How Do Banks Calculate Buying Capacity?
We invited Colin O-Loughlin, Director and Mortgage Broker of Arch Brokerage on the topic, “Buying A Commercial Property In SMSF”. In the video he walks us through how banks calculate the buying capacity.
When it comes to securing a loan from a bank, understanding how they calculate buying capacity is essential.
Other things that banks will consider, on a case by case basis, is the remaining assets and funds, and the potential returns that they’ve got coming back into the fund.
Keeping in mind, the combined net incomes need to provide a minimum 1.25 times cover of the assessed debt repayment.
Essentially, let’s say that you had a repayment of $50,000 a year from a loan.
It just needs to cover 1.25 times that with the income.
So, if we looked at $50,000, as long as there’s about $62,500 in market rent, super contributions, or potential remaining returns, then it would be sufficient to tick off and be able to get the loan.
There’s no extra buffers or worries or anything else that you need to consider when looking at it.
It’s a very simplified version of, “Is there enough income coming in? What’s the outgoing? And is there a positive part there?”
That’s a simple view on how the buying capacity is calculated from the bank’s point of view.
If you’re keen to explore changing accountants, we have a non-obligation process to do that. The first step is booking a strategy call with one of our accounting team. It’s a free 20-minute zoom or phone call where you get to meet us to manage your questions.
From that point, you can consider doing a “Look Under The Hood” with us. There is no obligation to change accountants, but we give you a second opinion if you’re paying too much tax.
Throughout that process, we can identify any problems we see with your current setup. Anything that your current accountant hasn’t claimed, or tax you may have overpaid, and strategies of how we might fix that going forward. We can run through with you once you book with us.
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