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.

Email:
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podcast

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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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 in to this episode of Property Showcase!

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

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

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:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1203 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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