Our portfolio: What would you do?

Hi all,

Here is our situation:



We are in our consolidation phase. This portfolio costs us 60 pw to hold. We think NAB and Liberty interest rates are quite high (we might be wrong).

The primary goal now is to create good CF (to park in offsets) and reduce outgoings. In terms of banking, we are not sure whether to leave things as is or make changes. What would you do?

 

You could start by calling your lenders and see if they will reduce any rates.

 

+ 1

 

Whose names?
What taxable incomes?
Values for land tax purposes
Where do you live?
Offsets?
How much cash?
Have you hit your borrowing cap? (probably if using liberty!)

I would probably just encourage you to save in offsets now and build up some buffers and some future retirement money. And sit back and wait till some growth kicks in.

 

shoot them between the eyes

 

why?

Their goal here is to reduce outgoings/increase CF.

All that is required here is to achieve lower expenses. Clearly its evident either speaking to current lender and obtaining a lower rate, or at most extreme, refinancing to meet this goal.

As others have said, best to speak to current lender hoping for a quick rate reduction!

 

@Peter P, those yields seem reasonably strong for resi, but are they the yields on current price or on purchase price?

 

Have a look through some of the finance threads to get an idea of what rates you could be getting

For example this one
Whats you Interest rate?

Armed with this information call up NAB/Liberty and ask for re-pricing.

 

Because this and other information can assist in knowing how to reduce expenses and/or save tax.

Simple example is if properties are owned by different entities moving cash around (under interest free loans perhaps) will result in different tax outcomes.

 

IMO that's a pretty dangerously leveraged portfolio (alas kudos to you for acquiring so many!). Debt reduction would be my aim here to reduce the portfolio LVR to sub 80%.

You don't have much room to move on rates as others are eluding to. You need to remember the banks are going to be less likely to play nice >80.
Liberty is likely loading you for portfolio size as well.

@Terry_w is spot on I think. You need to maximize deductions here to try and get this positive. Failing that keep injecting income or boost some rents.

 

The loans are highly leveraged, but we don't know one or more loans may be 100% offset with cash.

 

Just out of curiousity, why do you consider this portfolio to be dangerously leveraged? When it comes to investment properties, many people seem to recommend borrowing as much as possible (88% for example) rather than putting cash in. Interested to hear thoughts on this.

 

The 88% probably works well if 1-2 property. For 6 it's slightly a different ball game. Try to copy and paste the above portfolio into spreadsheet and test for current IR against 6-7% and then with P&I
And say on worst case scenario Sydney market tanked, and Brisbane is flat market but forced to sell...

 

@Gockie they are yields on purchase+any reno.

Thanks for the advice guys.

I gave Liberty finance a call this morning. I told them other banks were offering better rates and we wanted to see if they could do any better. They were quite adamant in not reducing any interest rates at this current time. The call ended very quickly.

NAB was difficult to negotiate considering our loan was quite small (129,000). We are also fully offsetting this loan with our savings and not paying any interest repayments (except for the $10 monthly fee).

Next step? Refinance Liberty loan to another lender?

What does everyone think of refinancing Liberty to NAB? We would have 2 loans with NAB.

The digit 5 is bugging me

 

The real questions is - can you even refinance to another lender? Using that product tells us that at the point of the loan being submitted you had limited borrowing capacity and unlikely to service with any other lender. NAB since last month has died in servicing compared to its previous investor friendly position.

Liberty is well aware of their position in the market with this regard, so wouldn't drop their rates. (they've actually been testing the waters for the last 18 months increasing them bit by bit for new customers to find out where the market can go).

Why not move the offset funds you've mentioned to the Liberty offset account to make an instant saving on interest?

 

That's what I was thinking too. Offset the account with the highest interest rate.

 

Their is an overall LVR of 84.4% on a debt of 2.58mil.
With 5 properties in QLD and the lowest interest rates of all time (I would say the bottom).

Now as Terry suggested their could be buffers in place and their has been no mention of a PPOR so the actual portfolio and debt could be much less in which case I would not make those remarks.
However with the information provided that IMO is dangerously leveraged.

Regarding purchasing at 88%, that is reccommended as the LMI sweet spot and allows you to keep as much cash as possible to fund a future purchase. It doesn't however make it a safe place to be!

 

As others have mentioned, you need to get your LVRs down. Chances are you've got as far as you can with the mainstream lenders (otherwise the last property wouldn't have been 80% with Liberty). Unless you've got a lot of cash in the bank you're not going to be able to do much until you're in a stronger equity position.

Incidentally, there are lenders other than Liberty with strong servicing calculators and much cheaper rates. Liberty probably has the most generous calculator, but there are others that sit somewhere between the regular banks and Liberty that are probably more cost effective.

 

Interest rate of 5.09%?? Most people pay under 4% these days. LVR on that is 80%. Get a good broker and move to NAB or WBC. You might be able to get much better rate.
Also, I think you are a bit over exposed to Queensland.

 

Sure about that? I can tell you the average investor certainly isn't below 4% for their investment lending - ESPECIALLY if they're at the pointy end of their borrowing capacity.

This is the amusing part of the post APRA changes most people haven't quite stomached yet - the pricing war is over and those who are lending to those with portfolios and tight capacity are well aware of their market position and are pricing accordingly.

NAB/Westpac are towards to the lower to mid range (NAB in particular the lower range) now in lender options for capacity, so I would bet good money there would not be sufficient capacity to move to either. The portfolio lender options in this scenario tells a story - of someone building a portfolio which is progressively running lower and lower on borrowing capacity, I'd hazard a guess to actually say their broker has done an OK job all things considering.