Maxed out with 4 Investment Properties looking for creative stratergies

Discussion in 'Innovative Property Investment Techniques' started by PCAvatar, 21st Jun, 2018.

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  1. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    No, I'm saying that getting creative with finance is incredibly risky. If there's no reason for you to take on a mortgage, or course you wouldn't.

    Going back to my original post, I'm simply pointing out that mortgage brokers will have options you likely would never be aware of otherwise.
     
    Last edited: 26th Jun, 2018
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  2. PCAvatar

    PCAvatar Active Member

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    That's the same thing. I can rephrase it if you want..
    "you're a mortgage broker saying maybe don't be creative.. it's risky, maybe get a mortgage instead".

    It's nothing personal! I'd be more worried if you were trying to warn people away from mortgages! It's all good!
     
  3. NHG

    NHG Well-Known Member

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    As mentioned previously, I am yet to see a decent sized portfolio that wasn't:

    a. backed by a profitable cash-flow business;
    b. backed by old money, inheritance;
    c. hadn't gone through several (more than 1) property cycles and consistent purchasing.

    Since I don't come from old money and have only been through half a cycle, I looked at what @Ace in the Hole @Westminster @MTR , etc were up to. Developments/Business.

    It's no coincidence pretty much all my peers I started with on PC have become mortgage brokers or buyers agents. In my non-PC community they are all now developers/do JV deals.

    I went a slightly different route, and have been able to triple my income in the last 12 months. Look at who's getting the results you'd like to get and ask a lot of questions, don't copy, emulate their actions.

    Also be prepared to pay the price when you break the rules (eg. Richest Man in Babylon). Every time I thought I knew better than my mentors, I've lost bank. Every time I follow the rules they live by, I make $$$.

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  4. euro73

    euro73 Well-Known Member Business Member

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    Maybe there’s something in the fact every broker you have spoke to has told you NO. Good luck with whatever you decide on...
     
    Last edited: 26th Jun, 2018
  5. Beano

    Beano Well-Known Member

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    I am not certain if the banks look at the source of the income and treat it differently
    Rent is rent ...so long as it is NET rent and is substainable long term
    They have various ratios that are stated but it seems they can also vary them
    1: Interest cover Net rent to interest 1.75
    2: LVR 50pc to 80pc Each property is assigned a %
    3:WALT although they stated it is extremely important in the early days (3 commercial tenants) they seem to ignore now (110 tenants ) Perpetual WALT ignored
    4: Recovered outgoings were originally treated as a potential/contingent liability seem to be ignored
    5:Banks seem to quite sales focused (& sharp with rates) and want a large slice of your portfolio (not happy with the crumbs)
    6:the borrowings are very custom specific to the individuals so I am not certain what the banks are prepared to lend to anyone other than myself
    7: originally the request was debt to be brought down to 40% LVR at the expiry of the lease but with many leases this has less importance
    8: if the cash flows are maintainable and the LVR meet I do not believe there is a cap on borrowings (my loans are 6 times higher than when i was a employee {& so are earnings lol})
     
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  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    If you've bought 4 properties in 14 years then there is equity there? So that leaves serviceability and as you now earn less that is why you are looking outside the square.
    If a few brokers have said no then it's probably a no but they are not all created equal.
    Outside the square I know some spruikers do money partner deals where there is one person with serviceability and one with equity and they partner up but I really wouldn't recommend it. It's very risky stuff and I think you might just have to take an APRA vacation for awhile until your income gets back up.
     
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  7. wylie

    wylie Moderator Staff Member

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    I would not be keen to bring in a partner. I believe it is asking for trouble. Too many things could go wrong. I like us to be in control of our finances.

    I'm not sure how crowdfunding could work in a situation like this either?

    I do recall many years ago a WA couple didn't have enough money to buy so they asked for anyone who read of their plight to send $1. They promised they would repay each dollar. From memory this was before the internet, and was probably via newspaper advertisements.

