How this investor is dealing with serviceability to build a $5 million portfolio

In order to increase the value of his property portfolio to $5 million, he made sure to be particular about the type of properties he buys as well as the areas where he chooses to purchase his assets. Like many property investors, Jazz always looks for economic drivers such as good infrastructures and establishments, an abundance of jobs, growing population, and various industries.

Eventually, he wants to explore property development in order to get greater value out of his existing assets.

Debt management

Jazz is currently holding a six-property portfolio with debt amounting to $3.2 million. If he reaches his $5 million-mark in two years, the property investor said that he will probably be comfortable with an 80 per cent loan-to-value ratio.

“I don't probably need that much. As long as it can be serviced properly, that's the more important thing for me. I don't want to be too much out of the pocket, right?” Jazz added, “The properties are in the growth area… If I include the tax picture into it, it's actually positively geared, not negatively geared. So, I'll probably end up getting 10 or 15 thousand back in [my] pocket after tax… Before tax, it's negatively geared—just under seven thousand for the whole portfolio.”

Serviceability and lending institutions

In seeking properties that he can rebuild or renovate for greater capital value, he also wants to improve his yield and cash flow.

According to Jazz: “The yield is becoming a very important plan in the whole portfolio game because the serviceability is getting harder and harder. Banks are currently bringing it on… 7.25 per cent, so to grow the portfolio, really, the rent yield… that I'm looking at is 7 per cent or 8 per cent… at a minimum, to be able to secure and service the portfolio.”

The property investor is admittedly struggling to get financing, especially now that his wife is on maternity leave and they are relying on a single income source. 

While it could be hard to deal with banks in terms of lending, he reminds property investors that there are other lending institutions that could help them continue their investment journey, just as he did.

“I can get it with tier two and tier three, but not with tier one. I got sick of just dealing with the banks, and I ended up heading into a mortgage space myself,” he shared.

“[If the] big four banks are not servicing… you can actually go down one level [or non-major banks]... In terms of lending for an everyday lender, it doesn't really matter that much. It's just that they don't have a presence like the big four and all the other ones out there.”

Smart Property Investment’s Phil Tarrant agrees that financing does not always need to come from major banks. It’s all about finding the lending institution whose rates and conditions can work perfectly fit your existing portfolio and work to ultimately help you achieve your long-term goals as a property investor.

Jazz said: “Their interest rates aren't that bad… especially for an investor where he can claim all the tax reductions and you really want to grow your portfolio and that's what you'll live on in the future… Paying extra doesn't really matter. I’ll go all the way up to 1 per cent if I have to.”

However, he still encourages his fellow property investors to find a way to get secure bank financing because it can obviously help them grow their portfolio faster.

His final advice for people looking to create wealth through property but are a little too afraid of debt: There are a lot of investment options out there—you just need to keep an open mind.

“It's more [about] opening up to all the different kind of investing options within the property space… [Be] open to other options as well… [Those] which you don't even look at,” he concluded.

Tune in to Jazz Sidana’s episode on The Smart Property Investment Show to know more about his insights on how he realised the opportunities around property investment, how he plans to reach his fundamental goal of “financial freedom,” and his number one tip for new migrants in Australia.