Hi everyone, I just had a general question regarding what everyone would do in my circumstances.
Currently have a mortgage of around $500k. Currently have in bank $600k. My salary is around 130k married and have 2 children. Wife not working.
I am looking to buy an investment property of about $1.3-$1.5m. Currently its quite difficult to loan under just my name but wife doesn't work.
What would you do?
why do you have a mortgage when you have cash in the bank?
Cash is making say 5% interest or 3.5% after tax.
Your mortgage is say 5.5%
Effectively you're going backwards 2% a year by holding a mortgage.
$130k salary should not be leveraging themselves to the tune of $8-900k so not really surprised there.
Don't buy an investment property.
Mortage is locked at 2% until 2025. Forgot to mention that!
Ohhh well that changes it a bit
Still 1 income of $130k wanting a $900k loan - $45k in interest a year (not to mention principle), after tax that only leaves $49,000 to pay for bills, household items and 3 dependents.
If i were a bank i'd class that as very high risk.
Might have to get the misso back to work.
The rental income is also considered by the bank and generally allows you to borrow more for an investment than a PPOR.
(1.4million + 500k) - 600k = 1.3 million
At 6% that is 78k just for interest.
Tell me you have an offset
yes
fixed rate so offset would be limited
Banks want 0 risk when you take out a mortgage, so it depends on your equity you currently hold and then if you can service the loan.
So even if you have a 500k mortgage, it depends on the total value of the property that is under mortgage, if its worth 2.5 mill, then you have equity of 2 mill, you can use that as collateral for the mortgage for the new property you want to purchase.
yeah true. property probably around 800k
Why not just buy a cheaper investment property that you will be able to get finance for?
my plan is to buy it, hopefully to move in it once this mortgage finishes.
By the time you move in, house would be bit second hand after renting it.
and hoping value goes up as im looking into buying a house
You have 500k and want another 900k loan which is about $8500 / month repayments.
You earn $130k gross and rent will be about $40k, per month NET is about $10,250.
This means you have $1750 per month to maintain the household expenses with 3 dependants.
Can you see why a bank is telling you No?
Exactly. There's no way to make those numbers work.
I am looking to buy an investment property of about $1.3-$1.5m
Don't let those small numbers get in the way of the biggest prize a few thousand here and ten thousand there, we want the million bucks. If it goes up 5% a year then OP is sorted
I am virtual face palming as I type this.
Did you take the proposed interest off the gross before calculating the tax and arriving at a net figure? Still wouldn't be enough to service the proposal, but would be closer.
Currently have a mortgage of around $500k. Currently have in bank $600k. My salary is around 130k married and have 2 children. Wife not working.
I am looking to buy an investment property of about $1.3-$1.5m.
What are your current repayments?
$700k investment loan - repayments $4k a month. Let's say you're currently repaying $3k on your current loan. Your loan obligations would be $84k a year, when your take home is probably about $100k.
Yes you'd get rental income, but let's say you only clear $2k a month actual profit after all costs (excluding loan interest/principle payments), that still means $60k a year goes towards servicing your home and the investment property out of your $100k take home. Somehow you need to raise a family of 4 off $40k a year, with your loan rolling off a low interest rate in 2 years, including whatever other living costs you have and the risk that you're the sole income earner.
If I was a bank I'd turn that down.
OP has some kind of magic maths which you clearly do not get.
Back of the napkin maths.
Property: $1,300,000
Deposit (20%): $260,000
Loan: $1,040,000
Repayments (p/m): $6,601
Rent (p/m): $4,000
Difference: $2,601
Rent value is a guess, it could be more or less depending how you do it. Sounds like the interest rates will go up more which will eat into your savings buffer. I would not do it. maybe something little bit cheaper. YOLO.
The banks will assess your ability to service the loan. You only having one income with 2 or 3 dependents doesn't bode well.
I recently bought an investment too and my two kids heavily impacted my borrowing ability. They don't cost me much in reality (being so young), but banks appointed a negative amount of (like) $40,000 against our family's annual income.
My wife works part time, but for the period prior to getting the loan worked full-time to demonstrate income. The bank required 4 pay slips or something like that to assess salary income.
Perhaps have your wife work if able to do so to demonstrate more family income? Plus that'll reduce the number of dependencies for the household.
Other sources of income will also be useful to demonstrate that you can service the loan. Dividends as example.
In the end for us, we were only able to borrow about 40% with the rest paid in cash. We already have other investment properties which we negative gear, so works against us for borrowing ability.
Although we did what we did to get the loan, one still needs to actually be able to make the repayments. You might be stretching things a bit in this regard at first glance of the details provided.
Buy new house on condition of PPOR sale IMHO…..
Basically what I’m reading is:
Hi, bank rejected me. I’m looking for validation im responsible. Do you think so?
So not really a WWYD scenario.
get the kids to work ….
Cheaper to sell them and take out the liability from the balance sheet
I am looking to buy an investment property of about $1.3-$1.5m. Currently its quite difficult to loan under just my name but wife doesn't work.
The answer is right there.
There is no magic maths.
Get your wife a job then figure out if combined income less the cost of child care gets you across the line. Otherwise lower your expectations on the investment property.
Or find a dodgy broker that will fake your pay slips and whatever else
I am surprised with how far rates have risen and how little houses have fallen people are happy to run into the burning building
correct!
find a 2nd job will also work
I would go to the casino and put all your 600k on black! Double or nothing!
The fact that you can't get finance is a pretty big hint of what you should do IMO.