    I remember thinking at the time that a postage stamp to return every single dollar was a high cost. I don't recall ever seeing the outcome, and I've googled and cannot find anything (but it was before internet).

    I guess that might have been the first ever crowdfunding I saw (long before the term was invented).
     
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  8. Carol M

    Carol M Well-Known Member

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    Howdy,
    Here are my 2 bob's worth:
    # Is there a family member who could go guarantor or co-borrower - their extra income may get a deal over the line, and title can still be in your name only?
    # Have you actually had non conforming lenders like Pepper Money and Liberty crunch numbers for you?
    # Maybe find a new property with incredibly awesome income to boost your serviceability, preferably one that has potential to add value via reno, sub-division, dual occ, increase no of bedrooms etc.
    # Can you add value to existing properties, eg add extra bedroom/s by: dividing large lounge / living areas; enclosing verandahs/sunrooms; turn garage into bedroom/living space (and add a carport instead?).
    # Set up a share house in existing property (NOT a boarding house with separate leases) by finding a bunch of compatible tenants on flatmate.com.au and putting them on one normal residential lease at a higher rent, managed by a property manager. This requires more work by you of course, but only at setup stage.
    # Renting a current property as a furnished property for more rent, and if suitable looking for short term corporate tenants.
    # Renting one or more of the properties on Air B n B (which banks won't like of course - BUT if you rented house to a family member on a normal lease, then they could sub-let house on AIr B n B - obviously need to have good trusting relationship with this person, and work out tax implications for them)
    # contact Ian Ugarte's mob and offer your property for possible rent by the room option (if suitable they convert it and give you more rent on a normal property lease, and keep cream off top themselves- at very least they would tell you if properties are suitable for this)
    # convert existing property to a dual-occupancy one (though cost of doing this properly may be too much now, though something to consider later on).
    Well, that's enough for now.
    Good Luck.
     
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  9. Carol M

    Carol M Well-Known Member

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    ALSO credit card debt is often a killer on serviceability calculations. So ask for extra equity loan to pay down card debt and ask how low the limit has to go to meet serviceability. Can always apply to increase limit later on.
    AND another killer is Living Expenses which bank now seems to have a crazy interest in. No need to maximise these, instead put the bare minimum, and if you have a partner then you can rightly state that they cover some of these expenses.
     
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  10. Harry30

    Harry30 Well-Known Member

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    Thanks for the great response @Beano

    With CIPs, the annual review is something that still concerns me. Let’s say a GFC type event occurs and CIPs are deemed to have half the value they previously did, and the banks ask you to pay down the loan to restore the LVR. If this is across the whole portfolio, then this could put quite a squeeze on the borrower. Ability to quickly refinance may also be limited if there is a general credit squeeze.

    In summary, how much discretion does the bank have at the annual review? Is there any obligation to continue funding if there has been no adverse events, or to at least act reasonably?

    At the annual review, does the bank have the absolute discretion to call in the loan and ask for repayment within (say) 90 days?

    I guess this may be a hard question to answer, as CIPs lending is all bespoke.
     
  11. Beano

    Beano Well-Known Member

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    Going back to 2008 GFC impact the bank did insist on select valuations on select properties but having TD (term deposits) I was not required to re-align the NLR.
    I suspect they would give you substantially more time than 90days to correct (I did ask them what they would do if i did not have the TD and they said I would be given a principal repayment schedule over 3yrs)
    Ps over the next few years I used half of the TD to purchase properties but such was the impact of GFC from the bank asking for the re-aligning I did ask "is it ok to use some of my TD ".
    Note TD was held in a different bank
     
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  12. PCAvatar

    PCAvatar Active Member

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    Awesome post thank you!
     
  13. PCAvatar

    PCAvatar Active Member

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    To give up?
     
  14. PCAvatar

    PCAvatar Active Member

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    Impressive! I have a lot to learn!
     
