YOU’VE WORKED HARD your whole life; and had a successful career. You have used your money wisely, and your investments have been mostly successful.
As a result you have built up a solid asset base with a number of properties, which are positively geared and provide you with reliable rental income.
It is now time to enjoy life, scale down your workload, travel and do the things you always wanted to do.
You stumble upon the perfect Commercial property opportunity that will provide you with enough rental income to have the lifestyle that you want.
The Cruel Irony
Yet, there is one major thing holding you back. You have a lot of cash to buy the property that you want, but you still need a substantial loan from the bank.
However, the bank will not lend to you because your income is not high enough. How can this be? You think to yourself.
With your asset base, the bank should be banging down the door to lend.
Particularly as all of your debts are covered by your rent. Reluctantly you start thinking about going back to working full time so that you can get a loan.
Does This Sound Like You?
If so, you are not alone. It is a situation I have seen with many clients who have built up wealth through property or share trading, or other means.
The problems comes when it is difficult to demonstrate ongoing income through traditional documentation required by banks.
It can be a very frustrating situation — particularly, as the people who are faced with this situation often see themselves justifiably as marquee clients for a bank.
Why is it so Hard for Professional Investors to Borrow?
The answer lies in the complex web of regulations banks face from bodies such as APRA (Australian Prudential Regulation Authority) and ASIC.
These authorities administer the ‘National Credit Code’ and NCCP (National Consumer Credit Protection) Regulations.
In an effort to comply with these regulations, banks have become considerably more stringent in how they assess the income servicing for new loans. They have largely eliminated?‘low doc’ loans?– or effectively eliminated them, through demanding extra documentation.
Such changes in the industry have been largely successful in their aims of limiting risky credit practices; and therefore, reduce the chance of a US style ‘credit crunch’.
But one of the unintended consequences of regulations put in place (to protect consumers) is that some sound lending clients are unable to meet the narrow requirements demanded by the banks.
BOTTOM LINE: So what are your options as an investors, in these situations?
Well, thankfully loans for a commercial and business use are not yet covered by NCCP regulations. And as a result, there are still some products in the market that suit commercial property investors.
Next week, I will go over some options for professional investors in terms of borrowing.
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