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

I'm close to hitting it after purchasing my next IP or two. At the moment considering buying something with development potential (e.g. subdivision) to manufacture some CG and hopefully improve cashflow a bit.

 

Good point. That's something I didn't mention in my last move the property I sold was negative cashflow and the property I bought (half of) will be positive cashflow. I think additional income could help with serviceability.

 

Surprising responses by most. The post is about what to do when servicing capacity is reached, yet words like Capital and Growth are still be thrown around far more than words like Cash and Flow or Debt and Reduction.

 

Would anyone consider moving out of PPOR to improve serviceability? How much improvement is that likely to bring to servicability? Let's say with a non deductible debt of 400k that could rent for about 450/week?

 

Many of my clients have. Some have moved to cheap rental accommodation with higher rents received from their former home and others have moved in with parents, rent free

 

are you forgetting that 400K will become deductible as well when you move out?

 

We are getting close to hitting the wall. Our IP portfolio pays for itself overall but we still have a lot of non deductible debt. We are extracting what we can now from the properties. Also, currently building a dual occ which will be positive once rented. Should help when we hit P&I.

Did I mention we have a toddler and I work part-time? Definitely ask around and see what you can do, you may be surprised.

 

Yes exactly Sorry i meant before selling it will be non deductible.. plus depreciation advantages of a new house and bought before the fated 9th of may if any of that makes any sort of impact to serviceability which i am not sure it does. So wondering what sort of impact it would carry and if its worth the hassle.

 

Just see lending manager at ANZ for refinance owner accupy loan today. The interest rate they use to calculate the serviceability is 8.02%, not 7.5% any more. Which lenders are the best / softest mortgage calculation's interest rate?

 

I thought Westpac were good for serviceability currently, with only valuing current interest rates with an added 20%?

Last I saw, Westpac assess current debt at 20% over the loans current interest rate, though reading above it may not be the case anymore.

 

ANZ add a margin on the existing loan interest rate with a minimum of 7.25%. You're paying a higher rate on an existing loan, therefore it's being assessed at 8.02%. A cheaper loan would still be assessed at 7.25%.

ANZs serviceability is actually fairly horrible for investors.

 

That they're horrible but fair?

 

Time for a new strategy! This one is exhausted.

I'd be getting into JV'ing. If you want to keep all your properties, this is the natural transition (along with developing yourself) I see all investors getting into when their BC is tapped. Of course you need the appetite for it and some spare cash. In 2-3 years time, you'll be declaring an additional 100k+ on your income, filled offset accounts with savings & new development funds and ready to take on another development or maybe purchase. Do this for another 5 years and you'll be making several hundred grand a year from your day job, rent and development win falls combined.

I think people should plan for this prior to using up all of there BC. Borrow and lay down a solid foundation to your portfolio and then shift into development with the remaining BC. This of course is for the super aggressive people out there, but in my opinion is the fastest way to accelerate the end goal.

 

I went to one broker who frequents forums he couldn't get me a loan with any-body after promising the world . I went back to my regular broker. Only Bankwest and Westpac were keen to lend money .Bankwest rates were to high. I went with Westpac. Their rates were lower by 0.5% at the time ,now they are 0.9% lower than my other loans. I have found rather than protecting the borrower the lending restriction have reduced the ability to earn income and the ability to pay loans. I have sold cash flow positive properties kept borrowings the same, sometimes substituting securities keeping the borrowings the same, to put money in shares which are more risky.

 

Posted in error.

 

+1 to Liberty. Not always the greatest product, but pretty competitive if you have a decent deposit.

When servicing with multiple properties and rental income, I've found Liberty to service at much higher amounts than other lenders.

 

Read this, RAMS lo doc IMO the best lo doc product on the market

Great News if you are Stuck

What Jess said.

Also perhaps
Start a business
Look at other markets for cash flow, this will require looking outside the square

 

As I said above - Liberty is great for serviceing with multiple properties etc.

For most loans from a standard bank, I've found St George to be the most forgiving.

 

Bunch of ideas:

- First step is to manage your borrowing power. Know what impacts your capacity & see what you can do (i.e. credit limits, help debts, leases, etc etc).

- consider impacts of renting? If in Sydney, this should increase borrowing capacity a fair bit (low yields, hence lower rental cost vs mortgage).

- add income (always awesome). Ideally salary, but other forms help too.

- consider non banks with better servicing. If going down this route, good idea to manage your existing portfolio's repayment to utilise this funding line appopraitely. Also have an exit strategy & risk management plan here (i.e. lower lvrs, big cash flow buffers, etc).

- sell non performing assets. your borrowing power is far more valuable today given its limited now. If you have assets doing nothing with no prospects, may be best to switch it for something you view more likely to achieve your goals.

- switch investment strategies for those that are advanced & seek products to fit (e.g. MTR's suggestion, lease doc loans, etc).

- switch gears - if your at this point, do a thorough risk assessment. Should you actually be borrowing more to achieve your goals? Purchasing is one side of the game, but maintaining your portfolio in the long run & letting it do its thing is the real aim (debt deflation, etc etc).