Promoted Content

How to Finance a Multi-Million Dollar Portfolio in One Picture

By Redom Syed

Promoted by Confidence Finance.

It’s no secret that growing a property investment portfolio requires as much of the banks money as possible.  The question is how do property investors obtain the banks money in the most optimal way?

At Confidence Finance, we’ve simplified today’s investor finance market into one key chart.  This chart shows how eleven key lenders approach property investors today. Each lenders’ line tells a story about a their attitude & risk appetite when lending to property investors. 

This chart shows how much a young couple can borrow to purchase an owner occupier home.  It shows how their borrowing power falls as they take on more investment debt.  In this example, this couple earn $70k gross p.a. each with no other debts, lender calculated minimum living expenses & a $6k credit card.  In the three-scenario’s modelled, this couple have (a) no investment portfolio, (b) a $1million portfolio; and (c) a $2million portfolio (at 80% loan to value ratios).

The good news is that the science behind the calculations also reveals how to set up your finance structures to match your investing goals.  Dissecting how lender calculators work brings to light a rich information set that property investors can use to help inform decision making. 

For example, the information in this picture can assist with the following loan decisions: 

  • Looking to borrow as much as possible? This chart tells you which lenders offer greater borrowing power.
  • Looking for answers as to whether to be on principle & Interest repayments or high rate interest only loans? This chart provides useful information about the borrowing power benefits of interest only loans.
  • Curious whether to be on a variable loan or a fixed structure? This chart reveals some of the costs of being ‘fixed’ with a lender & their specific borrowing power calculator.

So, how do property investors use the rich information here to finance a multi-million dollar portfolio & inform loan decisions?

In short, investors can manage the differences in lender calculator results to expand their borrowing capacity.  To do this, a property investor needs to carefully plan their loan structure & lender choice from their first purchase.  At an extreme end, property investors can obtain non-bank funding to double their individual lender borrowing capacity.  This is a high-risk finance strategy, and one, I’d caution most investors to think twice about.

Below is a detailed breakdown of each individual lender calculator used in this modelling.  This information helps shed light on answering key questions as part of an investors finance plans.

  • ING have a higher than usual 8% assessment rate across all debt. Their policy, products and pricing aligns to their target market – first home buyers &set and forget owner occupier mortgages.
  • ANZ have a relatively conservative position for advanced investors. This is because of their conservative negative gearing add-back position and higher than average living expense calculation.They can be a suitable starting point for investors. As a major bank, they do target specific types of loans well with policy niches (e.g. guarantor loans).
  • Macquarie were previously one of the most aggressive lenders in the marketplace but have had a large scale-back in borrowing power for investors. A decent policy suite, great loan product & good technology make them a useful lender in the marketplace.
  • NAB’sliving expense calculations rise as income rises, which again, hurt property investors who earn significant rental income. As a major bank, they do have some nice tools for property investors (e.g. desktop valuations). They have competitive on pricing (e.g. first home owner 2 year fixed at 3.69%) for a major bank.
  • St George & Westpac have had the most recent changes to their lending calculator, scaling back to the ‘pack’ of APRA lenders. Their size, lending policies & product make them a good foundation lender for new investors.
  • CBA very much have an APRA calculator too, except for one noticeable difference to their loadings that they have on types of OFI debts. Low rate P&I debt is treated relatively favorably compared to most lenders (@ about 5% P&I vs 7.25%).  They also have a decent negative gearing addback.  This makes them relatively more powerful for investors who want to extend their borrowing power but do so in a conservative manner (P&I lending & APRA lender calculators only).  e. those who have a non-tolerance for risky lending.
  • Pepper’s calculator is strong. They allow lending above 80%, making them one of the most powerful calculators in LMI territory. Specifically, they allow100% of non-stable income to be used and they have about a 30% loading on existing debt repayments.
  • Liberty have a powerful calculator, built on taking ‘actual’ repayments on other financial institution debt. Have a lot of interest only lending with other lenders (typically property investors?), Liberty offer the greatest borrowing power. Interestingly, this is where a number of major lenders were a few years ago!

More analysis and a detailed explanation of how to manage your borrowing power is available in our E-book: How to Grow a Multi-Million Dollar Portfolio.

At Confidence Finance, we believe that long term property investing is a game of finance and property finance is a science. We believe that lending can be broken down into individual components. Understanding how each part works is our specialty. We use this insight to develop a unique understanding about how lending works in Australia. We then use this expertise to help our clients grow, finance and protect successful property portfolios.

About the author:

Redom Syed is the CEO & Founder of Confidence Finance. He has been recognized as one the Top 100 brokers in Australia and was nominated as Australia’s Best Young Broker in 2017.  He has personally settled over $150 million in lending.  Prior to becoming a finance specialist, Redom worked as a Senior Economist at Federal Treasury, where he became a published author on the design of the International Financial System.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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  string(255) "

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!

" ["fulltext"]=> string(818) "

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

    \r\n
  • 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
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Mortgages in a tighter lending economy and why Brisbane is a good option
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  string(334) "

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.

" ["fulltext"]=> string(2483) "

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)#1192 (52) {
  ["id"]=>
  string(5) "18287"
  ["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. 

" ["fulltext"]=> string(2323) "

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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