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Send us a text In this enlightening episode, Victor Lagos, a renowned property investment finance broker, joins Andrew Bean to demystify the complexities of the lending world. If you've ever felt overwhelmed or confused about how to maximise your borrowing capacity, this is the episode you've been waiting for. What You'll Learn: The hidden power of trusts and how they can shelter your debt.Why working with the right accountant can make or break your borrowing potential.The common mistakes...
In this enlightening episode, Victor Lagos, a renowned property investment finance broker, joins Andrew Bean to demystify the complexities of the lending world. If you've ever felt overwhelmed or confused about how to maximise your borrowing capacity, this is the episode you've been waiting for.
What You'll Learn:
Key Takeaways:
Whether you're a seasoned investor or just starting out, Victor's insights and expertise offer invaluable guidance. Dive in to discover the strategies and knowledge you need to navigate the lending landscape with confidence.
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Victor Lagos - Lagos Financial
Ph: 0450 313 606
Email: victor@lagosfinancial.com.au
Website: www.lagosfinancial.com.au
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SHOW CREATED BY THE COMMERCIAL PROPERTY SHOW NETWORK
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Show notes tags:
Property Investment, Financial Management, Borrowing Capacity, Mortgage Broking, Trusts in Finance, Commercial Lending, Personal Finance, Lending Code, Financial Mistakes, Australian Property Market, Financial Advisor, Business Loans, Asset Management, Debt Management
Welcome to the Debt Financial Freedom Podcast. Everyone loves the benefits of money, but so many of us avoid the hard truths about saving and investing. We wrongly assume we don’t have enough time, capital or knowledge to be able to get to the point of having passive income streams, savings, or investments.The things we really need to know about money aren’t taught in schools. Spending less than you earn, maximising your income, budgeting, taxes, mortgages, investments and passive income - if you didn’t learn these things from your family, then you’re probably like most people who rely on credit cards, buy now, pay later and overdrafts. And then when you want to invest or buy property you will be wondering why you can’t get approval.But there is no judgment from me here - I was in exactly the same situation! Huge debt, poor financial habits and no assets to my name. Step by step I turned my situation around and now, as a certified mortgage broker for 16 years with several investment properties in my name, I’m here to help you go from debt to financial freedom. Because if I can do it, you can too.In this podcast, I will share tips, insights and strategies from my own journey and experience, as well as my clients and guest experts, who share my values and mission to help others create financial freedom. My goal in this podcast is to share raw, honest, transparent, and helpful stories that you can relate to, and that will inspire you to take control of your finances. The only ‘good’ debt is debt that brings you closer to financial freedom and I will show you exactly how to achieve this. Everything shared by me and my guests in this podcast is general in nature, and for education purposes only. None of your personal objectives, financial situation, or needs have been taken into consideration. I highly recommend you seek personal, financial, legal, taxation, and credit advice before you take action on what you heard on this podcast.
Andrew Bean: Welcome to the
Financial Freedom series. My
name is Andrew Bean. And I'm
here with top mortgage broker
and financial expert Victor
Lagos from Lagos . Financial How
are you, mate?
Victor Lagos: Good, Andrew.
mate. How are you?
Andrew Bean: I'm fantastic,
buddy. We have an absolute
ripper on the show today really
excited about this one. Are you
as pumped as me?
Victor Lagos: Yeah, this one's a
tough one.
Andrew Bean: Victor was just
telling me before that, I've got
a few tough questions for him.
So I'm putting you on the pump
today to basically give the
listener and everyone else the
tools to be able to crack the
lending code. And that's the
real theme of this particular
podcast is how can we actually
do what we need to do to give
the banks or get give ourselves
and more borrowing capacity. So
Victor is going to explain to us
exactly how the banks evaluate
us as the borrower, and then
give us a few tips and tricks on
how to actually make that a
larger sum. Because at the end
of the day, you know, property
is just a game of finance with a
few pieces of real estate, you
know, thrown in there. So if you
can get more money, more access
to capital, happy days, keep on
going.
Victor Lagos: Yeah, exactly. I
think today, you're really going
to be getting all the secrets
out of me. All the stuff that I
share with my clients.Yeah, take
some notes.
Andrew Bean: Awesome. So this is
a really, really big subject. So
can you just give us a quick
overview of how the banks
actually like make their
assessment on borrowing capacity
per applicant?
Victor Lagos: Yeah, so I mean,
very simply put, they just try
to work out that once you
account for all of your
expenses, so your living costs,
as well as all of your debts? Is
there money leftover to service,
your new loan? And is there a
surplus after that? So that's
overarching what they're trying
to work it out. But then the
numbers in which they calculate
that differ, they don't look at
what the actual costs is. They
use buffers and stress tests.
And we'll get into a little bit
more of the details on that as
you ask questions.
Andrew Bean: Yeah, awesome. So I
mean, when I'm assessing a
property, I have a metric that I
put in for the debt coverage
ratio, because I believe that a
bank or banks like to see like a
good one and a half 2% have a
debt coverage ratio from the
positively geared property, do
they have their own like debt
coverage ratio per applicant
that they they use?