  15. PCAvatar

    PCAvatar Active Member

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    Thank you, some great input.

    It's possible and currently on as a last resort where I can partner with someone to get the next one but like you say risky / messy etc for exit strategies.

    It's a long / complex response to the IP's having equity. Each one is different. But basically they perform better for cash flow than equity. Although I am happy with living off the income / positive cashflow the banks must use different calculations. For example.. "Hi Bank these are my figures showing if I buy this next place I will get this much in positive cashflow" the response I usually get is not with our figures mate or something to that effect.
    I can accept and fully understand their more conservative figures. I guess I just believe in mine.
     
  16. PCAvatar

    PCAvatar Active Member

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    Ha.. love it!
    These are the kind of ideas I was expecting :)
    On a side note this reminds me of a clever / creative selling strategy where you sell your property like a lottery. Everyone pays $10-20 whatever until it reaches the desired $500k etc and you just pick a winner.
    But you would need to wait a few years to take it to the media and them to run it as a new amazing world first strategy again lol
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A simple way to borrow more is to bring on a 'partner' with good serviceability.

    This partner could own 10% of the future investment property. Later on they could be bought out for minimal stamp duty and CGT - if need be.
     
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  18. PCAvatar

    PCAvatar Active Member

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    Awesome thanks!

    # Is there a family member who could go guarantor or co-borrower - their extra income may get a deal over the line, and title can still be in your name only?
    Yes, looking possible but less ideal. So yes, it might go that way.

    # Have you actually had non conforming lenders like Pepper Money and Liberty crunch numbers for you?
    Nope, it's on the list now though from this forum :)

    # Maybe find a new property with incredibly awesome income to boost your serviceability, preferably one that has potential to add value via reno, sub-division, dual occ, increase no of bedrooms etc.
    That's the plan! It's getting that next one. It's a really bad time to sell my worst performing one so I'm looking at how to purchase another first.

    # Can you add value to existing properties, eg add extra bedroom/s by: dividing large lounge / living areas; enclosing verandahs/sunrooms; turn garage into bedroom/living space (and add a carport instead?).
    Slowly doing that. Approvals take a while and the reno's are bringing down my equity / deposit amounts.

    # Set up a share house in existing property (NOT a boarding house with separate leases) by finding a bunch of compatible tenants on flatmate.com.au and putting them on one normal residential lease at a higher rent, managed by a property manager. This requires more work by you of course, but only at setup stage.
    Ha nice. This is what I'm doing. 90% there on one, about to get it started for another, not possible / feasible on the others.

    # Renting a current property as a furnished property for more rent, and if suitable looking for short term corporate tenants.
    Yep nice. My numbers are looking better for shared but pro's and con's to each.

    # Renting one or more of the properties on Air B n B (which banks won't like of course - BUT if you rented house to a family member on a normal lease, then they could sub-let house on AIr B n B - obviously need to have good trusting relationship with this person, and work out tax implications for them)
    I've spoken with a few companies who do Airbnb management and I didn't like the numbers / guranteed income combination.

    # contact Ian Ugarte's mob and offer your property for possible rent by the room option (if suitable they convert it and give you more rent on a normal property lease, and keep cream off top themselves- at very least they would tell you if properties are suitable for this)
    I'll look into this thanks! :)

    # convert existing property to a dual-occupancy one (though cost of doing this properly may be too much now, though something to consider later on).
    I like it thanks but I don't have that kind of free capital / funds.
     
  19. PCAvatar

    PCAvatar Active Member

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    Thanks Carol!
    I don't do credit cards.
    I'd also like to believe I have cut my expenses as much as possible :)
     
  20. PCAvatar

    PCAvatar Active Member

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    Interesting! I did not know this!
    I thought they would have to have 50/50 ownership.
    If I can negotiate that percentage of ownership with a review to buy out in a set time it makes it a lot more appealing!