Investment strategy to get loan from bank

Hi all,

I would like to get some opinion on my current situation.

I am a first time investor. Got a cash out loan from equity. Got a pre-approval from the bank for an investment loan. Total about 750k. Bank said that the investment loan amount might be lower depending on property price and rental. My goal is to buy an IP before early 2022, and then add another one in 2023, and so on until I hit the serviceability wall.

I live in Glen Iris, household income total about 200k after tax, with 2 dependants Got some savings, about 200k but prefer not to use if possible.

1. Do I go all in and get a unit in Ashwood (17km from Melbourne) or a unit in Chelsea (seaside area) for better capital growth but sacrificing cash flow?

2. Or get a cheaper unit in Narre Warren (45km from Melbourne) for better cash flow but slower growth?

3. Or get an old apartment in Glen Iris (better public transport) for an even better cash flow but much slower growth?

4. Or go all in with savings and get a house for better capital growth but lower cash flow?

As mentioned, I want to continue buying IP I until I hit the serviceability wall. Which strategy is preferred so that I can continue to get a loan?

Any thoughts are welcome. Thanks in advance.

 

To understand what your strategy might be, it's probably best to have a better understanding of your servicing limits and what you can do to optimize this. A pre-approval for $750k will get you an investment property, but if that's where your servicing limit is, then your first IP may be the only IP until things change.

Have a discussion with your advisor about lending strategy an what your financial limits are before committing to anything.

Also I'm not sure that I'd agree with the assumptions you've made in each point regarding growth and cash flow.

 

All the questions asked consider only short term and cashflow issues which are a important consideration BUT not all that should be considered. What are the longer term trends for growth in value ? Some people focus purely on cashlow and buy aweful locations that take a hit when growth stagnates. To produce equity and the ability to acess it you also need growth. Growth = equity. You can later borrow up to 80% of equity.

The golden goose is high cashflow and high growth. It enhances and compounds. If I had to sacrifice one it could even be cashflow provided it wasnt a huge sacrifice.

 

If you're only using the one bank you'll hit the serviceability wall much faster than using multiple lenders.
Suggest speaking to a decent mortgage broker who can map out a strategy to maximise serviceability and purchases.

 

Kinda depress reading this . But yeah, I understand your point. Thanks!

Let's say in the future if I can borrow up to 80% from the equity, how does the bank evaluate if the salary not changing much? From my understanding, salary is king when it comes to borrowing. Is cash flow considered part of salary / income?

Yeah, quite true, when I tried to get online quote from smaller bank (BOQ, ING, Me Bank etc), with the same set of conditions, their loan amount is much higher than the big 4. Does that also mean higher risk for me when I cannot pay up? But yeah, will definitely talk to the smaller bank. Thanks!

 

I hope your cash out equity loan is a stand alone facility, otherwise you may have issues with deductibility.

 

Borrowing power is a function of overall cash flow. Using equity is an act of borrowing, so don't think that it's an easy solution.

How borrowing power is assessed can vary from one lender to another and it's fairly complicated. Rather than call one bank after another (and possibly trash your credit report), speak to a broker that understands lending strategy. It is possible to build a strategy that covers multiple lenders and maximizes your resources and opportunities.

 

Nah you missed my point entirely.
If you are serious about growing a portfolio of investment properties you need a Mortgage Broker. One who can map out which lenders to use in which order, first, second, third etc to maximise your borrowings and number of properties you can purchase.
You go direct or get 'quotes' online from lenders you'll shoot yourself in the foot and hit that serviceability wall much sooner.

There is no 'higher risk' for you using lenders that allow you to borrow more - if you default you default, no matter the lender the consequences for you are the same.

 

op said "after tax income of 200k" if that is stable thats a handsome income and wouldnt worry about service limit.

without knowing situation about you PPOR, or tax sitation (do you want IP tax dedicability) i suppose these are not main issue. I always say aim for simple old house where cap gain can happen. Strata is pain in the butt all property issues i had was units.