Victor Lagos: Yeah, so. So when
you're looking at lending,
serviceability calculators,
every bank or lender has got
their ownmethodology in what
they account for. So if they're
looking at a debt servicing
ratio, it's usually between,
say, 1.25, up to two times
cover. And this is based on
principal and interest on all of
your loans on a higher interest
rate than what you're actually
paying. So say that rate is
6%.And the bank has a 3% buffer
on that, they'll they'll
calculate at 9%. And they'll
want to see that you can
actually cover that, you know,
two times cover or not so much,
two times, that's pretty high.
But I'd say, you know, 1.25
times that, can you cover that
with your with your income?
Andrew Bean: So is the spread
that the bank always puts on? Is
that a specific number? Does
that change bank to bank, like
the spread of the interest rate
that they can actually give you
to the stress test that they,
you know, put on you.
Victor Lagos: So if you're a
bank, and you're a deposit
taking institution, you're
regulated by APRA. Yeah, Apple
says you have to put 3% above
the actual interest rate. So
today's rates are around 6%. So
they're calculating at 9%. But
if you're a non bank, then you
don't report directly to APRA.
You report to ASIC and the
stress test rates can vary. They
can pay sometimes, one time 1%
About that, or 2%. Above that,
so there's a bit more breathing
room. And also, the way they
treat principal and interest
repayments versus interest only
is different as well. So a bank,
a bank will always look at the
principal and interest payments
for the remaining p&i term. So
say you've got a 30 year loan
and you've got a five year
interest only a bank is going to
say all right Well, there's 25
years remaining. So we need to
calculate p&i or principal and
interest on 25 years. And we're
going to stress test that, at,
say 9%. So that's obviously a
difficult feat, because now you
got a shorter loan term, and the
repayments are higher. Whereas a
non bank can potentially look at
the interest only repayment and
just say, put 2% above that.
That's a significant difference
that's looking at the current
principal and interest
repayment, then we're looking at
25 years remaining. They're
saying what's the actual
repayment today, and if it is
interest only, then let's just
stress test that and see that
you can afford that. And if
you've got a few properties, and
they're all interest only, that
can work in your favor, for a
non bank to borrow more. But if
you're going to bigger bank for,
you know, overall, you're going
to get a better interest rate,
lower fees, then it can hinder
you by having a longer interest
only terms.
Andrew Bean: So can you just
basically explain to us like,
like, what a non bank is, like,
maybe just name a couple of the
businesses that are a non bank?
Because I mean, it gets if a lot
of people will just think if
they're lending me money,
they're obviously a bank. But
that doesn't seem to be the
case.
Victor Lagos: Yeah, they're just
called non banks or non APIs,
non deposit taking institutions.
So some of the more known
lenders out there, liberty,
financial, paper, money, resi,
Mac, first Mac, these are the
ones that a lot of people know,
especially if you're a property
investor. But then there's other
non banks or mortgage managers
out there that many people may
not have heard of. I'm even
learning about new ones, and I'm
getting accredited. So yeah, you
know, a lot of them don't have
any type of advertising or
direct to consumer channels, so
you can only get to them through
the broker channel. And that's
why sometimes it's really
important to work with a broker
that can actually navigate that
and find the right lender,
because otherwise customer
doesn't even know they exist,
they don't advertise. And that
might be the right lender to
help you get the next property
Andrew Bean: here, right. So
with the 3% interest that the
bank does put on, or APRA has
put on for the bank, has that
always been 3%? And has that Is
that enough for this particular,
you know, time around where I
think we're probably on 12 or 13
rate hikes, you know, now is
that is 3%. Enough back before
the interest rates, we've
probably already cobbled that up
right now.
Victor Lagos: Yeah, it's an
interesting time that we're in.
So when the 3%, it used to be
higher, I believe it was 3.252
years ago, but they dropped it
down, because interest rates
were around 2%, at 1.0, even
lower fixed. And the 3% buffer
was accurate. And a lot of loans
now cracked over that. So there
hasn't really been much
distress. Even for loans coming
off. It's fixed into into
variable, because people are
paying what the banks stress
test at anyway, around that 5%.
So now that we're cracking over
to 6%, now it's starting to
squeeze the household much more.
And on top of that you've got
inflation. So the cost of living
is going up as well. But because
there was such a short a period
of time where people were able
to pay these low interest rates,
they were then also able to
build up cash buffers. So build
up their offset account their
savings account, build up the
loan redraw. So that's a lot of
people living off of that stuff
at the moment just to hold on to
their property. So right now, if
you're entering the market, and
the banks are assessing it at,
say, 9%, I don't think 93%
buffer makes sense with today's
rates. Because if interest rates
were at 9% today, and where the
prices are right now, there'll
be a very small amount of the
market that will be able to
borrow and own property. So So I
think it's actually going to
drop the some banks have got
special rulings, a lot of them
got because of this mortgage
cliff, they're calling it where
people are coming off into these
2% Fixed rates. And they're
calling out a mortgage prison
because they're stuck with the
same bank that they were. And
they've given them this ruling
where they can, instead of
assessing 3% above the actual
interest rate, they're assessing
at 1% above. So then, as long as
you got clean credit, the loan
to value ratio was I think,
below 80%. And you put a 1%
Stress Test buffer on top, then
there's an option for these
people to refinance to lower
interest rate potentially then
that same bank is offering.
