Kickass broker and property trust accountant recommendations

How do trusts hinder serviceability?

 

And cost more to run year in year out. But certainly have their place when required.

 

Very nice discussion people. I'm loving the input. So here's a question. Hypothetically If I have a property generating a positive cash flow of say $3k after all expenses, would the bank favour me more and would my serviceability be higher and if I had another deposit to purchase the same sort of property would the banks see my investments as looking after themselves and more likely to lend to me time and time again, then say a negative or neutrally geared property at my income level? Also factoring in that I would be buying below market value and revaling to increase equity.

Also is it best to have a broker and accountant that I can visit face to face as opposed to in another state? I didn't realise MsAli was a broker, however she is based in Sydney. Same as Euro.

 

No such thing as buying below value from a banks pov. Having $3k postive cashflow is better for servicing than $2000 positive cashflow but it will still probably be negative from a banks servicing calc. So it is not a perpetual borrowing scheme.

 

Why would it be negative in a banks pov? Even factoring in 80% vacancy if your positive from the get go?

Sorry I'm just trying to wrap my head around it all? And yeah I know the bank doesn't see below market value but if it's re valued 6 months later at $30k more and it's positive cash flow by the $3k after everything the bank would surely say here's more money wouldn't they?

What factors would stop the bank from saying yeah here's more money for another investment of the same caliber?

Thanks ks guys for the awesome conversation it's helping heaps.

Also so is it better to be face to face? Or it doesn't matter? If so doesn't anyone have any recommendations for a broker and accountant?

 

Because they only calc 80% of the rent to allow for related expenses, and they mark up the amount of your loans to allow for increases. Even at 10% yield you're probably just breaking even in the banks eyes.

 

Banks also calc based on
25 yr pi loan
7%ish rate
About 2k per month living expenses

 

That's the point though. Even if you factor in the 80% vacancy like i said before.

Say you find someone who has to sell and the property comes in at 12% yield. I know there pipe dream purchases. But if you can consecutively find fully cash flow positive property with huge yields.

Surely the bank says yeah that's a good deal here's more money?

 

You will still have to pass servicing calcs. This will take into account all debts income and living expenses.

 

Many lenders will cap yields at 6%regardless of the actual yield, so 12% often won't help at all.

 

OK wow didn't know that... OK well that helps heaps. And makes this more difficult...

But not all lenders?

 

All lenders assess in this manner but each differs slightly in hiw they calculate serviceability

 

OK cool. Thanks heaps guys. So again face to face broker and accountant or it doesn't matter?

 

No, they say there must be something wrong, it's obviously too risky, we'll only assume a 6% yield (if they are willing to fund it at all).

The last time I saw properties with a double digit yield on the purchase price, they were in mining towns. The banks pulled back on their lending. It turns out the banks were right.


The reason trusts hinder your serviceability is because through most trusts (discressionary), losses are held in the trust against future profits. Essentially there's no negative gearing to your personal cash flow. As most lenders do use negative gearing in their servicing calculations, that's effectively a little bit of extra income you don't get to use in the servicing. Apply this over a moderate size portfolio and the effect can be substantial.

There are ways to work with trusts to extend servicing to the point where they could theoretically provide unlimited serviceability. These techniques are unreliable in practice and would only provide limited usefulness. The consequences of failure in application could also be disastrous.

 

Not sure why you want an accountant - if you want tax advice this doesn't need to be face to ace, if you want structuring advice (which is legal advice) it doesn't have to be face to face same with credit advice.

 

It doesn't matter. Everything can be done via email phone and Skype these days.

 

Sounds like I'm in the minority, but for your first IP purchase, I would say meet face-to-face. I'm constantly surprised by the lack of knowledge, even amongst experienced investors. Brokers have done hundreds of loans and know bank policy inside out, why not educate yourself? Some of the financial concepts are not easily understood and being able to draw them out on a page is much easier face-to-face.

 

OK cool thanks

80 Cherry Road Trevallyn Tas 7250 - House for Sale #123657690 - realestate.com.au

Say hypothetically you bought this property for 180k because the vendor HAD to sell that day.

It's returning 290/w so a yield of about 9%

After agents fees, taxes, stamps, 80% vacancy maintenance buffer of $1500 for the year, 20%deposit interest only loan for 5 years at 4.5%.

It should have a positive cash flow of this property around the $2k mark. Would the bank finance another property under these terms for a second property that again has the same sort of positive cash flow at the end??

 

See above - you would still need to meet the serviceability criteria.

Pretty soon you would run out of deposits too - even if you could service.

 

Ok and what are the servacibility criteria for someone who is earning $75,000 a year. Has a partner on centre link benefits of 10k a year. A ppor bought for $440,000 settling in November. With a 20% deposit at 3.74% interest rate. A 100k offest variable axcount and the rest locked at 3.74%. for 3 years. And 80k. Could I finance 2 properties under $190k that are cash flow positive from day one. With 20% deposit on each?

With no other debts or credit