How Finance for Property Investors Works…in Pictures

Below is a visual representation of how lending to property investors work today and the key results (note some of this may have been seen in various other posts before).

Result 1: Lender calculators can broadly be categorized into three different types:
APRA calculators: Most deposit taking institutions calculators now follow APRA’s prudential practice guidance & produce very similar results.
Middle tier calculators: Some lender calculators deviate slightly from this guidance.
Aggressive non-bank calculators: These lender calculators do not punish additional debt as harshly.


Result 2: Borrowing power falls as your debt sizes rises.
How much it falls by will depend on whether you are with an APRA lender, Middle-tier lender or Aggressive non-bank lender.


Result 3: However, the fall in borrowing power is NOT uniform between lenders.
That is, every lender reduces their borrowing capacity by a different amount. Here is the difference between the best & worst major bank borrowing power calculators for a well-structured $2million existing investment portfolio.


Result 4: Income rises are the full-proof way to improve your borrowing power.
Here’s a breakdown of how your borrowing power will rise with ‘APRA’ lenders & ‘Aggressive lenders’ as your salary increases. This is a generalized case study of your total potential portfolio size based on a certain income profile.



Result 5: The impact of rental yield is far less powerful today than it once was. An additional 1 percentage point in rental yield across a $1million portfolio, will only add about $50,000 to your borrowing power.
Thinking of becoming a yield investor and hoping to avoid borrowing power hurdles? Think again. The additional yield may not be able to fund another purchase.



Result 6: The lending environment for property investors in One Picture
Lender by lender analysis. Specific details of each lender has been covered in this post. Chart has been updated to reflect current calculators (Liberty, Westpac, St G changes).



Result 7: You can double your individual lender borrowing capacity by using the differences in calculator results to your advantage & using non-bank funders. That is, the ‘finance’ multiplier today is around 200%. You can double your individual lender borrowing power by strategically structuring your finances correctly. This is far riskier than before given the interest only environment & lenders required to do so. I'd caution most investors not to do this, it is a representation of what is currently possible. As a guide, this figure was 600-700% a few years ago and using mainstream funders.

 

Redom top 100 broker nationally well done...

 

Well done mate! You've come a long away. Keep killing it!

Cheers

Jamie

 

Thanks Marty & Jamie!

 

Agree with the boys Redom keep it up.

Us older Brokers need to leave to leave the industry in safe hands.
God when i started in 1988 Brokers where a twinkle in the eye.

Richard