Andrew Bean: So I guess that
means that the banks aren't
assuming or their bet they're
betting that there aren't going
to be too many more interest
rate hikes where they're going
to be easily take up that 1%
buffer.
Victor Lagos: Yeah, yeah,
exactly right there. They're
kind of aware that we're at that
higher range right now. And I've
noticed as well that the gap
between owner occupied interest
rates and investment rates is
closing. So it's not as large as
it used to be. So what that
means is that the banks are
likely eating into their
margins, their profit margins,
just to keep the interest rates
at a somewhat affordable level,
if they were really trying to
maintain the same margins that
they've had, then customers will
be paying probably 7% right now.
So that and above, so they're
sort of keeping at a relatively
affordable level, so that they
can still get business. So if,
if the rates were jumping up to
8% 9%, and no one can borrow?
Well, that's the entire economy
gone, right? No one's no one's
able to buy and borrow anymore.
So and banks aren't making
profit at all. So they're better
off, you know, having a lot of
margin, but still getting a lot
of customers then high margins
and low costs.
Andrew Bean: Yeah, yeah,
definitely. So I guess, because
the banks have had such a good
run, or, you know, the interest
rate, or the cash rate has been
so low for so long, they've had
such a good run of making money,
getting more loans, you know,
putting out debt, that they
really don't need to be having
that really big spread of the
best times, you know,
profitability, they can, they
can dial it back, because, you
know, obviously, they still want
to have loans coming in business
coming in to keep the the
economy and everything going.
Victor Lagos: Exactly right. And
they've invested a lot of money
into lending. So they've got a
lot of new bankers and Credit
Services and Technology. They're
shutting down branches so that
more people are going online to
apply for loans. So they need to
get a return on investment on
this. And they need to, if
they're, if they're increasing
rates so high that no one can
borrow. Well, they're gonna have
to start getting rid of a lot of
jobs and debt. Start downsizing.
So it's a it's an interesting
time, though.
Andrew Bean: Yeah. 100%. So can
you explain to me what, what
shading is for the listeners
that don't know what banks do?
What they don't know what what
shading is?
Victor Lagos: Yeah, so shading
is when, say you're collecting
rent of $1,000 a week, they'll
usually shave that by 10 to 20%.
So instead of using $1,000, a
week towards serviceability,
they'll use $800, or $900. And
they do this because properties,
for example, aren't going to be
rented out every week of the
year, there might be a week or
two words vacant, or longer
pending. When tenants leave or
whatnot, they're also aware that
there's going to be some costs
that come up, that they were
unaware of some things is gonna
be maintenance, or repairs and
things like that. And so if they
accept the 100%, then they're
putting themselves at risk. But
he can't afford the loan. So
they shade it, to make sure that
they're being more conservative.
And it's not just rental income.
That's one thing that they
showed it, it's also certain
types of income, such as
overtime, or bonuses, or
commissions. So you might get
really good bonuses this year,
and last year, but the year
after it drops, so by them
shading it by 20%. It gives them
comfort, knowing that if it does
drop, that they were
conservative, in obviously the
amount that they use towards
servicing the debt that they
gave you.
Andrew Bean: And is that 20%? Is
that a standard thing across
across all banks and all non
banks? Or do they have their own
percentages they use for their
own particular business?
Victor Lagos: No, they all have
their own, so and it all they
call them niches in, in the
lending world, they all have
their own nations, and some of
them will use 100% of overtime.
For certain industries, like
essential workers, for example.
You know, if you're, if you're a
doctor, or you are a nurse or
ambulance, something like that,
and you work a lot of overtime,
well, that can boost up your
income significantly. But if you
go to one bank, and they shared
about 80%, or 20%, and you use
80%, that's limiting how much
you can borrow. So there might
be a lender or bank that will
accept 100% of the other time
because they're aware that this
industry, it's very common to
whatever so they happily taking
on the risk because they know
it's more likely going to
continue that you're going to do
those sort of hours. And you
know, when it comes to property,
because we've had a lot of low
vacancy in terms of rent you
know, as we're aware that pop
Relations growing, migrations
increasing, there's a lot of
people that are in a position
where they're obviously having
to pay more rent to stay where
they're at, in their current
place, and people are paying
more and more rent just to just
to get a place to live, right.
So that's kept vacancy rates
very, very low. So banks have
started trying to find more ways
to be to get more borrowing. So
instead of shading 10%, sorry,
20%. Now they're only shedding
10%. So they're accepting 90% of
the rental income. So yeah,
that's always an ever changing
environment, the new policies
coming out all the time. And
they always send us progress,
the changes, and sometimes it's
hard to stay on top of that.
That's what I have to do for a
living. And I do that, to help
my customers.
Andrew Bean: Here, it's really
interesting how, like, the the
changing of the assessment can
change on, you know, anytime.
