REFINANCING OPTIONS
WHAT CAN YOU DO WHEN THE BANK SAYS NO TO REFINANCING
B Y C H R I S G R A Y, C E O, YO U R E M P I R E
I’ve been investing in property for almost 30 years and I’m still learning. I get to know more from friends, colleagues, books, other investors and generally just by asking questions and being inquisitive.
Let’s say a number of years ago you
back the title deeds. They probably
bought 2 x $500k properties with
won’t do it if you say you’re going to
2 x 80% loans of $400k each. Over
sell a property as that would reduce
time ideally those properties would
the income you’re using to service
grow to $1m each and so you would
the $800k debt, but if you say
only be 40% geared on both.
you’re doing it for asset protection
You might then like to access some of the equity to take a holiday, do some renovations or retire early. In an ideal world you refinance to
/ diversification reasons that may give you a better chance. So then you have your original $1m of property with the bank and your 80% $800k loan.
A lot of my strategy has been about
80% again and have $800k in your
buying blue chip properties in blue
redraw account $2m x 80% = $1.6m
At a later date you may then choose
chip locations and then refinancing
less $800k already owed = $800k
to refinance or sell.
However, if you don’t have the
With that $1m of debt free property
ability to service $1.6m they won’t
you might be able to go to a 3rd
lend it to you.
or 4th tier lender and get a 10%,
every year or two in order to build my cash buffer or to buy more property. In the good old days, you could tick a box to say you could afford it and you would get a 80% loan. These days you’ve got to watch how much Uber Eats you order and how often
If you sell one of those properties for $1m then the bank may require you to pay off that original related
20% or 30% no doc loan at very reasonable rates as the risk is very low for the new lender.
mortgage of $400k which means
If that’s still not possible due to
you only get $600k net proceeds
serviceability constraints then you
Serviceability is a major issue with
from the sale, less tax of $125k
could sell one.
refinancing these days and that’s
($500k capital gain less 50% CGT
what property investing has turned
discount x up to 50% tax). So you
into - 90% of a game of getting
only end up with $475k.
you take your pet to the vet.
money from the bank and 10% of what property to buy and how to manage it.
But this time you get the full $1m proceeds as those properties are debt free. You still pay the $125k
There’s an argument to say that the
capital gains tax but now you
bank only needs $1m of security for
end up with $875k cash rather
your $800k original loan, not the
than $475k.
One alternative strategy to consider
$2m current value and so there’s
is to try and get banks to release
a chance they will release $1m of
properties debt free.
property debt free and give you C21 MARKET PULSE
02
CENTURY 21
One of my friends has done this a couple of times and I’m currently going through this process now.
