WITH BANKS having tightened up investment lending considerably, gaining access to money for active property investors has become increasingly difficult.
Here are several strategies to help you to get the greatest amount of borrowing capacity with your lenders.
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Borrow in your personal names for residential investments
This might fly in the face of a lot of advice. And yes, there are many good reasons to use trust structures, particularly with regards to asset protection and taxation. But purely based on servicing with banks, using your personal name will assist with maximising your borrowing.
The reason is that Lending Serviceability Calculators will usually allow negative gearing benefits for loans in your personal name -- while they won't for loans with corporate structures.
For married or de-facto couples
Have properties in the lower income earning spouses name and the loan in the higher-earning couple's name.
This will allow all of the rental income to be dispersed to the spouse with the lower income; while both spouses will still be responsible for the interest (assuming both are on the loan) so negative gearing effects can be maximised.
Using corporate entities for commercial investment
Using a corporate entity will allow greater flexibility with how to structure debt for maximising borrowing capacity. As most commercial property investments will be positively geared, the net taxation effects will be lower in servicing calculators through corporate entities.
Borrow through your SMSF
This strategy obviously isn't for everyone, but SMSF loans are typically "limited recourse", meaning personal guarantees only extend to the properties themselves. So, property transactions with good rental returns can stand on their own and won't affect future borrowing capacity outside the SMSF.
Diversify your borrowing
Calculations for servicing loans are far from uniform across banks; and there can be great disparity between banks in terms of maximum borrowings for different situations.
Also, some banks will benchmark their own debt at a higher rate than they benchmark external debts -- meaning you can greatly enhance your borrowing capacity by using a number of lenders, as opposed to keeping all borrowing with just one bank.
Bottom Line: The 5 suggestions above are not overly complicated -- but should provide you with some easy-to-implement ways of getting the most out of your future loan arrangements.