And I guess that's why, you
know, you have your finger on
the pulse. And it makes sense to
use someone like you, who is
always like getting updates,
like, how do you know, when a
bank has changed their shading
policy? Like how do you know,
Victor Lagos: usually, they send
an email out with policy
changes, but emails can get
missed. You can imagine how many
lenders and banks are out there,
and how many policy changes
especially with RBI hikes and
whatnot. So sometimes they get
missed. So every bank or lender
has got a relationship
management team or business
development manager, it's their
job to explain these changes to
brokers. So they will get a
portfolio of brokers and they
contact contact us. And they
tell us about the changes. And
they tell us, you know, their
new dishes or, you know, special
offers that they have, you know,
sometimes if they call them
like, under the table offers as
well. So they're not advertised,
because lenders are aware that
the competition is fierce. So if
they advertise certain things,
and other lenders become aware
of it, customers can leverage
that. And, you know, go back to
the other bank and offer the
same same product with the same
interest rate in the same niche.
So a lot of is under the table,
so they tell us that this is
something we can do. And then we
then have to communicate that to
the right customer.
Andrew Bean: Yeah, right. Very,
very interesting. It's just, um,
it's an ever changing climate.
And I guess it just does,
really, you need someone with a
finger on the pulse. Because
like if, say, there's a bank,
and they have a shading of like,
20%. And they're also, you know,
giving me a three 3% buffer, or
if it's a 2% buffer, it really
does change the amount of
borrowings that I could
potentially get like it can be
drastic, has there been any
like, like ridiculous amounts of
money, where you've taken it to
one bank, and they've given you
x? And then you take it into
other bank? And it's been like,
like, 10 times more? Have you
had that with your clients yet?
Victor Lagos: I wouldn't say 10
times more, but you know, you
know, we're talking a few
100,000. That's still a lot
usually. Oh, yeah. Oh,
definitely. It's a big
difference. And a lot of a lot
of customers are unaware of
this. So they go directly to the
bank. And that bank doesn't know
other banks policies. So they
can't even tell you what another
lender will offer. Because they
don't have access to it. Plus,
for them, they're kind of
selling themselves short. Yeah.
Andrew Bean: Yeah, that once you
go into the other bank,
Victor Lagos: a lot of times,
they don't want you go to the
broker, because they get an
incentive, you know, bonuses and
whatnot. So, if you work with a
broker, even then, that broker
might not be aware of all the
different policies, because, you
know, we're creatures of comfort
human beings, right, we try to,
we try to stick to what we know.
And unless you're constantly
getting out of your comfort
zone, and sort of questioning
things, you end up sticking with
one or two banks. And most
brokers do the same thing. They
stick to one or two. And they
they become really, really
proficient at offering those
products and become very
familiar with it. So it's very
easy for a customer to say, Oh,
this broker knows what he's
talking about must be the best
bank for me. Because they know
what like the back of their
hand. But that bank may not be
giving them the highest
borrowing capacity. So if you're
investing, you're growing your
portfolio, you need to be
looking outside of the norm and
exploring that. And that's what
I do. I try to find different
solutions. It's a game finance,
like you said, properties again,
and finance, and we're looking
for solutions. First, you know,
interest rates and fees are
important. But if you're gonna
pay a higher interest rate, but
you can borrow an extra three
400 grand, and it's gonna get
you a better property. Well,
what, you know, what's the cost
versus the game? Right? Yeah. So
you know, that's the thing to
consider. Obviously, if you're
just typical person, just
wanting to buy your first time
or just refinancing for a better
interest rate? It's all about
costs, right? It's not really
that different type of your
listeners, our listeners are
investors. So they're looking
for solutions.
Andrew Bean: 100%. So we've
already kind of touched on it on
the opening remarks. But can you
basically just explained to me
in as much detail or as little
detail as you want to the main
thing the bank wants to see if
there's one thing the bank wants
to see, what is it for borrowing
capacity?
Victor Lagos: Honestly, they
just want to see that there's a
surplus, like, they use their
calculators, and they're working
out. Is there a debt servicing
ratio? Is it meeting that? So
ultimately, if we can show a
pass, like a green tick, versus
a red, that's what they want to
say? They, they usually we work
with, with us broker to find a
solution. It's very rare that
they're going to look at it and
say, sorry, they can't afford
it. We're just going to decline
it, they're actually going to
look at okay, what can we do to
get the income up? An example
was yesterday, I was talking to
a credit Assessor from one of
the big banks, and a customer
was, you know, getting in, they
have a Novated lease. So this is
if you have a car loan, and the
employer pays for some of that
pre tax, it's known as a fringe
benefit. And the way of bank
treats that even that is
different. So this particular
bank, I'm not going to say which
bank it is. But this bank wanted
to include all of the pre tax
deductions, as a commitment. So
that means they're going to
deduct it from the income. Even
though some of that income, that
deduction were going to, to the
customer, to let them spend on
the mortgage. So it's
essentially tax free income. But
that's the bank's policy. So we
have to deduct that include that
as as a financial commitment,
but the car loan was really the
only financial payment. And that
was only 600 $770 a month.
