Taking a loan when unsure about future income

I have a question about taking a loan as a business owner when future income has some level of uncertainty.

My sole source of income is an online business that is 9 years old, and for the past 6 years has profited between $150k-250k, it is fairly stable but not growing. I typically take a dividend of $120k-175k each year and leave some profit in the company.

While the business is relatively stable, I see some risks involved in it as new competitors enter the space, and it could decline over the next 5 years. Not to zero but below it's current level.

I am looking at investing in property for the first time, but unsure how should I factor possible reduced income in the future. Is there a standard way to approach this? Do lenders consider this when deciding on borrowing power?

Thanks if you can assist!

 

how would you pay the loan on reduced income?

Lenders will look at the past 2 years income and want to know if you expect any changes. If you think the income will drop and tell them they might want to base servicing on a lower income which will affect max loan size.

 

No and No
However, you don't have to borrow the maximum amount you can afford, you could find out what your maximum borrowing is and then take 20 - 30% off that figure? Or you could work it backwards, for example, figure out how much $ per month you would be comfortable paying on your estimated reduced future income and apply for a loan amount based on that.

 

If you do feel there is a chance that your income will reduce then you would be using whatever time you have to pay down the repayments so your investment can at least be neutrally geared. Thus your investment will not be a burden to you.

 

Don't forget, there are buffers built in to borrowing capacity calculations as well.

 

If it's an investment property then rent and tax deductions via the government will typically cover 2/3. If you focus on building up a decent buffer in offset you will be sweet.

 

You never know. More players in that market may mean opportunity for a offer that makes it viable to walk away.