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How do I increase serviceability once pay is decreased?

Discussion in 'General Property Chat' started by Daveh, 18th Mar, 2016.

  1. Daveh

    Daveh Well-Known Member

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    Hi folks,

    I'm looking for some advice from this forum. You guys and gals have been very successful, I'm hoping you can help me out.

    I'm about to reduce my income by about $50k per year, however I still want to continue to invest.

    I was always planning to keep whatever I bought or built. But that not possible due to serviceability.

    I own 3 units in Perth just built, about to be refinanced to leave me with about $200k cash.

    The main objective is to increase income in order to buy more to develop and hold.

    Do I....

    Develop / subdivide and land sale / Reno / do nothing and wait????

    Thanks all.
    Dave
     
  2. dabbler

    dabbler Well-Known Member

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    We have all been discussing for a while about reducing non deductible debt where possible (there are many good ideas on this forum) and increasing income to offset the lending changes.

    Seems no other way apart from private funds or ridiculous rates (which may be ok for some dev BTW, but not buy and hold)
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It's very hard to say - a reduction from $200k to $150k is quite different from $100k to $50k and your options will be different depending on what your end income will be.
     
  4. A Jeremy

    A Jeremy Active Member

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    What Jess said is very true.

    You can adapt your strategy and look at purchasing existing dwellings with further investment potential or implement a buy and hold strategy if that's what you want to do. You can use the rent that a property you want to buy is currently producing when calculating serviceability for a loan.

    Another method that I mentioned on SS is to include services in the rent such as utilities and landscape maintenance which doesn't change your bottom line but it 'increases' the rent on the piece of paper that lenders want to see.


    Jeremy
     
  5. Daveh

    Daveh Well-Known Member

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    From 190 to 140.
     
  6. Daveh

    Daveh Well-Known Member

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    Maybe I should have asked...

    What have you done to increase your serviceability?
     
  7. dabbler

    dabbler Well-Known Member

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    Wish I had your income problem :)

    Don't just buy places with a CG outlook only, buy some that have good incomes , look for under market, and have reduced non deductible debt instead of using cash.
     
  8. A Jeremy

    A Jeremy Active Member

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    Personally, my only avenues so far have been to work harder and create properties that attract higher than average rents.

    Kiyosaki says the methods of increasing your income are through work, royalties, interest and dividends.

    You need to balance equity/capital and serviceability when you're borrowing so if you have a excess of one you can usually use/sacrifice that to produce more of the other. For instance, if you have excess capital you can buy shares or pay down existing loans to increase your serviceability.


    Jeremy
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    On a broad level it comes down to increasing income and decreasing expenses.

    On a more tactical level you can do things such as:
    Change from IO to PI (some banks)
    Fix at a lower rate
    Sell poor performers
    Debt recycle
    restructure ownership structures
    Come off any loans where you are not owner
    etc etc.
     
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  10. Daveh

    Daveh Well-Known Member

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    Anyone selling subdivided empty blocks to increase income?
     
  11. Daveh

    Daveh Well-Known Member

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    Don't want to, plus we can't save anything due to high debt.
     
  12. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Pay down any non deductible debt.

    If you can't save on your current income - then that's a good yard stick measure to say that perhaps you *shouldnt* be having any greater serviceability with any lenders, as it shows your cash flow position is at $0. Factor in some interest rate rises and you're in a stressed position.

    Developing for profit will require a couple years to actually be counted towards income, so that's a long term proposition.
     
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  13. Daveh

    Daveh Well-Known Member

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    Yeah we're taking the profit from the dev and putting that into a house for mum and dad.

    The dev took all our cash from savings and income. Now it's done that will free up some. I'll not know my final position until all 3 units are rented.
     
  14. Daveh

    Daveh Well-Known Member

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    So if we sold land that we subdivided we could do this, also it would increase our income. I was thinking buy a block with a decent house at the front, subdivide the rear, sell the front house, either get equity out or sell the rear and put the sale amount into our own PPOR.

    Anyone doing this or something similar?

    We could do this at least 4 to 5 times before being able to pay off PPOR mortgage I recon which is currently $440K.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Generally income form property sales won't be taken into account as it is considered one off income. If you are in the business of buying and selling then it could be taken into account, but unlikely through a residential loan.
     
  16. Daveh

    Daveh Well-Known Member

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    Oh no, I didn't know this. So I suppose I would have to start buying and selling using my PTY LTD, then in a couple of years it would probably count right?

    Also even if it doesn't get taken into account at least if my loan is reduced on my PPOR that in itself would increase my serviceability.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, you may be able to get around it by diverting the money through companies and trusts. It all depends on how set up. Plan carefully.
     
  18. Daveh

    Daveh Well-Known Member

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    What if I purchased properties in the same company as I use in the IT world to contract?

    Would it have to be different companies as the income is from two very different sources?
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The lender is going to look at the company income and see income from the sale of a property.
     
  20. Daveh

    Daveh Well-Known Member

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    Is that a bad thing if it's mixed with income for IT sources?