That's the Karla portion of
finance, lease. All the rest of
it was maintenance, right. They
call it a fully maintained
Novated. Lease. So they were
essentially doubling up because
they're accounting for the
expenses for the car, in the
monthly living expenses, which
falls under the hen and we'll
talk about the hen shortly. And
then that wanting to double up
by deducting, you know, I think
it was about $800 a fortnight in
total. So that meant that deal
doesn't serve us anymore. But he
didn't say sorry, it doesn't
serve us to deal with the
client. He said to me, I noticed
that on the male applicant, he's
getting some allowances, which
we can use for serviceability.
Can you get me the next payslip
consecutive payslip? So he's now
looking for a solution with me
to get more income, to show that
it actually services. So that's
the overarching thing that our
banks always going to look, if
if it takes, of course, you
know, your credit history has
got to be clean, you know, your
employment has got to be pretty
consistent, and all of that, but
overarching, it needs to service
and if it shows a pass, and we
can find a way for it to pass
that is going to get approved.
Andrew Bean: Yeah, right. That's
really interesting. So what
about security, like say I have
like, you know, 10 properties
that are all unencumbered, and
I'll get you to explain what
unencumbered means for you know,
the people who are new to
investing. But so I have 10
unencumbered properties and my
servicing is a bit iffy. It's
like, you know, I'm basically on
a line because I can securitize
and give them security over
those assets. Does that make any
difference in my in my
application?
Victor Lagos: Yeah, I'm glad you
asked that question. Because
there's a misconception out
there, that people think that by
having more assets that they can
borrow more. So there's two
things that banks gonna look for
when calculating your your your
ability to borrow. One is the
security which is what we talked
about how much of your assets so
they can use as collateral or
security they can, basically
means they can sell off and
gives them comfort, to lend you
more money. But that is not
based on how much you can
borrow. That's your borrowing
capacity. your borrowing
capacity will only come out from
income, higher income, less
expenses, that's what's going to
increase your borrowing
capacity. So you can literally
be asset rich, be full of
properties, all unencumbered and
unencumbered just means that
there's no mortgage, there's no
encumbrances or interests on the
property. So it's, you know,
debt free essentially. You can
be sitting on millions of
dollars of assets if you've got
no one living in them no rental
income. Right? So you just sit
II can be sitting on cash but
million dollars in cash. banks
not going to give you a loan for
30 years, which is a normal loan
term, because you've got no
income to service it, you can
say, hey, I've got a million
dollars in cash, that million
dollars is going to service my
debt. But that's not how they
look at it, because they got no
control over that it's not
recurring income, it every time
you withdraw, the balance goes
down, you can decide in a
moment, I'm gonna go gamble, I'm
gonna go buy a yacht, or
whatever, and it's not income
generated. So now all of a
sudden, you got no income to
service the loan that you're
applying for. So they will
always look for recurring
income. And my suggestion in
that scenario would be rental
income, you know, how do you
increase the rental income
across your portfolios to boost
your borrowing capacity? That's
going to help you borrow more,
not the actual value of the
assets itself?
Andrew Bean: Yeah, that's super
interesting. Because, like, you
obviously hear all the time, you
know, people are asset rich and
cash poor income, so yeah,
income poor so like, if I if you
have a million dollars in the
bank, it to the to the actual
bank, it that doesn't mean
anything for you know, your
actual service ability? Because
it's not, it's not recurring
income. So are you like better
off putting in this in like,
some client kind of fully Frank
shares where you know, you're
going to be getting some
dividend back from this share
every single, you know, month or
quarter? And then that could be
your income for servicing, even
though it's the same million
bucks, which is, that's way more
risky, doing it that way it is
to show reoccurring income?
Victor Lagos: Well, if you're
putting it in some sort of a
sort of managed funnel, or share
portfolio, where you receive
dividends, and that's recurring
income, well, then it's actually
less risky, because it's, the
value shouldn't be going
downwards. Right, shouldn't it?
Yes, it is. Because the income
drops, but the fact that it's
paying that it means it's a it's
a pretty strong, you know, share
portfolio, I don't know, if ASX,
you know, top 10 or something
like that. Because typically,
you know, companies don't pay
you dividends, smaller
companies, smaller businesses.
So, and you're right, that that
is something that banks look at,
they will actually look at
dividends that you receive on
your on your share portfolio,
and they will use that income
for servicing. But if it's only
cash, and you're getting, you
know, money from the bank in
interest, that can even use
that, by the way, but let's face
it, it's not much. Yeah, charge
you a lot, but they don't give
you much.
Andrew Bean: So, in that, in
that instance, because this is
actually really interesting,
because I never really, really
thought about that, in my mind,
wherever I just had the money.
You know, I had money for the
servicing, like a buffer, that
that wouldn't be taken into
account. Because I guess, you
know, you and I are both really
young, we've always had
reoccurring income, you know,
through work. So it's never been
something that I would really
think about. So in that
instance, where someone's
potentially a little bit older,
they've done really well, but
they don't have any reoccurring
income. And they've just got
cash in the bank, because people
just do like to have cash in the
bank, like they'll, you know,
have all of their all of their
wealth in a bank account for the
rest of their life, especially
they've just retired, or just on
on the verge of retirement.
