How does rental income affect my finance application?
The rent received from investment properties is assessed differently depending on the Lender. Some will use 75% or 80% of the rent received, and others may take into account negative gearing benefits received from the investment property. The interest rate used to assess the investment loan repayments can differ, and have a significant impact on borrowing capacity.
Lenders will rarely use all of the rental income received as income, because they assume that 20-25% of the rent received is used to pay rental expenses such as property manager fees, council rates, strata levies, repairs, and to cover for any time when the property is not rented or is vacant. Subletting or Renting to Family is often difficult to prove income as there is no managing agent and often no formal tenancy agreement in place.
Sometimes, a Lender will decline a loan if you have become “rent reliant”, or are earning more income from rent than from a wage or salary. The Lender may see this as a higher risk because you can be affected by market downturns more severely than normal home owners.
There are options available for professional investors, and we often help investors with large property portfolios. There are specialist investor loans available and we can prepare a proposal for a Lender outlining your specific investments, and circumstances.
How Can Rental Income Be Proven?
Your rental income can be proven in the following ways:
- A letter from an agent confirming market rent (ideal if the property is not yet tenanted)
- A bank valuation from a licensed property valuer
- A rental statement issued by the managing agent.
- A copy of an existing lease agreement (may also need letters informing tenants of rent increases if lease has gone up).
- Bank account statements showing the rent received, although, this may not be an accurate portrayal of the rent amount as property managers take fees and bills out first and often the payments are not clearly labelled on the statement.
We can assist with other forms of property investment such as for developments, dual occupancy properties, granny flats, and rent to buy or vendor finance schemes. We are very experienced in arranging complex property investment finance. Speak to us to see what we can do for you.