Will a Motel Investment Increase my Borrowing Capacity?

Discussion in 'Loans & Mortgage Brokers' started by Beachsnow, 6th Apr, 2019.

Join Australia's most dynamic and respected property investment community
  1. Beachsnow

    Beachsnow Well-Known Member

    Joined:
    5th Sep, 2016
    Posts:
    112
    Location:
    Perth
    Hey Guys,

    I'm looking into a small commercial property in a regional town that is basically 5 short stay apartments advertised on wotif/booking.com etc.
    The returns for the past 4yrs are consistently around 16% net after cleaning, rates, insurances, advertising etc etc.
    My main strategy is developing residential property and need an increase in income to help with cash flow and loan serviceability.

    My question would firstly be about financing, lets assume some theoretical figures:
    Purchase price $600K + costs
    Gross income $200K
    Net income $100K

    If I'm currently sitting at max. borrowing capacity, would a bank consider lending on this property based on the fact that the income would well and truly service the loan? ie.

    Assuming I get finance, would purchasing this property help or hinder my borrowing capacity in the future when wanting to finance residential property developments?

    Any help or advice would be appreciated:)
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,675
    Location:
    Australia wide
    Just because a property is allegedly postively geared doesn't mean banks will be keen to lend for it.

    after you have 2 years financials it is likely to improve your borrowing capacity - assuming you will be the owner and borrow to buy it (which you probably shouldn't).
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,599
    Location:
    Gold Coast (Australia Wide)
    suspect it would limit you or be neutral at best

    Assuming you could get finance, it would likely be a max 15 year loan term...........,maybe 5IO thence 10 PI

    ta
    rolf
     
    Beachsnow and Terry_w like this.
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    Are you buying a property investment, or a business?

    The property itself is unlikely to increase your serviceability, but if structured and run correctly and as a business, that element might generate an income that lenders will recognise.
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    I'm sure someone else was asking about the same or similar deal this week.
     
  6. Beachsnow

    Beachsnow Well-Known Member

    Joined:
    5th Sep, 2016
    Posts:
    112
    Location:
    Perth
    Thanks guys for all the help. I did some further DD and by google search found that there was a solar and wind farm construction project that was staged over 3yrs to 2015 mid 2018 that needed worker accommodation support in the town. Hasn’t been confirmed yet but I suspect this business was contributing full time accommodation for this period therefore skewing the numbers considerably.
    I can see how people can get caught out in situations like this!
     
    Angelar and Brady like this.
  7. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    11,331
    Location:
    Perth
    Good detective work. That could certainly have given artificially high numbers over a long period of time making it seem like legit numbers.
     
  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Reminds me of the resources boom and the short term inflated value of housing. Mining companies needed the bed and paid anything. Up went values. When the mining companies pulled back the first ones to go were all the perm workers all replaced with FIFO hotbeds etc. Down went values and many owners were smashed.
     
  9. TMNT

    TMNT Well-Known Member

    Joined:
    23rd Jul, 2015
    Posts:
    5,572
    Location:
    Melbourne
    thats very good DD, kudos to you!
     

Price Accounting provide tax services and advice to developers on issues incl GST, Tax + Structure. Our free developer toolkit covers many of the key elements and is critical to a new development tax plan. Email for your copy and our new client pack.