Opportunities to finance a 3rd property

Hi all, Happy Australia Day !
Hoping I can get some advice and tips on how I can work towards my 3rd property !
Once we are able to generate more equity in our properties, to put down a 20% deposit (hopefully by 2 years), a 3rd property will be on the radar

We've used a lot of our borrowing capacity on the 1st IP, so it will likely be more difficult getting financing on our future 3rd IP.

Do you guys have any tips on what I can do during the next 2 years, so my serviceability is optimised to apply for a loan on the 3rd property? Or if you have any other tips in general on my strategy it will be much appreciated

I guess my spouse and I improving our personal household income would be very beneficial
And I understand finding a mortgage broker who specialised in Investment lending will be critical

Below is my current position:

Income
Household income 177K
Rental Income 31K (600/week)
Total: 208K

Debt / Value
PPOR - Debt 917K (Macqurie), Value 1.15M
IP 1- Debt 700K (MeBank), Value 900K
Total: Debt 1.615M Value 2.050M ~ 79% LVR

DTI: 7.77 (non-bank lender levels)

Thank you !

 

In the next 2 years I would expect interest rates to increase and this will reduce borrowing capacity.

To sustain things further from here you will need to focus on increasing income and reducing debt (specifically the owner occupier debt).

There may be a niche with non-bank lenders to squeeze out an additional purchase but this has risks and you may find yourself unable to refinance once you go down this path until you have either substantial income growth or debt reduction.

 

Income is key, DTI already a little high but can go a little higher with a 3rd tier lender.

There isn't really anything else you can do apart from trying to increase income to draw equity out in the future.

Mac bank is a little harder on servicing as they are capping DTI at 6 if above 70% LVR. But there is a few major lenders that could potentially increase your borrowing power a little more.

 

Your existing DTI is 7.77 which will make releasing equity extremely difficult, especially with your existing lenders. The only way you'll release any equity will be to refinance to a third tier lender.

Just as important (especially for third tier lenders), your NSR is likely to be maxed out as well.

You need to focus on paying down the non-deductible debt, then debt recycle this into a deposit for the next property. Relying on equity is going to be a very difficult strategy to execute.

 

I thought your DTI was 6.7 not 7.7 based on your other thread.

Anyway unless you can increase income as much as possible (rental income included) and use a lender that doesn't have DTI limits, you're right at the end of your borrowing capacity and that's based on today's serviceability. It's going to get harder to borrow when rates move up in the future.

Maybe lower your purchase price, consider cheaper investment properties interstate etc.
Consider what it is you are actually trying to achieve, what's the end goal?
Is the goal just to have 3 properties because you could have already had that if you considered cheaper properties, ie. $900k for one investment property could have been 2 x $450k properties etc.

The return on the IP you just bought seems lowish in comparison to other options out there (3.5% before costs), is there a particular reason you bought that property? Assuming it's expected to see good capital growth?
What's your expected purchase price of the next one?

 

Thanks for the suggestions guys
As I thought, I will work on increasing my household income and also pay down as much non-deductible debt on my OO as I can with my surplus.
Then down the line I will possibly refinance to tap into the equity which has hopefully increased

Hi Lindsay, the purchase of that particular property (256m2 Townhouse in Schofields) is to have the mother in law live there for a few years at a discounted rental. So it was not a true investment decision as we had to find something more nice and closer to us

The next purchase, I am hoping for a price of around 500k with a mix of yield and capital gains potential.

To be honest I haven't really thought of the end goal as much I should have. So something for me to figure out.
But in the short term it would be accumulating assets, and in 30 years or so, possibly sell one to pay off the debt on all the others, then live off the rental income of all other properties.

 

It's honourable that you're helping out a Family member but this has likely put the brakes on your accumulation for a while.
Must be a 4 bedder for that kind of money?

Thinking about where you want to end up is very important, then you can make decisions based on that.

How many properties/how much rental income would you need to be able to live off it comfortably?

 

If my spouse and I have fully paid off our PPOR, so no monthly repayments, we would be more than comfortable with 60k p.a after tax in today's money. That would be the goal

I now have to think about how I can get there by using a mix of super investments and property investments and the strategy of each.

I don't really know too much about the aged pension, but that in itself generates just over 30k p.a, so I have to research if we will be eligible for this in parallel with other investment income earnings.

Then I have to also think about taxes, how much pre taxed income, will generate the 60k p.a after tax. Also, the structuring of assets and debts so taxes are minimised

I do have alot to research and think about. I just wanted to keep accumulating properties early on, so I could have more 'time in the market' but I think I will need stop to think about my above goals. Then I can choose the right properties for my strategy for my goal