Serviceabilty: What did you do when you hit the serviceability wall?

Hmm I wonder if I should trade the current one...

 

Booked flights, in the taxi now!

 

Ha ha,I thought the more wives you had the poorer you would become!!

 

I think selling can be a good option, especially if you have non deductible debt:
Tax Tip 28: Selling an IP to pay down non deductible debt

Other reasons to sell would be:
when the LVR is low as you lose leverage (this includes even cases where you have borrowed against the property to fund other asset)

to fix structuring mistakes

to reduce land tax

when markets have peaked, so that you can invest into new markets

to minimise CGT

etc

 

I had paid off over half my PPOP, the amount repaid was actually counted as a liability as I could have redrawn it.
So had that loan redraw reduced to the nearest hundred thousand, in doing this it increased my serviceability for the IP loan
(on a property I'd already paid the deposit to purchase )
Got the loan with 5 days until settlement

 

Simply pay down debt. If you are unable to do that then as Jess suggested consider selling your worst performing IP.
IF your handy then consider a renovation or perhaps subdivision to boost returns.

 

Expect to hit the serviceability wall next year. Can do 1 more or perhaps two more IPs in the next 2 years. Main issues are the size of my PPOR loan and being on a single income.

Short term, I can take funds from offset and pay down my PPOR loan ( reducing it by about 20% ), although don't want to do that until I need to.

To grow income, medium term I am growing a share portfolio outside of super. I'm debt-recycling as part of this strategy to help grow the portfolio faster. Focus is now on ETFs. I have some individual stocks too and will gradually sell some of these. Hopefully diversified enough to manage risk.

Ironically I have plenty of spare cash each month which I am now intending to use to regularly top-up the share portfolio.

 

whatever leftover capacity you have... invest it in something that will manufacture extra income. ie dual occ or NRAS. If you wait until you hit your servicing ceiling, it will be too late, and you'll be left having to sell properties off or find other ways to manufacture debt reduction. You need to take steps to improve your borrowing capacity before you have a borrowing capacity problem.

 

I would like to know more about NRAS. If anyone is doing this do share your good and bad experience

Thx

 

euro ,

how does NRAS works if you can PM me...that would be good

 

Do a search - heaps out there

 

There are literally dozens of threads about it. The information is very easy to find. After you've done some reading, PM me and we can discuss whether it may or may not be suitable for you, further

 

Sold down one IP with low potential for capital growth to buy an IP that needs extensive reno work and high potential to increase the value.

 

How do you work out (going forward from today ) what has low and what has high potential for capital growth ?
IE
1 what country
2 what state
3 what city
4 what location
5 feature eg views , schools , shops, museums, transport etc
6 type of property eg single floor multi floor
7 section size
8 type of investment eg residential. Commercial ,industrial,retail ,office , carpark , lessors interest etc

 

1. I only invest in Australia at this stage
2. and 3. I am sticking to Perth, Sydney and Melbourne for now. I can't follow every market
4. As close to the CBD as I can afford
5. Schools, shops, transport, parks all walking distance
6. Development potential
7. ?
8. Residential because I have not diversified into the other asset classes yet

 

What does capital growth have to do with improving your borrowing capacity? Unless you expect to make significant profits and sell the properties off so you can use the profits to pay off debt, how does growth assist at all, once you hit servicing ceilings?

 

Capital growth doesn't improve borrowing capacity. In my case it was a choice between holding an asset with low capital growth potential or buying an asset with capital growth potential. I could not do both. I had to choose one or the other. I need capital growth at this stage, so I sold a low growth asset to buy a high growth asset. This doesn't improve my borrowing capacity but it does improve my portfolio.

 

If you have a largish PPOR debt you could rent it and go and rent yourself as rental income is not buffered like mortgage debt.

Also look to explore and learn other investment options like shares.

I will look to do JVs and syndicates once I hit it.

 

After all options exhausted (incl moving out of PPOR)...

...I quit my job.

I wasn't far from the income ceiling in my career.

 

I've hit the serviceability and equity/deposit wall a couple of times now.

Isn't that the point of investing? People don't buy a share portfolio with half of their savings, they put all of their long term savings in the market to grow their wealth. What is the point of keeping 'spare' borrowing capacity? (distinct from money in offset)

Buy, hold, consolidate, buy. perhaps with the new APRA paradigm more investors are going to make friends with the wall earlier on in their journey. Its just a part of the process.

At different points I've diversified lenders to increase capacity, consolidated lenders to increase equity (95% refi just before the policy was pulled during the GFC), diversified investments, shares, businesses, renovated property's, increased PAYG income, used low doc loans.

But mostly its just been waiting.....for income/rent to increase, policies to change, interest rates to fall, capital growth to happen etc