Join Australia's most dynamic and respected property investment community

no more actuals, what to do now?

Discussion in 'Property Finance' started by Elives, 25th Aug, 2015.

  1. Elives

    Elives Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    539
    Location:
    Queensland
    Hi all,

    first for all i've just recently bought my first ip and i'm ready to buy my next ip 2. but now that i've realised the banks are most likely going to be looking at repayments at 7-7.5% p&i

    after i purchase 1-4 properties i'll be stuck. what should i do? guys that reno and then pull equity will also become stuck i'd imagine, I feel like these strategies will not work anymore?

    reno and pull equity
    buy below market value and pull equity

    i don't really want to do developing as i'm not interested in it. but it seems i can't get my head around what to do now as after a couple more purchases i'll be stuck and will have to wait 2-7 years before i could afford to go again. even if i had access to unlimited 20% deposits.

    also now that this has happened should i be looking to get loans with P&I straight up and not IO as it wont really make any difference with the lenders when it comes to serviceability?

    the only strategies i can think of to be able to make money is

    developing

    buying PPOR reno and then sell and make tax free profit.

    JV buy property in friends name. buy 20% below market value and share profit with friend. backed by a caveat this way finance is in there name and will not effect my serviceability.

    any ideas on how to continue to grow a large portfolio?
     
    Last edited: 25th Aug, 2015
  2. Kangabanga

    Kangabanga Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    258
    Location:
    Brisbane
    when all the signs are pointing to a market where credit is drying up, get rich quick property strategies will no longer work.

    of course other forummers may have some splendid ideas..
     
  3. FireDragon

    FireDragon Well-Known Member

    Joined:
    31st Jul, 2015
    Posts:
    171
    Location:
    Australia
    No matter what you do, I will try to avoid buying together with a friend. You friend may have different goal, strategy, risk tolerance, time frame, etc. There can be lots of arguments with your friends and it will be a disaster down the track.
     
  4. Jkat

    Jkat Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    101
    Location:
    Sydney
    At the moment unless you have equity that it sitting waiting to use you will need to come up with deposits/show serviceability ... but after that you may have to wait some time until lending loosens up a little bit.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,106
    Location:
    Melbourne, Nationwide
    Use a highly structured approach to your property holdings and lending against those properties in such a way that you effectively isolate clusters of properties.

    Target your lending specifically to each cluster using lenders that will apply assessment policies that favour this strategic approach.

    Take a long term view. Slow at first, but given time momentum can be built for both equity releases and new purchases.

    This may not increase your existing serviceability, but it has the potential to recycle what you've got available over time. If you can afford another $800k of property, it may mean you can buy $700k today, then another $700k in 2 years, another $700k in 4 years, etc. As cash flow increases, borrowing capacity will also increase.
     
  6. Mick C

    Mick C Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    206
    Location:
    Sydney
    Keep everything as interest only and use the conservative banks first ( first 1 or 2 loans) PLAN ahead before you buy and make sure you have a "buffer" for equity release.

    Planning is the key. Not just planning your servicing...but your equity + credit file.

    You be surprised to know there are still many banks doing actual repayment ( but most of them dont allow equity release) so buying more property is fine...it's the deposit that will be the killer.

    Which banks- Credit unions...50% of credit unions still doing actual repayments....especially the smaller regional ones.

    However

    1. Credit unions are not use to clients with a big investment portfolio ( ie active investor) ...so how you present the deal will pay a big part in the approval.

    2. Most dont like equity...just purchase

    3. Most dont like active credit file and yes they will credit score.

    4. Most do and will have a "rental reliant" policy.
     
  7. Elives

    Elives Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    539
    Location:
    Queensland
    Could you give a scenario oh this would work say on a 55k income? how that person could constantly be growing a portfolio. like how u say borrow 700k and then another 700k in 2 years. how would this be possible?
     
  8. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    1,444
    Location:
    Sydney
    NRAS. A 10 year dividend reinvestment plan using property, high leverage and no margin calls. Buy high yielding, surplus cash flow producing properties. Reinvest the surpluses towards aggressive debt reduction in order to reduce debt as you go, which will do two things
    1. reduce debt - which will create borrowing capacity with which to purchase again in time
    2. create equity- which will create seed costs ( deposit, stamp duty) with which to purchase again, in time

    As everyone is now learning - equity without sufficient borrowing capacity is pretty much useless unless you sell.
     
    Shahin_Afarin likes this.
  9. jpcashflow

    jpcashflow Well-Known Member Business Member

    Joined:
    21st Jun, 2015
    Posts:
    371
    Location:
    Melbourne
    Hello All,
    For the time being sure banks have tighten there belt a bit and this is a common practice. Its a good time to actually review your goals and eventually credit changes will change again :)
     
  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,106
    Location:
    Melbourne, Nationwide
    It's not possible to give a general example that's going to be remotely accurate, it depends very heavily on what else is already in place, the existing cash flow, debt levels and lenders already being used. I'm also still working out a lot of the details. So far it looks promising but it's not a silver bullet to build a large portfolio quickly on a small income.

    I don't think we'll see most of the credit changes relax back to were we were 4 months ago. The lenders that have reduced LVRs will likely ease and AMP will come back to the investment market eventually. This stuff isn't a big deal at all.

    The biggest killers of serviceability is the assessment of existing debts and minimum living expenses. These are never going back to what they were. ASIC has expressed concern that some lenders policies on this were outside of responsible lending. There is no chance that any lender will take existing debts at actual repayments ever again.