where she promotes her website every second sentence!

 

To achieve income/cash flow you first need to grow your capital.

Net Worth = Wealth
Cash Flow = Financial Freedom

 

This has been an interesting thread.

I'm wondering if the example of a lender lending at 3.99% of a large amount of money has ignored the pricing in of risk (the bit that's left over when you think you've thought of everything...)

I know some of you will disagree, as "that's the market", which is fair enough.

Whether it ends in tears or not some time down the track is anybody's guess, I suppose....

 

Some will take more risks and it will pay off if they jump into the right markets at the right time, just seen some members making a killing.
I also know those that were risk takers but lost everything because they got too greedy and ignored the warning signs and over extended.

Interests rates are very attractive but you still need to be able to source finance, and that is getting harder.

2017 will be a very interesting year I think.

MTR

 

What was their undoing? To much leverage, not enough cashflow?

 

Well perhaps they can be forgiven, property boom in Perth went from 2001-2007, considering most booms only last 3 years this was a mother, it was not only resi that skyrocketed but also commercial property, riding on the back of the mining boom. Sydney's recent property boom dwafted in comparison, many people in Perth got rich during this period, those that did not lose their head. At one stage, close to the peak the median house price of Perth was higher than Sydney.

Getting back to the story, they got greedy because there seemed no end in sight, they continued buying OTP stuff, developing and then got into commercial stuff, buying land to develop, also buying holiday homes, boats... toys.
Overnight the banks changed their policy, lo doc/no doc was abolished, they were cut at the knees.

These investors could not service existing debt as they could no longer access equity and their future plans were shot because they could no longer source finance.

They lost everything and back to day jobs

MTR

 

Give them time, for most people property isn't overnight riches. I mean there is a bit of a formula that I noticed a lot of somersoft era members had a great deal of success with, which was:

• Achieve significant equity in PPOR
• use PPOR equity to buy 5-7 properties
• Sit on properties for 7-10 years
• Sell down 2-4 properties, clear out a large amount of debt & or invest into higher yield assets to fund retirement

Which yeah, I mean odds are today people aren't going to go out on a wild acquisition spree and acquire 7 properties with $400k re-drawn from their PPOR, but even with the new changes I don't see why 2-3 aren't doable, sit on them and re-assess in 10 years while investing in other asset classes and paying down debt. That's a lot of time for markets & regulations to change.

I think its going to be harder to "wake up" late 30's now and leverage their home equity to retire early to mid 40's and time in the market is going to be a bigger factor, but I don't see why young people (myself included) can't still use property as a vehicle to reach financial independence by similar ages.. The difference is its a strategy that now needs to be considered earlier, e.g. starting mid 20's. For those that have missed that boat, there is always the tried and true method of living within their means, investing as much as possible and time in the market/compound interest.

 

I think investors are still buying many properties in short time frame, however it is the lower end, States which are yet to see a boom cycle? At least this is what I think is happening on PC?