A seasoned investor hit a snag when attempting to add a fourth property to her collection; her broker said she’d maxed out her borrowing capacity. Despite this, her portfolio was healthy, with a strong 60% LVR. We switched her loans to Interest Only to improve cash flow and connected her with a non-bank lender that recognized her rental income potential, enhancing her borrowing power. Our strategy led to a profitable interstate property purchase and plans for further expansion into her SMSF, underlining her investment acumen.

The Challenge

An ambitious property investor was aiming to add a fourth property to her impressive portfolio. However, she hit a roadblock when her current mortgage broker told her that her borrowing capacity was fully utilized. Upon reviewing her property portfolio, it became apparent that equity was abundant, with a solid 60% Loan to Value Ratio (LVR) in her holdings.

The Solution

After a thorough analysis of her financial situation, we shifted all her loan repayments to Interest Only, significantly enhancing her cash flow. To facilitate her property acquisition, we introduced her to a non-bank lender, known for their flexibility and favorable terms for property investors. This lender acknowledged the full potential of her rental incomes, applied only a minimal loading on her existing Interest Only repayments, and worked with a lower benchmark for living expenses, thereby boosting her borrowing capacity.

The Outcome

The strategic financial restructuring and lender switch facilitated an interstate property acquisition worth $563,000, boasting a robust 7% rental yield. This fifth addition to her portfolio not only solidified her status as a savvy investor but also fueled her confidence and provided clear guidance for future endeavors. Within the next 12 months, she plans to acquire two more properties, and we’ve laid out a strategic plan for her to delve into investment through her Self Managed Super Fund (SMSF), opening doors to even more opportunities and financial growth.

Our self-employed and contractor clients seem to get the run around from their banks when they are trying to get a loan to buy their own home. Quite often, they get bounced around from bank to bank only to be told ‘no’ – or they need to go down the low doc path, which involves higher rates and fees.

There is a distinction between a contractor and being self-employed, so this is reviewed on a case-by-case basis.

This example looks at a couple who runs their own successful café, but had to jump through hoops when they went to the bank they already do all their business banking with.

The Scenario

They have been running a thriving café in the suburbs for the last three years and were now ready to buy their own home. The business was performing well and they felt confident to now take on a mortgage.

The Process

  • We contacted their accountant and worked together to discuss the business’s financials. It helped that their financial information was up-to-date and had been lodged with the Australian Tax Office
  • We explained to the clients how they would be assessed by the banks for their borrowing capacity, given some lenders are stronger in this space then others
  • We worked through their ‘add backs’:
    • Interest expenses
    • Excess superannuation contributions
    • Depreciation
    • Relevant allowances
    • Non recurring expenses
    • Non cash expenses
  • We ensured their cash flow could weather any storms with their business and they were not over-committing themselves.

The Outcome

  • Working collaboratively with their accountant ensured the clients were in the right loan structure
  • They reviewed their business expenses, which uncovered additional savings
  • They bought their own home and could not have been more thrilled.

Comments

  • In the case of self-employed clients we have encountered, they may have business loans, unpaid tax debts with the ATO, or poor repayment performance on their existing home loan. There is no reason why any of these issues should hold a client back from reviewing their situation and in fact these are the cases where intervention and consolidation are most needed. We understand that business owners are sometimes focused on running their day-to-day business operations rather than having the time to review all their finances
  • We can help business owners streamline their finances by having an accountant take an in-depth review of the business’s financial performance to see how we can improve or continue to build the success of their business.