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Todd Polke talks about how to successfully get finance for multiple properties – even in today’s tight lending market

In this video we’re going to be talking about the two critical numbers that you need to know as a property investor and those numbers are one serviceability and number two is buying power so let me explain what each of those actually mean and why it’s important for us to understand them when it comes to being successful property investor so number one our serviceability

Now what a serviceability is in essence is what the banks believe that we can afford to pay back and so this is a different figure which is calculated by every single lender and they all have their inner own individual calculations and so what it really involves is that basically they want to know is how much loan and how much debt can we afford to pay back based

On our income based on our expenses based on our current asset level and our current debt level and also a current family situation and where we live in a whole lot of different factors and again it is calculated in a different way with every single lender so it’s very very important to make sure that you’re working with the property investment specialist mortgage

Broker who can help explain that too and also fine for you the right lender at the right time who’s going to arrange you that lender the right amount based on your strategy because those serviceability figures can range in hundreds of thousands of dollar increments between different lenders so it’s very very important to have a strategy around your lending and around

Your serviceability when it comes to that so the reason serviceability is important is that if we run out of serviceability or if the bank’s all of a sudden believe that we can no longer afford to pay down the debt on further investment assets then they are not going to give us any more money and obviously that means that our property portfolio is going to come to

A grinding halt so that’s the serviceability the second thing that we all all need to know is what is called our buying power and what our buying power really is it’s based on the amount of equity or cash that we actually have to be able to fund further deposits and costs for future deals so let me explain to you how that works and how much that might mean okay

So let’s just say that we had a hundred thousand dollars of equity or cash that we were committing to building our investment portfolio with so these $100,000 was going to be funding deposits for the future deals and also our costs like our stamp duties and our own legal fees and any other costs associated with purchasing a property to start with so yeah this is

All very based on the loan-to-value ratio that we will tend to go out so we have a couple of choices now the typical loan to value ratios in the marketplace are 95% if only if you are in a very good situation that banks are very very comfortable with you not so much a level that you’re going to be doing on a consistent basis maybe it’s only gonna be your first one

Or two properties and as long as you have some strong buffers in place because at this point in time you have a loan for 95 percent of the value and you’re only putting down the 5 cent deposit so it’s very very highly easy we can have a 90 percent loan to value ratio or which is more typical in the marketplace or we can have an 80 percent loan to value ratio so now

When it comes to calculating how much deposit we need to put down and each and every deal we want to be looking at these loan-to-value ratios and how much cost that we need to put in so we need to understand how much total deposit including a deposit and cost go into each deal usually there’s $100,000 of capital that we have so under a 95% loan value ratio we need

To put down a 5% deposit plus 5% costs okay so five cent deposit where we get a 95% loan from the bank and we put down our five center plaza that we pay five cent for our stamp duties and our savings so we have a total apposite of 10% for each and every property deal now under a nine percent loan to value ratio we have a 10% deposit then we still have to pay our

Costs and so we need to put down a 15% deposit for each and every deal that we bought if we’re going to be buying at a 90 percent loan to value ratio under an 80 percent loan to value ratio in our gannon when he said deposit 5z costs which is going to equal a 25% deposit per property so these are different figures that we are playing with right now now what our

Buying power really is is that based on these loan to value ratios is deposit we need to put in we want to understand what is the maximum amount of real estate that we can afford to buy if we are hundred thousand dollars of equity and how to put each of these deposits into the deal so let’s calculate that now understand how to do that calculation so what we want to

Do is that we take $100,000 as our other equity and then we want to divide it by the relevant deposit then we need to put in new each and every deal so we take $100,000 and am 95 cent like a ratio a hundred thousand divided by ten percent hope you guys have your calculators out in there doing this but what i know this ticket would be is a hundred thousand dollars

Divided by 10 percent what that means that we can buy 1 million dollars of property based on this scenario now if we’re doing it a knife set loan-to-value ratio we’re going to take one hundred thousand dollars we’re going to divide it by a 15 percent deposit which is made up about 10 you center positive 5 cent costs and that is going to equal six hundred and sixty

Six thousand dollars that’s a maximum amount of real estate that we can afford to buy based on this amount of capital under an 80 cent loan-to-value ratio a hundred thousand dollars divided by 25 percent is going to equal four hundred thousand dollars as a maximum amount of property that we can buy hundred thousand dollars and 25 cents so as you can see there’s

Quite a big difference between if we’re going at 8 percent ovr up to a 95 cent loan-to-value ratio there’s a six hundred thousand dollar difference now most people starting at what’s here to be starting around between a ninety-five cents ninety percent and then over time do ladies report follow you down to eighty percent but this is why it’s important to make sure

You have a strategy when it comes to property and a stretch when it comes to how you’re going to finance those properties on a step-by-step basis is very very important to understand which of these are going to go down first and why and which lender you are going to use so again we have a serviceability and let’s just state that a bank based on our income and our

Expenses your family situation your level of assets you have and all those different factors of thanks okay maybe a bank might come to a conclusion that they are comfortably willing to lend you up to $800,000 of debt in order to fund more future purchases and give you loans up to $800,000 so that’s their serviceability and then we have our buying power and if we

Were investing in a 90 second evaluation which most will tend to invest that with $100,000 ad buying car is six hundred and sixty six thousand dollars so what we want to understand now after these two figures is what is our limiting factor

Transcribed from video

How to successfully get finance for multiple properties By Thrive Property