What's a good strategy to be
able to show the bank that I've
got this asset of money, and it
could be paid to me like, do
they just go, hey, you know,
hey, Victor, I'll give you this
million bucks, you just pay me
every month to make the look
like I've got recurring income,
you know, and then that'll be
good for serviceability. Like,
that's almost sounds like that's
what they want to say.
Victor Lagos: They do want to
see it, but they want to see it,
where there's a demonstration of
some sort of history. Yeah, no,
just bank accounts, and oh, look
at these deposits, they're gonna
say, Well, where are these
deposits coming from? And if
it's, you might do it. If it's,
you know, if it's a genuine
investment that's paying return,
they're gonna want to see the
investment summary. It's not
just your bank account. So you
know, they are wanting to see
income. And the question you're
talking about, if someone at
that age of retirement, well,
should they be borrowing money,
then? That's the question. If
they're at retirement, the
bank's gonna say, Why am I
lending the money if they're no
longer working and then longer
make any income doesn't make any
sense. But they want to get
trying to add interest
Andrew Bean: they could be
trying to invest to get the
income for to, you know, to give
themselves more opportunity
later on in life and have the
income paying for themselves.
Like I'm always talking about,
you know, I'm talking about
investing in commercial property
and having positive income
coming in. It's not isn't not a
negative, you know, negative
play.
You know, it's just really
interesting.
Victor Lagos: I just, that's a
good example. Yeah. Or you just
said commercial property. If you
save a million dollars by a
commercial property, there's no
financial advice. But that would
generate the income. Yeah. 6468.
Yeah. Net. Yeah. And now all of
a sudden you've got income that
you can use to help the leverage
and borrow money. Of course, if
that million was everything, now
you've got no security. Yeah.
And that property has already
been. Or then again, you can use
that property as security as
well. Yeah, keep that in mind.
Right? Yeah, you can have an
unencumbered property earning an
income. Now you can put that
property as security and use
that to borrow money to buy
something else. So that's,
that's how you
Andrew Bean: like it. So you can
recycle, you buy that property
with cash, then you recycle the
debt out of that to buy more
property, and you can use the
income from that property to
service the debt on future
property. Yeah, that's how it's
That's definitely how it should
be done. Yeah. Like
Victor Lagos: I was literally
having a conversation with with
someone yesterday about this,
who's got the cash sitting in
the account, and they want to
buy a PPR, right? Non deductible
debt, right. It's not income
generating, but they wants to
buy it for their family. But
he's got $700,000 him and his
and his wife, and they're going
to use that as a deposit and the
LVR, on the property they're
buying is going to be about 60%,
there abouts. So he could take
the they could buy this home,
borrow 60%, contribute 40% and
then go to the bank, in the
future, pretty soon if they
want, and read borrow the
equity, that they just chipped
in with their cash, as a
deposit, and use that to buy an
investment property. Now the
interest that they're going to
pay on that is tax deductible.
So if they've done it the other
way, and just put the cash
straight as a deposit on an
investment property, yes, they
would have stronger cash flow.
But they wouldn't be able to
claim any interest because
there's no interest claim. And
they wouldn't have a heartbeat.
So this is a strategy because if
you think if you trace the
money, all they're using is
their own money, right? They're
just putting it into a property
first, and then recycling and
taking it back out for an
investment. Purpose. So you know
that that happens every day that
we just knowing timing, and you
know, you got to know your
personal objectives. And you're
Andrew Bean: 100 person, that's
really interesting. So with the
bank, this is an actual
interest. And I know you and I
have had a few, you know,
offline conversations about
this, because Victor's doing
some real free financing for me,
in my own personal finances. So
I wanted to talk about this
because this is really
interesting. I don't think that
people really understand or know
about this. It's about if you
can demonstrate a business plan,
and you can forecast the cash
flow from that business. Will
the bank lend on that particular
forecast?
Victor Lagos: So his is a it's a
good question. Because it it's
only it's very specific. When
you're talking about an
investor, it doesn't work, an
investor will get rental income.
But if you're an owner occupier,
so it means you're going to
operate a business out of that
property, then, yes, you could
potentially use forecasts that
are projected income, along with
a business plan. So it's
definitely considered commercial
lending, not residential, it
falls outside of the Consumer
Credit Protection and APRA
regulations, because they'll
only look at historical income
and net profit. But if you're
looking at commercial lending,
and your your business, then
yeah, definitely a bank can look
at forecasted revenue and
income, and profit to help you
borrow to even acquire business
in the first place. But you
still need security, that's
something to keep in mind.
Because a lot of people have
that idea. And they're like, I
want to buy an established
business. And, you know, improve
it and earn more money from it,
and then borrow money to buy
that business from that future
income we're gonna create. But
if you don't have property,
there's no skin in the game. So
it's very risky for the bank.
