One of the common issues for Property Investors is hitting the, ‘serviceability wall’.
Often at some point in your accumulation phase you will have a lender say, ‘no’, to lending to you for your next property.
As your portfolio grows, each new property soaks up a greater proportion of that which you can comfortably service. So before you get to that, ‘no’ – it’s important to know the best ways to structure and organise your investments, and who and how best to approach for your next loan.
For many investors, who try to do it themselves, they see this rejection as a time to wait it out until some point in the future when they feel they have a stronger serviceability, equity or deposit position – and that means putting everything on hold for a period of time. It doesn’t have to be that way..
There are strategies and options that can help you to become a more attractive borrower again, and quickly.
Consider these questions and considerations – and of course always make sure you deal with a Professional Property Agent, Finance Broker and Accountant to ensure the right strategy for you.
- Have you done an exact Financial Health Audit?
- Can you absolutely prove your capacity to service all of your repayments..?
- Are you super-clear on your incomings and outgoings, your risk-profile, and the security of your existing investments..?
There are useful and free calculators available online which can also help you determine and help to clarify your overall financial status. This is fundamental. Talk to your finance broker about ways in which you can improve your serviceability.
- Do you have a suitable deposit..?
- Have you done a recent valuation of your existing properties?
- Have you checked your credit rating, and have you missed any Mortgage Payments, or even have large amounts of available credit on credit cards..?
These can seriously affect your serviceability, and your capacity to borrow – but there are options to improve your score.
- Can you show your new investment property is cash-flow positive..?
It makes it a lot easier for a lender if the Property you choose doesn’t require you to top up the mortgage payment each month. But of course this does depend on the lender, they don’t all assess you equally. Check with your finance broker about what can be done here.
- Are you self-employed, or have an unusual employment scenario..?
- Perhaps you have a good wage but little equity?
- Do you have a credible Accountant who can work with you as an intermediary between you and the broker..?
This can make a big difference to your chances of securing a beneficial loan.
Ultimately the best advice is to work with a professional property agent and finance broker to create a strategy that appeals to lenders.
Naturally, knowing the market, and what lenders require, and providing that very clearly and professionally can make a huge difference to your chance of securing a loan, and indeed the amount you are able to borrow.
A good finance broker will have an excellent knowledge of the many products available, as well as the ins and outs of financing – and how to approach different lenders with this in mind.
The best Property Advisers will also know the property markets well enough to know which markets to consider based on your particular circumstances and risk profile.
Ultimately, armed with the right market knowledge, contacts and strategies, you can take your Property Portfolio to the next level.
Have a look at our article on The Real Power of a Second Property Mortgage for some ideas on how you can leverage your existing leverage effectively.
This advice is general in nature, and you will of course need to check your exact personal circumstances with your broker.