Hitting servicing limit. Are there loans that don't require income?

Discussion in 'Loans & Mortgage Brokers' started by Andy Mac, 9th Apr, 2021.

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  1. Andy Mac

    Andy Mac Member

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    Hello.

    Long time reader but first time post. I've got about $1.6m debt in IPs ($2.2m value) plus $900k debt on my PPOR ($1.3m value). My income for the last 3 years has been consistent at $500k+ pa (consists of $80k salary, the rest is commission) and all my IPs are positively geared before tax.

    My only other debt is a $40k car loan and a $6k credit card limit. No dependents, don't smoke, drink, no crazy living expenses. I'm a massive tight ass really!

    I've got about $600k cash and wondering what to buy next. I'd like to keep buying at 60-80% LVR as I'm still young and wanting to keep building the portfolio.

    My broker is saying I can only borrow another $900k. Clearing my car loan and cancelling credit card only adds another $200k servicing which isn't a lot these days. It's a reputable broker from this forum so not seeing this as the issue.

    In reality I've got a huge difference between my income and my costs, so I can't understand how I can only borrow another $900k. I know most banks won't take into account all of my commission, or rents, and have to assess existing loans based on +2.5%. I've recently converted all my loans to P&I to help a bit.

    I'm just confused about how people can build large portfolios ($5m+ debt). Are they earning $1m+ pa?? Or are they buying commercial properties on loans that are serviced by the rent?

    How do wealthy retirees buy $5-10m commercial properties? Surely they're not buying them in cash?

    Keen to know if there are any other strategies to help supercharge my serviceability and build a larger portfolio.

    If I can't keep buying residential IPs then should I start looking at commercial? Is commercial easier to service? Or maybe I need to focus on developments to recycle equity?

    Thx
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It would be a breach of the Credit Code of the NCCP Act for a lender to lend to somone who couldn't demonstrate the ability to repay.

    but the Code doesn't apply to companies.
     
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  3. Andy Mac

    Andy Mac Member

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    Hmmm tell me more!!
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Under the right conditions borrowing for commercial properties is significantly different to residential. NCCP means hard limits on borrowing for residential purposes, but NCCP does not apply to commercial transactions, hence the rules may not apply.
     
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  5. The Y-man

    The Y-man Moderator Staff Member

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    This probably the most limiting?

    We did on significantly less income (less than 200k combined pre tax) for ~$3m loan I think....

    The Y-man
     
  6. Stoffo

    Stoffo Well-Known Member

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    You are doing really well :D
    I earn $80k before tax, have a partner and two dependants (so yes, we drink!) Our ppor is down to $150k owing ( worth $1.5m) and 2IP's $1.2m owing (worth $1.45) and I had to lean on the bank manager/ceo to get both IP purchases over the line .......
    Loans officer said no, loans manager said no, branch manager said no, fortunately I have a long standing relationship with bank manager/ceo and he "made it happen".

    There are criteria to lending, throughout my life I've never ticked ALL the boxes, "oh your casual" NO (but I work the shutdown circuit earning $120k pa), filled out a household expenses list trying to get the last loan over the line, loans manager called me a lier via email as I put down $100 per qtr for electricity ($400pa), after I forwarded the branch manager a Google Earth view of my roof (9.7kw of solar) with my last bill showing $1600 in credit the loans manager was banned from ever dealing with me again :p

    Even a broker couldn't get me over the line, and I'm still looking for my next IP :eek:

    There are lower tier lenders out there who charge massive amounts of interest, or those who break your legs if you miss a payment........o_O

    Pay down as much ppor debt as possible
    Good luck with your search ;)
     
  7. Shazz@

    Shazz@ Well-Known Member

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    If you don’t mind sharing, I’m curious in knowing what type of role you have that has a commission of $420k?
     
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  8. Lindsay_W

    Lindsay_W Well-Known Member

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    Most likely built their portfolio's pre-APRA intervention or they have a lot of income, got any recent examples?

    I suspect your broker already looked at this for you?
    Some Commercial lenders will do a lease doc style loan where if the rent covers say 2 x interest costs they'll do it as stand alone to your other resi lending, they still need to be comfortable with your overall financial position though.
     
