Serviceability

Hi Redom, I think Pepper does not offer a way to fix rates ? The full doc rates are not that bad & no extra loading for multiple properties.

What do you find restrictive ?

Also Pepper will do 85 no LMI if you pay P&I

 

In a nutshell. If you are PAYG and dont service at Pepper at 85% or Liberty at 80%, you don't service anywhere . End of story. There are no exceptions to this for PAYG. Self employed borrowers with large enough deposits to utilise certain lo doc products can still use the good old self declaration and accountants letter at a couple of lenders, subject to exposure limits of course.

The fact remains - for the significant majority, if you wish to avoid selling, debt reduction ( non income producing, non deductible first, deductible later) is the only sensible solution for improving borrowing capacity, unless you are one of the lucky few on massive incomes or you inherit money or win the lottery

Unfortunately no amount of different threads on the subject, trying to ask the same questions from different angles, will change that. This is likely the 30th thread on borrowing capacity in the last 12 -18 months, and the answers are always the same.

So if you are in the early stages of accumulation/building a portfolio and particularly if you are PAYG without prospects of very, very large pay increases, I'm sorry to be so blunt, but the only viable plan to manage borrowing capacity over the 8-10 year medium term is to buy properties that will manufacture significant surplus income, and then use that surplus income to reduce debt. non income producing, non deductible first, deductible later. There arent any other magic bullets other than windfalls mentioned above. Now, if you believe a lottery win, big payrise or big inheritence is coming your way, ignore me by all means ....

But otherwise... accept the reality of how servicing works now. Every dollar of debt is assessed at 7% minimum - often more. Debt is assessed at P&I and living expenses have increased by 50% or more on lender calcs...

And to be even more blunt - when I talk about significant surplus income , Im not talking about the 1-2K CF+ per annum many on here, including several young guns feted for their genius, believe is sufficient.... 1-2K will be eaten up by a handful of rate rises.... and as Buffet says, "it's only when the tide goes out you discover who's been swimming naked" . In my view you should avoid trying to replicate any such strategy, as its entirely reliant on low rates to sustain itself. In other words, its fools gold. When I talk about CF+, I mean 7,8,9K CF+ per annum, or more.... Enough to actually pay some lump sums off your debt...

If you invest in 2 or 3 of these, you can be paying down 20-30K of debt per annum.... and that will have a compounding multiplier effect over time. It will improve your equity position by removing debt, and it will improve your borrowing capacity by removing debt. It also allows you to retain the income from the dwellings, which will appreciate over time.... all of this adds up to a bigger footprint earning more and more income over time. And if the aim of the game is to get to an income that allows for a comfortable retirement, why on earth would you be considering any other strategy?

 

Hi @Jess Peletier,
I think the idea would be to escape St George's serviceability Calc but we may not qualify elsewhere either. We did pay LMI with the original loan but it used to be a PPOR and we had the loan for close to 10 years before releasing equity so don't think the rules still apply?
Option 2 would mean that we could possibly do a 90% lend with LMI so I guess that would give us a little more buying power.

 

More policy oriented than product. Via homeloans rates are actually decent (4.34 P/I 80%, 4.44% I/O). Can be a bit stick with employment policy, rental income verification, etc.

The 85% no LMI option can be very handy.

 

I agree that you need some seriously positive cashflow properties to assist in paying down debt, the issue is, where do you find properties that can give you $5k+ surplus per year?

 

Just buy a few duplexes in Sydney, should be good for 3% or so !

 

Quite straightforward if you have read any post I have ever written

 

That has to be the briefest NRAS related reply I have ever seen

 

Hasn't the horse bolted on NRAS though? I thought it was finishing up?

 

well its a little amusing that someone would ask me where a property offering 5K CF+ per annum or better can be found?

 

There are still NRAS opportunities available. Not many, but they are around. And there's dual occ as well, if NRAS doesnt appeal.... either option will comfortably produce better than 5K CF+ per annum to aid debt reduction. NRAS will generally get you 8-10K CF+ Dual Occ generally @ 6-8K CF+ The outcomes depend on your marginal tax rate.

 

Not trying to be humorous.. I have read a lot of your posts and although I have little understanding of NRAS I do agree with your points on cashflow positive property and debt reduction being the way forward. I just assumed NRAS was being killed off.

I haven't seen you talk about dual occ as much or give examples so I will search through the forums to see if I can find more on that.

If you have any dual occ examples of solid cashflow I would be interested in having a look.

 

You can also find them for re sale, however I would be careful and check into the managers etc, and also make sure your comfortable with NRAS as well and familiar with how it all works and payment timings etc etc

 

Dual Occ not going to be as easy & it is not just a matter of slapping a granny flat in either if you ask me, you could end up not adding much to the value in many places, or over capitalising, or doing it in an area where people want large back yard etc

Do your own checks, but my thoughts are no one is going to just hand over a ready made solid income place without adding a premium at buy time, which brings you back to square one, so that means you have to look for places with the opportunity after probably holding for a while to add the value yourself, but no lack of competition out there IMO.

 

PM me and I can send you what you need

 

True. It's not like you have kept it a secret all this time

There are quite a few actually if you count people selling on a NRAS property. If anyone is considering this I would refer them to you though. Any person will not be able to evaluate how good a NRAS deal is. I would say most would need expert guidance.

I have looked at some of the current NRAS properties for sale. I would not know where to begin to evaluate if any of them are actually good deals. Also questions in my mind about how long the government cash incentives will last on a property by property basis. Since I am into value adding, they are not really for me but I can't see how they could be attractive to others. Main question is, if someone finds a NRAS property for sale, how do they evaluate if it is a good deal?

 

Get several resi mortgage valuations done. - at least 2. Valuations are often all over the place so never rely on just one opinion from one valuer. Run a cash flow analysis. Takes @ 20 seconds.

If the val stacks up at multiple valuers and the cash flow stacks up well, and the property fits your budget ...buy it.

 

@Jess Peletier forgot to mention we have yet to realize enough equity in our 2 QLD properties and our 1 SA property. Fingers crossed QLD takes off soon.

 

Does anyone else know of any non conforming lenders other than Pepper,Liberty,Bluestone,Latrobe and Redzed? I need to get equity out of one of my 7 properties but,of course,serviceability is a problem

 

Being a non conforming lender doesnt mean you have a good servicing calc If you are PAYG, and want 80% LVR or less, you only need to know one rule. If it doesnt service at Liberty - it doesnt service anywhere.

Forget LaTrobe as a lender that offers great servicing - their calculator is not very good for investors at all. They completely ignore addbacks/depreciation/neg gearing .