Meet Julia...

—a savvy, self-employed property investor with an impressive portfolio of five properties. Eager to continue her investment journey, Julia faced some challenges with her current lender. However, through strategic financing solutions and understanding recent policy changes, she has successfully navigated these hurdles and is now looking forward to expanding her portfolio further.

Here’s how we helped Julia achieve her investment goals and how you can apply similar strategies to your property investments.

Understanding Julia's Challenges

Julia's main bank, one of the major lenders, posed significant challenges due to its stringent serviceability criteria. With a serviceability rate for new purchases exceeding 9%, Julia was unable to borrow more money. Additionally, her business faced setbacks during COVID-19, resulting in her 2022 financial statements reflecting only 50% of her previous year's income.

Despite these hurdles, Julia's passion for property investment and her determination to grow her portfolio remained undeterred.

Recent Lending Policy Changes

If you’re serious about building your property portfolio, the lowest interest rate isn’t always the best route.

Different lenders have different policies that can help you grow your investments more effectively. Understanding these changes can provide significant advantages:

• Increased Maximum LVR: Some banks have increased their maximum Loan-to-Value Ratio (LVR) for investments from 90% to 95%. This allows investors to borrow more against the value of their property, reducing the amount of upfront capital required.
• No Loan Mortgage Insurance (LMI) on High-Value Deals: Certain banks are now offering no LMI on deals over $2 million in specific postcodes. This can result in significant cost savings for investors dealing in high-value properties.
• Servicing Calculations Using Actual Repayments: Instead of using a standard 3% buffer, some lenders are now using actual repayments for servicing calculations. This change can increase your borrowing capacity, making it easier to finance additional properties.
• Increased Allowable Rental Income: Lenders have also increased the allowable rental income in servicing calculations from 70% to 90%. This adjustment acknowledges the income potential of investment properties and can enhance your borrowing power.
• New Tax Rates Enhancing Borrowing Capacity: Recent changes in tax rates, including reductions and increased thresholds, can boost your borrowing capacity. This is particularly beneficial for investors with high income but low savings, as it can improve their overall financial standing.

Tailored Financing Solutions for Julia

To help Julia overcome her challenges, we identified a lender with more flexible policies suited to her needs.

Here’s how we tailored the solution for Julia:

1. 1% Buffer for New Investments: The new lender offered a 1% buffer for any new investment purchase, significantly lower than her current lender’s requirements.
2. Single-Year Income Consideration: Unlike most banks that average two years of self-employed income, this lender was willing to use just one year of income in isolation. This was crucial given the impact of COVID-19 on Julia's earnings.
3. Higher Rental Income Consideration: The new lender agreed to use 90% of rental income from all her properties, compared to the 80% used by her existing lender. This boosted her serviceability.
4. Actual Repayments on Existing Debts: Importantly, the lender used the actual repayments of existing debts in their servicing calculations, rather than a standardised buffer. This realistic approach improved Julia’s borrowing capacity.

Results and Future Goals

Thanks to these tailored financing solutions, Julia was approved for her sixth investment property. Her business has since recovered, and she now enjoys the dual benefits of a high taxable income offset by the negative gearing of some of her properties.

Looking ahead, Julia plans to acquire her seventh property next year, with a long-term goal of owning ten investment properties by retirement. Her strategy involves selling half of her portfolio upon retirement to pay off all debts, thus supplementing her retirement income with rental earnings.

Julia's story exemplifies how strategic financing and understanding recent policy changes can unlock new opportunities in property investment.

If you're facing similar challenges or looking to expand your property portfolio, it’s essential to work with an experienced mortgage broker who can navigate the diverse policies of different lenders and find solutions tailored to your unique situation.

Interested in boosting your retirement income through smart property investments?

Book a consultation with us today and discover how we can help you achieve your financial goals.