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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If the borrower is a company it is generally easier to get loans without the need to prove income.
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    If they are wealthy and are retirees they usually dont have significant debt. And no lender will lend high LVR for a $5-$10m property. (You would need the GST, deposit and duty and probably 35% depending on cashflows etc). Often they have also restructured affairs so wealth is held in trusts , companies and super as well as personal names to a lesser extent. And will likely be cashflow positive. Wealthy retirees usually dont have huge debt. Wealth is a function of assets LESS debt. Not the assets themselves. You can have assets out your wazoo and arent wealthy. Have seen plenty of retirees plonk down a few mil cash on commercial for the income. Term deposits are aweful.

    The net cashflows for the property may also reduce servicing rather than add to it.
    How does the lender consider and include the comms ? ie are you a travel agent v a successful REA? Do they allow a 100% estimate ? If its X years that helps.

    Your net equity seems 1.6m out of 4.1m ie 40%. The issue not evident is servicing and thats best discussed with broker. 500K of income is decent. But sometimes the "computer says no". You could also discuss which lenders to consider. Many who have smacked ceilings then look to the likes of Pepper etc. High rates etc but they are a little different.

    Its not unusual these days for borrowers to max out. 5 years ago people could buy 5 and then look at 2 more. Dont see it now. That said I just spoke to client who wanted new $2.6m and the bank didnt blink and he got a sub 2% rate plus refinance across total debt $4.5m. But he has $15m of assets minimum I would estimate and generates loads of income. His lender isnt doing a residential property loan. Its a loan to a company to bypass consumer credit laws.
     
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  11. Andy Mac

    Andy Mac Member

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    Thanks for the replies so far, all. I am a real estate and my income has been increasing year on year steadily, and on track to increase again this year.

    Most lenders seem to take into account 80% of my comms.

    I'm keen to explore the purchasing in a company more - I've never really looked into that as I thought buying in a company would make things harder not easier. I also can't negative gear in a company, right?
     
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  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The company could be acting in its own right or as trustee.
    Any entity can negative gear, but just like your loss cannot reduce anyone else's income a company or trust's loss cannot reduce your income.

    see
    Tax Tip 325: Trusts Can Negative Gear
    Tax Tip 325: Trusts Can Negative Gear
     
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  13. thunderstrike888

    thunderstrike888 Well-Known Member

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    Most ppl with massive portfolios they have built them up decades ago when lending was much much more relaxed. I have $5M+ portfolio and many of that was accumulated long before APRA and that got involved. In todays climate I would also fail serviceability bigtime - this is why I am stuck with some lenders with extremely high interest (i.e) Pepper and I cant refinance away from them.
     
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  14. Andy Mac

    Andy Mac Member

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    Thanks, I think the $900k was with major banks. Could probably get more if I went to Liberty, Pepper etc which I haven't had to do yet. I don't mind paying a slightly higher interest rate as it's not much in the scheme of things.

    Would like to know all my other alternatives as well though, like buying in a company etc.

    I own a couple IPs in a trust with corporate trustee (and personal guarantee from me) which wasn't easy, so I'll ask broker how buying in a company compares...
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You don't own, the company owns - which is important as the company will be the borrower so you might be able to borrower further if this debt is not counted as your personal debt.
     
  16. Andy Mac

    Andy Mac Member

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    Even if I'm personally guaranteeing the debt? And sole director and shareholder of the company?
     
  17. boganfromlogan

    boganfromlogan Well-Known Member

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    I would like to know if there are loans that you don't have to pay back.

    They must exist because really rich ppl and politicians seem to get them.
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes
     
  19. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    @thunderstrike is correct, before APRA changes and RC. Back in 2016-2017 was the peak of borrowing where policies and servicing was very relaxed. Had client that had $7m+ portfolios with thr major lenders.

    Now we have to resort in smaller lenders such as Firstmac, pepper, and liberty that provides the ability to lend a little more.
     
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  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think the peak was back in 2007 when they had 60% LVR No Doc loans. All you needed was a pulse we used to say, but i did hear a dead person got a loan approved.
     
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