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:
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.
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.