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how do people afford million $ property?

Discussion in 'Property Finance' started by rooster123, 7th Jun, 2016.

  1. rooster123

    rooster123 Active Member

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    Hello Guys,

    Here is our scenario ...hubby and I work.fulltime and together we bring 11k/Month home. We own 3B house in Winston Hills for which we pay arnd 3.5k per month in mortgage. We have abt 150k in offset account. We have about 7k out of which we can afford 5k for new mortgage.

    So im struggling to understand how do people afford multiple properties who are in similar situation as us or its not possible at all looking at our numbers?

    Stella
     
  2. Hodor

    Hodor Well-Known Member

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    I don't get what you mean by the above bit.

    Anyway if you have 11k a month and 3.5k in mortgage repayments you have 7.5k for living and investing. Even spending 1k per week on living you have 3.5k to make repayments on an investment like where you live now, plus rental income.

    Looks very easy for you to buy more property only takes a few to make a million
     
  3. Mumbai

    Mumbai Well-Known Member

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    Looks like you should be the one having a million dollar property :)
    In all seriousness, meet up with mortgage broker and get the ball rolling. You will be laughing your way to the bank by next property cycle.
     
  4. rooster123

    rooster123 Active Member

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    Thanks. Yes, true but how.would 3.5k pm will give me lets say 1.3m mortgage? That's the part i don't understand: ( so curious on it
     
  5. Azazel

    Azazel Well-Known Member

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    People often use equity after the 1st one for the next deposit. Being in Sydney, you probably have some there.
    As above, good idea to speak to a broker. Plenty on here too.
     
  6. JDP1

    JDP1 Well-Known Member

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    A lot here use equity gains in property or shares. Very few people use salary solely, unless your 'job' is in china/india etc ...
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Serviceabilty calculations include the potential rental income of the proposed purchase too.
     
  8. TaylorChang

    TaylorChang Well-Known Member

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    Instead of paying down your home loan, you buy some investment properties.
    Most of the cost of holding investment properties will be coming from the rent paying by the tenants. The things to look out for is your cashflow.
    Ensure you have enough cashflow for the rainy day.

    See a mortgage broker, and set a goal. You then on your way to build up a multi-million dollar property portfolio.
     
  9. HUGH72

    HUGH72 Well-Known Member

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    Because you don't seem to have factored in rental income and the likely tax refund which could be claimed weekly with a variation submitted to the ATO.
    Most 'investors' with multiple properties don't hold lots of recently purchased 1.3 million properties returning rental income of 650-700 per week. That is crippling, many people buy and sell, build up equity and therefore lower their LVR.

    Why not look at buying 2,3 or even 4 properties elsewhere, the rental income on $1.3 million of property might be more like 1300-1800 per week, totally different scenario and easy to hold forever.
     
  10. Bran

    Bran Well-Known Member

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    Why is a mortgage broker called a mortgage broker, when really they are brokering loans - aren't they?
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A mortgage is security over property. a loan is the borrowing of money - totally separate things but often confused.
     
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  12. Azazel

    Azazel Well-Known Member

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    If they're supposed to be on your wealth building team, they should be called a mortgage richer.
     
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  13. Bran

    Bran Well-Known Member

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    Yep. I just couldn't get passed the 5th or 6th use of mortgage. Hence my edited question (interestingly edited this just before you posted - time warp).
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes this is a bloody good question - I just changed my title on my sigature from mortgage broker to finance broker. Not sure why the call them Mortgage brokers but probably after the american usage.
     
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  15. rooster123

    rooster123 Active Member

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    Thanks guys. This is.helping me.alot.to.understand so appreciate your inputs.

    So lets say with if we rent out current house, based on rental properties in our area it seems monthly rent will be around the repayment we make for.this house.

    So.meaning out of 11k lets say we have 10k available for.repayments for.new.house, out of that we can afford 6~6.5k repayments for new house. So 6~6.5k at 4% ovr 30yrs gives us around 1.3m loan. Current equity of house is around 300k.

    Anything else i will need to consider in drawing some rough estimate here? Or any correction on this idea :)
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep

    Banks will be assessing you on a much higher rate, PI and assuming you spend $20k to $30k on living expenses. And only taking into account 80% of the rent
     
  17. Sonamic

    Sonamic Well-Known Member

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    In answer to the OP. Not many regular people have the funds to go out and buy a $1 million property. They do it over years with the help of OPM or Other Peoples Money (Bank loans) and Other Peoples Help (Rent and tax returns). Do this to buy investment properties yourself and if you can live frugally and save your own money you can fund a $1 million property with cash in about 15 years.
     
  18. Redom

    Redom Mortgage Broker Business Member

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    Hey OP,

    Most people make purchases of this size by borrowing a large portion of it from the bank. For investors, many building relatively large portfolios use structured finance techniques to stretch their capacities further. Typically this involves smaller individual purchase prices, splitting lenders up, adjusting repayment terms, ordering appropriate lenders in a strategic manner, etc.

    The way the bank calculates your borrowing power isn't the same as your calculations. They work it out the same way - the calculate your income and then subtract your assessable expenses. The left over figure determines your borrowing capacity.

    The difference is that they input a serious of prudence buffers in their calculations that reduce your borrowing amount:
    • Firstly they will assess your new debt at somewhere around 7-7.5% P/I repayment terms.
    • They will assess your existing debt at higher than the actual repayment amount - in some cases, double what you actually pay.
    • They may haircut some of your income if it partly based on overtime/inconsistent income sources (bonus/commissions).
    • They will shade your rental income to 80%.
    • They will assume a minimum living expense of around $3-4k depending on your family structure - it looks like in your calcs you've done this anyway.
    After running through these in a banks model, whatever you're left over is your monthly surplus.

    The bank then works out how much you can borrow off this monthly surplus (assessing new debt at 7-7.5% P/I repayment).
     
  19. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    @rooster123, others have answered well.

    To get a clearer idea, best contact a broker (lots of good ones on this forum) to get a clearer idea around your own options as lots of other stuff (specific to your household) will come in to play.

    FYI, plenty of my clients in a similar situation are holding 7-figure portfolios. On the surface, it looks like you have some options.
     
  20. Azazel

    Azazel Well-Known Member

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    Also could be worthwhile reading some books on the subject to help get your head around it with some real world examples.