Finance advice
Philippe Brach

3 rules to follow to get your loan approved

By Philippe Brach

If you want to grow a substantial property portfolio, you're going to have to borrow from the banks - which means you have to learn to follow their rules. 

Blogger: Philippe Brach, CEO, Multifocus Properties & Finance 

Does 10 properties in one year sound too good to be true? 

Yep, it probably is.

I say ‘probably’ because I am looking at it from a reasonable and willing investor’s point of view – that is, people on a medium to comfortable income wanting to create wealth for later days, and who generally have little time on their hands.

So many people ask me why they cannot invest like the experts, who claim to have become millionaires in a very short period of time.

The reality is that it is all about numbers. These numbers are constrained by lenders. In other words, if you want to borrow, you have to comply with the bank’s rules.

There are three key rules you need to comply with in order to get a loan:

1. THE MORE YOU EARN, THE MORE YOU CAN BORROW
A lender will deduct living expenses and monthly liabilities from your income, and the rest is available to service a new loan. So an investor’s borrowing capacity is finite!

Even if you have a sizeable deposit, the bank will not lend to you if you have reached your serviceability limit.

The most common fallacy is that if an investor keeps buying cash-flow positive properties, the lender will keep lending forever. Most lenders will take into account only 80 per cent of the rental income. It is not very common to find a property that has such a high rent that it will outstrip expenses by so much that it is neutral on someone’s serviceability.

Banks also become nervous if your rental income outstrips your own income, especially if borrowing is at a more than 80 per cent loan-to-value ratio (LVR). Finally, a cash-flow positive property today may not be cash-flow positive if interest rates rise.

2. THE MORE DEPOSIT OR EQUITY YOU HAVE, THE MORE YOU CAN BORROW
The more cashed up you are, the more you can borrow. This also includes equity in an existing property you own. Even if you earn enough, if you don’t have enough deposit, you won’t get a loan.

3. THE PROPERTY YOU ARE BUYING NEEDS TO BE SUITABLE
The bank will obviously want the security you are giving to be safe for them in case they have to repossess the asset and sell it. This is why banks have issues with serviced apartments, student accommodation, small studio units, and so on. They want the property to be as mainstream as possible.

At some point, every investor will experience rejection from a bank because of issues with one of the three rules above. Therefore, it’s important to discover which of these three areas represents your weak point.

When you hear about someone on a very low income, who buys a small property in a location that subsequently booms, and they use equity to get into the next one and the next one, you have to wonder. Unless their serviceability somewhat increased along the way, they will eventually fall short of rule one.

Typically, it’s possible to acquire a large portfolio in a small amount of time if you are:

  • Someone who has inherited substantial money and needs little leverage
  • Someone on a $150,000 salary, who buys very cheap properties (around $100,000 each, probably in remote areas)
  • Someone on a very high salary with plenty of savings

Overall, property investing is a great way to create wealth, but it is more of a marathon than a sprint.

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About the Blogger

Philippe Brach

Philippe Brach

Multifocus Properties & Finance was established in 2005 with the aim of mentoring investors to create wealth and invest in their future by building an investment property portfolio.

The company is led by Philippe Brach who has over 25 years experience in the international corporate world specializing in finance, accounting and investment. He is a fully qualified and extremely experienced real estate agent, concentrating his attention solely on investment opportunities around Australia. In addition he is a highly regarded mortgage broker, being accredited with around 35 different lenders.

FROM THE WEB

podcast

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In this episode of the Smart Property Investment Show, Dominique Grubisa joins host Phil Tarrant to share her personal story which saw her hit rock bottom with excessive debt during the GFC.

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Dominique unpacks how, by relying on her background in law, she was able to overcome that debt and in doing so develop a unique investment strategy which she believes many can utilise today.

Dominique discusses distressed properties, and how she goes about finding them in order to buy property well below market value. She shares the process of identifying distressed properties as well as the controversy surrounding this buying method.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

3 big property investment myths busted open
5 steps to take on low-risk property developments
Securing finance after life-changing events: ‘Cash flow is key’

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune into this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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    In this episode of Property Showcase, Michael Beresford joins editor of Wealth James Mitchell to unpack why recent political changes are not reason for concern for Australian investors.<\/p>\r\n

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Many investors who would have been successfully approved for finance last year are struggling now to either begin or continue their property investment journey because of the current financial climate.

In this episode of the Smart Property Investment Show, broker John Manciamelli and Momentum Media director Alex Whitlock joins host Tim Neary to discuss how APRA changes and the royal commission have resulted in a tighter lending economy and what that means for Australian investors.

They discuss what traps investors should avoid if they are trying to obtain finance, the four key growth drivers in a property market and unpacking trust structures while revealing one type of trust that you should miss.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

How technology is changing the lending environment
Lessons from a falling market
APRA investor measures have ‘run beyond their usefulness’: industry body

 

AREAS MENTIONED:

Hobart
Bondi
Deception Bay

 

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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Getting finance approved in this tightening lending environment

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