It's considered unsecured
lending. And you know, I have
done one before, but it was, it
was very niche. And it was the
bank required at least a 50%
deposit. So they were willing to
fund th e other half. So it was
a 600 grand purchase price of a
business. They looked at the at
the income and then they also
looked at the forecast, income,
forecast, profit and a business
plan that this new buyer was
going to A new owner was going
to turn it into, but then
because they didn't have any
property to put a security,
they, they wanted at least 50%
down. So that 600,000, they
borrowed 300 And they
contributed 300. So you can do
them that way. But if you've got
property that's got a lot of
equity, that's really a good
opportunity for you to do
something. Yeah, and you can use
that property as a security and
and use a future income and and
to start a business basically.
Andrew Bean: Yes, yeah, well
with a with a startup. So say I
have a business venture or I
have a business idea. And you
know, obviously, I can
demonstrate that, you know,
either I have knowledge in that
industry or you know, I have
some experience in the industry.
Is it is it usual or like common
practice for a bank sooner banks
to lend on that forecasted
business plan for you? And maybe
they can you don't have any
property? Maybe they can
securitize, you know, the lease,
like if you have a 10 year lease
or something like that, is that
common practice to happen?
Victor Lagos: No, they're gonna,
they're gonna want to, they're
going to want to take some
security over. So it depends on
the amount you're after, as
well. So banks are willing to do
some unsecured lending, there's
no problem with that they're
willing to. But if you need if
you're buying a business, or you
need to borrow enough to cover
all the costs, to set that
business up, and you've got no
property, just the forecast,
alone in a business plan is not
going to get you the whole
amount is not enough in that
there's not there's still too
much risk, experience. And
industry definitely adds to
that. But they want it they want
some collateral. And if you're,
you know, if you've got chattels
or some sort of assets like
vehicles or machinery, something
like that, they'll look at that
a security that helps them to
even though it's a depreciating,
depreciating asset that helps
them. But if it's, if it's
literally nothing else, digital
assets, there's no, the only
security they get is a is a
security, a GSA, which is a
general security agreement over
the actual trading business
itself, for future income that
it can generate. But that that
doesn't really mean anything
because it doesn't make any
money, they get nothing. So
there's nothing that they can
immediately sell. The stock is
nothing they have control over
to sell to pay back the bad
debt. If you don't make your
repayments. That's what they
look for. So a good example was
myself a few years ago, I set up
a business mortgage broking
business, it didn't go well
failed, actually, the first one
my first attempt, but I had a
property. And one of the banks
was able to refinance my
existing residential law and
work have forecasted income to
service the loan. And they gave
me a startup overdraft of like
60 grand in a business credit
card. Well, I had industry
experience, but I didn't have
business experience. But some
mistakes, and I ended up using
all that money and not getting a
return on it immediately. So I
ended up making my own decision
to sell that property to clear
the debt. They didn't enforce
that. But they could have, if I
let the loan, you know, going to
raise and get into bad debt,
they could have sold my property
and clear, and then I would have
got whatever was left after
legal legal costs, and I would
have had bad credit. So you
know, it can be a risky game.
That was a perfect example. They
took their risks, but they had
the property. So they'll happily
give me the money. I took the
risk, didn't have the
experience, but I made that
decision. Now it's time to get
out and clear the debt. So you
know, people out there, they
want to do some risky stuff,
too. But if they've got no
property or no big cash to chip
in, don't expect that a bank is
gonna lend you all the money.
It's just doesn't happen to
Andrew Bean: you. That's right.
And I bet just from that, that
failed adventure or that first
try, you probably learned so
many lessons. So you basically
paid for, you know, your
education into how to how things
are run, and how you know,
things should and the processes
and things like that. And that's
why you've got a flourishing,
you know, mortgage broking
business now, from that first
mistake, because you learn so
much from your mistakes. Like if
you hadn't had success
straightaway. Success isn't a
great teacher. Failure is the
true like the great teacher.
Victor Lagos: Yeah, and you
know, the word failure. You
know, the truth is you don't
really, truly fail unless you
give up unless you quit. Yeah,
yeah, lets you quit unless
you're fully out of the game.
But if you're around in the
lesson, I'll give you a If
you're going through that
experience, and you learn
through those experiences, you
keep going. And that's what
happened with me. So you're
right, I'm in a much different
position now. And it was just an
expensive lesson. Yeah, that's
it, I had a few expensive
lessons myself.
Andrew Bean: So make another one
I wanted to actually talk about,
which is something that you and
I have also spoken about is how
you have to have your accountant
on board with your property
plan. And this has beat me in
the ass just recently, and I
wanted to basically let you talk
about how the accountant really
needs to be working with you on
your team, and potentially even
be connected, you know, with the
mortgage broker, you know, on
your team to make sure the goals
are aligned.
Victor Lagos: Yet super
important, because an
accountant, you know, they some
of them are not really pro
property focused, some of them
don't own property that I
understand property and that
I've tried to help customers
build the property portfolio,
some of them do some of the
understand the limitations of
borrowing capacity, they
understand that you're going to
need to be sometimes creative,
to have a balance of tax
reduction, as well as, you know,
borrowing capacity improvement.
