How to Increase Your Borrowing Power [Lending in Australia]

hello yeah I'm calling all struggling property investors oh is that you hopefully not in this video we're going to be breaking down five tips for property investors to get the most out of their lending so many people are struggling to get access to the capital with 10 plus interest rate rises in the last 12 months and rates sitting around that 6 and 1/2 to 7 1/2% for most property investors here in Australia people's borrowing capacities have plummeted somewhere between $200 to $400,000 for the average Australian so we're going to go through five tips to help you boost your borrowing capacity make the most of the capital you have available to you and to help you grow your property portfolio faster now my name is Luke and I talk all things real estate renovating and Financial Freedom here on the channel and I am a property invester myself my wife Emily and I have a property portfolio sitting around that 5 and a half million Mark and we were able to build that property portfolio in our mid 20s now what do we do differently what were some of the key things that set us apart to allow us to build a $5 million plus property portfolio one of the first key things we did was use interest only repayments to our benefit now there's a lot of confusion or misunderstanding around how to use interest only to your advantage when you're building out a property port portfolio now when you use interest only it can hurt your borrowing capacity so you need to understand the balance of going interest only on your loans to boost your cash flow versus going interest only and how that might reduce your serviceability or your borrowing power now interest only was a key initiative that Emily and I used in building out our property portfolio to maximize our cash flow so what we did is we went interest only on our investments all of our investment loans if we could we went interest only this meant we were making the minimum repayment on our investment assets and maximizing our tax deductions on the flip side for our principal place of residence which is this triple Gable queenslander the debt secured to our own home we had as principle and interest and that's because we wanted to minimize and pay down our non-deductible debt and get all the tax benefits of our deductible debt this leads me into Point number two which is the power of offset accounts offsets are so widely used at this point in time you should absolutely have one if you don't now redraw is not the same thing redraw accounts give Banks the power you want to have the power in your hands and the cash in your bank account and that's exactly what an offset account does using the power of an offset account gives you the flexibility and allows you to park your cash against your own home reducing your non-deductible debt and keeping your tax deductible debt separate and maximized if you do have an own occupied residence now tip number three is to never take no for an answer there are some big YouTubers out here that actually let us down who are mortgage brokers in terms of making a purchase in 2021 we were going from our second to our third property and we'd had number of chats with these mortgage brokers I won't name them I'm sure you can probably guess who they are but we had had multiple chats with these mortgage brokers gone through our full finan with them and we're looking to secure our third property purchase which is actually the property I'm standing in at the moment the triple Gable queenslander now disappointingly they dropped us 7 days into a 14-day Finance Clause but we did not take no for an answer I quickly got into contact with CBA directly as that mortgage broker was looking to finance us through suncorp and CBA was able to keep the deal together and get a full preapproval and get the deal across the line within a 7day window so when mortgage brokers let you down or banks are saying no in terms of lending you more money don't take no for an answer go have a chat with another mortgage broker go have a chat with another bank go out there and find the right institution that's going to lend you the money to allow you to take those next steps now on the flip side you don't want to overreach and take on shark money you don't want to take on super high interest rates and really short loan terms we made that mistake with our flip project we had an interest rate at around 9 to 10% when most people's mortgages were around 4% so don't take on high interest rate loans even if it gives you a lot more Capital if it's going to hurt you cash flow wise as well now a lot of our purpose property Buyers work with my mortgage broker baxer because he deals with investors every day of the week and owner occupiers who are looking to increase their borrowing power and I've seen him increase people's borrowing power from 3 to 400k up to 700,000 or go from 1.5 mil Bing capacity to $2 million borrowing capacity so finding the right broker or bank to work with can really maximize your potential and your borrowing power to help you keep making future purchases or to refinance your debt and get a better interest rate this leads me into tip number four which is having the right investment structure now people get worried about making Financial advice this is obviously not Financial advice I'm a chattered accter by trade and I'm a professional buyers agent so buying in the right structure can be critical to helping you build out your property portfolio there's several options available to most investors and homeowners commonly people will buy in their personal names which can be great because it's simple it's easy for most banks to understand and you can look to exhaust your buying power in your personal names to begin with then people also look at company and Trust structures which has become very popular the last 12 months Emily and I have a company trust structure ourself and we continue buying in this company and Trust structure situation here in in Queensland because there are ways for you to potentially get more baring power and minimize your potential land tax by buying in different company and Trust structures for each individual purchase so buying in the right structure is critical and you need to have the structure set in place before you go out and have a chat with the bank or before you go chat with your broker and make that purchase decision generally the way I like to look at it is people will buy one to three properties in their personal names and then depending on their borrowing power they'll typically look to use company and Trust structures as well to extend their borrowing capacity now there are talks out there that you can get infinite borrowing power if you have cash flow positive properties in company and Trust structures which is somewhat true but also you need to have the capital available to put down 20% deposits or more to make that property cash flow