Learn how lenders calculate what you can borrow (roughly 80% of expected rental income, plus a 1.5–2% interest buffer) and what banks require to fund renovations repeatedly. You'll need 3–5% genuine savings, the right trust structure, and a pre-approval before you start, or lenders may stop lending after frequent flips.
Questions this video answers
About 80% (lenders usually allow ~80% of projected rental income).
Commonly 1.5% to 2% added to the current interest rate as a stress buffer.
Varies by insurer: some will not allow a revaluation within 6–12 months; others may allow a revaluation between 3 and 6 months.
Chapters
So let's have a look at finance structuring. Getting your finance right can mean the difference between growing a portfolio and being stuck with just one or two properties. As I've been in the mortgage breaking business for seven years, I feel passionate about getting your finance structured right. I realise most don't have the same passion as me. And if you don't, get yourself a good mortgage broker who does. If you plan to flip, buy, renovate and sell, then you have even more reason to have a finance professional who can protect your credit reputation for future lending. With renovation as a strategy, you are either renovating and wanting to tap into the equity, or you are renovating and selling and wanting to repeat the exercise. In both scenarios, if you don't get your finance right to to start, you seriously reduce any chance you have to achieve your goals. This might sound dramatic, but I've seen it happen so often I know you need to know about this. So let's start at the beginning. So how much can you borrow? When it comes to determining your borrowing capacity, there are a few basic points you need to know. Let's start at the beginning. Lenders are going to look at what you earn minus what you owe and what's left over is what they think you have that you can contribute to the monthly loan repayments. However, lenders have a few other factors that they consider, so I want you to understand these. They may include the rental income for your future property purchase. However, they usually only allow you to take 80% of that income. Some lenders even reduce the rent that really is going to be received down to the rental yield, which could be a lot less. Different lenders do things differently. They might look at future interest rate hikes and look at your capacity to be able to cover those in the future. After all, we're talking about a 30 year loan. So most lenders put a buffer on top of the interest rate of the day of 1.5% to 2% and make sure that you can still service the loan or with that interest rate hike. They also look at the funds that you have available to contribute to the purchase and where those funds are coming from and how long they've been in your account. Some lenders require you to have potentially 3% of the purchase price in your account for three months. Others require 5% for six months. They want to see some genuine savings. However, if you're using equity, that's a whole different story. Your personal circumstances example, do you have any other regular payments or considerations that lenders might not normally include? When looking at when servicing your capacity, such as childcare costs or gym memberships should also be factored into your monthly cost budget so that you can be sure that you can afford the loan repayments. Download the bonus the cash flow tracking spreadsheet so you can have a look at those monthly costs for yourself. So let's have a look at some Fancy finance structures Often people who buy, renovate and sell also have a fancy holding structure to minimise tax on their capital gains. Now, without weighing into the debate about trusts and structures, here are some notes you just need to be aware of and to consider if you're looking at this There are different types of trusts. There are different types of trustees, corporate or personal. Each lender has a requirement of whether they're actually going to accept trusts family trust unit trust, hybrid discretionary trust as part of the lending that they want to do. Some lenders do, some lenders don't. So just make sure that if you're going to be buying in a trust with either a personal or corporate trustee, you make sure your mortgage broker or lender knows. Because we don't want you to go out thinking that you've got pre approval only to turn up and find out that you don't. So you want to buy, renovate and sell. If you're planning to buy, renovate and sell repeatedly, then be prepared to get to a point where banks will stop lending to you. They are in the business of making money, that is they want long term clients with up to three products with them loan, credit card and savings account just because it makes you harder to leave them. However, when your credit file shows a systematic application for finance and then discharge of a loan, then you are not an attractive client for them. So what do you do? You need to think carefully. The easy answer is to have a large line of credit against your home and you just draw out the funds and buy the property unencumbered, do your renovation and sell it. At no time does your bank actually see the property or take control of the title. However, not all of us have the ability to have a large line of credit against our home. An alternative is to look to a lender that has portability, which means you can take out a loan and when you sell the property you organise to have the loan move to a new property and the loan continues. No new applications, no new hits on your credit file. However, not every lender has portability, not every loan with every lender has portability. And what's more, some require same day settlement on the last Property and the new one. Now, having been a mortgage broker, I can tell you executing this strategy quite a few times takes a lot of hands on management. When we are talking about a back to back settlement and the holy grail is a lender that allows you to move the loan against a term deposit rather than a property, they might give you six months to find a new property. However, once again, only a few lenders do this. The catch is you can't change your name on the loan. That is decide you move from buying in your own name to a trust for instance, and you can't change the loan amount. You need to be prepared to think about that and the long game ahead if you are going to play with this strategy. So let's look at renovate, refinance and accessing equity. This is the normal strategy for most renovators. The key is being set up first with the right loan. Then that will allow you to refinance within a short time frame and one that will service you for the future loan that you need. This should all be calculated before you get the loan. Also be aware if you have less than a 20% deposit, then some mortgage insurers will not allow a revaluation within six months, others 12 months. The other mortgage insurer may allow a revaluation between three months and six months. If you plan to refinance quickly, be set up correctly from the start with the right lender that suits your property investing strategy. So let's look at this module Outcome. My gosh, it's been huge. Your head is probably exploding. It's all about facts and figures. This one. It is important to understand how much you need for your renovation. So we worked out how much you're going to have to consider for a cosmetic and structural renovation. We worked out how you can do the calculation on what the purchase price is, how you incorporate your costs and your profit to work out what your offer might be. Then we moved on to the type of loan considerations you need to know about. Look, I can sum this up really simply. Start with the end in mind. You've done the work. You know what your goal is and the time frame to achieve your goal. Understand that your finance needs to reflect that. Be strategic with your finance. Understand the lender's terminology. And when you're talking to your lender or your mortgage broker, understand what they're doing for you. So you don't just want a pre approval. You actually want a fully assessed pre approval. You want to go with confidence to be able to buy that property after all. You've done all the work to find a property. You want to make sure that you can secure it when you want, on your terms. However, leave yourself enough time to get everything done so that you can actually get the right property at the right location for you to achieve your goals. So let's sum this all up. You've got the funds in place. You need to now make an offer in the next module. We'll look at how you can make that offer.