positive now at a high level generally your negative gearing properties are better off in your personal name if you're not worried about litigation because of the negative gearing tax benefits and if you're buying properties in company and Trust structures they're typically better for higher cash flow properties because they might have a lower land value reducing your land tax if you're buying properties and adding granny flats for example and Trust structures allow you to distribute the funds between yourself and multiple family members to improve your tax outcomes so there are horses for courses you got to pick the right structure in the right situation so have a chat with your broker have a chat with your accountant have a chat with your buyers agent about what might be the right structure for you for your next property purchase now tip number five is you need to know your numbers a lot of people overestimate what they're earning and underestimate what they're spending a critical component to actually growing a portfolio is you do potentially need to contribute some cash even if you are refinancing Equity from your own home or an investment property it is good to show the bank that you are creating more disparity between income and your expenses and therefore the more savings you have the more free cash flow you have available to push into a property portfolio so make sure you understand your numbers what are you bringing in from your poy income or your business what are these properties that you currently own or potentially going to own bring in in terms of cash flow and what are all of the expenses don't leave anything out you can't leave out land tax you can't leave out your tax and accounting fees maintenance Insurance Property Management rates what other list goes on there's so many fees you need to be wary of if you are looking for a free property investment calculator head over to purpose property.com there is a free calculator on there and a video walking through an example of how you can use that calculator to do some sensitivity analysis and to make sure you're running your numbers from a specific property purchase point of view so you need to understand the detailed numbers on your next purchase as well as your overall picture and that's why having Excel spreadsheets or I like to use Google spreadsheets these days the last few years that's been my go-to having your spreadsheets in place making sure you understand all of your numbers you can do your analysis and you can act with confidence based on your cash flows will allow you to make better decisions and tell the banks that you can have more boring power now for sticking around to the end I am going to give you a massive bonus tip and this is looking at second and third tier lenders once you exhaust your buying capacity with CBA A&Z westpack or NAB the Big Four banks have so many restrictions and limits on them they're governed by asek APPA whatever there's so many different bodies these days that are looking at the banks and scrutinizing what they do in terms of their lending policy and how much money they can actually lend to you in terms of buying your own home or buying an investment so if you look at a second or a third tier lender you might get significantly more borrowing power than you would with a big for bank and this is because they can you know reduce their buffers maybe have a 2% or a 1% buffer rather than a 3% buffer on interest rates they can also play around with their policies and look at different things in terms of how they account for your income maybe your bonuses can be included maybe commissions maybe your overtime can be added into your calculations so these second and 13 lenders give you a lot more flexibility now I have real life experience doing exactly this when Emily and I bought our unit Block in cost Harbor we used a third tier lender now that might scare some people a third tier lender lender are they going to run away with my money are they going to charge me 10 20% interest rates most of the big 13er lenders are pretty well known Liberty they sponsor the a league I believe pepper money is quite a big lender out there these days that's backed by some of the big Banks uh first Mac racy Mac there's a lot of big third tier lenders out there that a lot of investors and struggling homeowners are using to extend their borrowing power and when we bought the unit Block in KS Harbor we used pepper money to make that purchase yes we were paying a 2% interest rate premium which did hurt the HIIT pocket a little bit for a period of time but the plan was always to use that third tier lender and eventually get back to a second or first tier lender to improve the cash flow and to improve the interest rate so a big bonus tip is if you're struggling maybe look at at second and thir here lenders or have a chat with your broker about exploring the options with those lenders as long as you understand your cash flows and as long as you understand your risk profile you don't want to end up in a situation where you're overcommitted and you're running behind in terms of your repayments you're not able to keep up with your lifestyle expenses you do want to make sure you're managing that risk but on the flip side you could potentially grow your asset base get a larger compounding return and continue growing your property portfolio now if it all seems like too much and you need someone to help you through this property journey and you're looking to buy a property here in southeast Queensland in the next 3 6 or 12 months then head over to purpose property.com you we can have a free strategy session where we sit down and chat about your situation I'm more than happy to take a look at your current position your income your expenses the properties you might have in your portfolio and give you my thoughts and opinions of where you should potentially head next whether you need to have a chat with a different mortgage broker what type of asset selection would suit you I'll give you my thoughts absolutely for free in that strategy session so head over to purpose property.com if you are interested in that and I'd love to hear your thoughts in the comments below are you struggling with lending in 2024 it is a tough Market at this point in time so there's a lot of competition out there if you want to see what we're buying as buyers agents locally here in southeast Queensland click on this playlist over here to see me reveal some addresses of some recent client purchases and exactly what we paid for those properties thanks for sticking around to the end of this video I'll see you in the next one peace [Music]

Channel: Luke Wiles

Views: 7,276

Keywords: real estate, property, investing, Luke Wiles, Purpose Property, Buyers agent, Brisbane, buyers advocate, australian real estate, financial freedom, renovating, renovation

Id: AclwltWvg7Q

Length: 13min 2sec (782 seconds)

Published: Sat Apr 20 2024