So working with the right
accountant who gets that is
going to help you along the way
along the journey. And it's
going to be times where you need
them to write up letters and
declarations for you. When you
hit your ceilings of borrowing
capacity, and then you end up
going to a non bank do like an
out doc or a low doc loan. So
having the right accountant,
it's super important to have in
your teeth. And you know,
sometimes you have to let go
they all count the whole family
account or the h&r block around
the corner to upgrade to 10.
Andrew Bean: So just explain to
me how an accountant can screw
up your borrowing capacity.
Victor Lagos: Well, I guess they
can, you know, bring down your
taxable income so low, that has
nothing left to help the
borrower. So in their in their
mind, they're like, I want to
get you to pay less tax, that's
great. But then when you want to
get borrowed to buy a property,
there's no income left to
borrow. So that's how they can
screwed. They think they're
helping you. But they're
actually hindering your
financial journey.
Andrew Bean: Yeah, 100%. And
I've actually seen this a couple
of times with profit and losses
on self storage facilities,
where the the operator,
obviously the accountant is
working to minimize their tax,
like, it's clearly obvious,
because you can see that the
facility itself has definitely a
higher income, but they're all
like all these, you know, crazy
things that he's being charged,
he's taxing and deducting and
things like that. So it makes it
looks like at the end of the
day, he's owning such a small
amount that, you know, it
doesn't stack up when you're
trying to sell this property. So
like if you're owning a property
or an asset, like a self storage
facility that you want to sell,
you have to prepare that like a
year before, you know, before
you want to sell it because
you've got profit and losses
that are getting generated by
your accountant. It's a
different focus between them,
you know, trying to save you
money in taxes to showing like
income from that property to get
you the highest price for you
know that sale. So it's really
important to talk to these
accountants and make sure
they're doing or that the
objectives are the same. Or
they're in line with your goals.
Victor Lagos: Yeah, exactly
right. And everyone knows
someone in business. And it's
always good to ask them who they
use and why they work with their
accountant. That's how you just
get the introduction and
upgrade, have the right
conversations, because that's
what's going to help you get to
the next stage, whether it's for
business, or whether it's for
property.
Andrew Bean: Yeah. 100%. So
Mike, can you just share a few
actionable tips that maybe the
listeners can can take away?
And, you know, use to
potentially like increase their
borrowing capacity somewhat
quickly?
Victor Lagos: Yeah, so some of
the immediate things they can do
is actually to reduce their
personal debts. So if they can
close their credit cards, if
they can, you know, consolidate
loans, such as car loans or hex
debt, that's going to actually
improve that straightaway. If
they own property, if they can
increase the rent the outside of
the lease, they can increase the
rent, go ahead and do that. It's
going to improve your income. If
you've got existing loans that
have got short terms, 10 years,
15 years, 20 years, refinance
them, and reset the terms to 30
years. Having a longer term
means yes, you're gonna pay more
interest, but you're increasing
your borrowing capacity by doing
that. And then the other thing
you can do is with your expenses
is review them and talk to your
mortgage broker who can tell you
what the hemorrhage htm for your
household and bring your
expenses in line with him. And
so that way you below that are
in line with it so that way
you're not above it, that will
increase your brand capacity.
And there's other things you can
do, which I don't suggest to
anyone to, to under insure
yourself, it's important to have
the right insurances, but just
so you're aware, life insurance,
and health insurance, income
protection, all of that falls
outside of him. So if you're
paying for those insurances,
it's actually impacting your
work capacity. And also, private
school fees. So if you're paying
for private school, well, I
don't want to tell you what to
do, take your kids out of
private, put them in public, but
that can actually impact your
barn quite a bit. So those are
things that you can do
immediately, that will, that
will boost your borrowing
capacity. And then obviously,
the most important one is get a
pay raise. So you can either ask
your boss for a pay increase, or
a bonus that's gonna help you.
And then if you're self
employed, work with your
accountant, that can I can
actually help you to, you know,
show a bit more profit. You
know, so you can use for help
you helping you borrow more?
Andrew Bean: Yeah, yeah, it's
interesting, because on the the
term sheets, or the, you know,
the in your portal that I filled
out, and, uh, you gave me the
output back, and I'm doing some
borrowing, obviously, with my
fiance's involved as well. And
she's got a $25,000 hex debt,
and like hex debt, what the hell
is this? This is mine. Now
$25,000, Hextech. That's
apparently, like, lumped with
my, you know, my borrowing. So
I've got it, we got to take care
of that. To get to the same
household, right? Yeah, this is,
I didn't sign up for that, you
know?
Victor Lagos: Very defining,
Andrew Bean: yeah. So when
you're finding a partner, make
sure you got to ask them about
their hex debt? What what hex
debt? Do they have, you know, is
it you know, good or bad or
ugly? So, maybe when, what about
like, mistakes, I want to know,
I'm sure you see a lot of
mistakes that people make with,
you know, putting in their their
applications, or like mistakes
with their finance, what are the
really big ones that you've
seen, that maybe the listeners
can avoid to help them, you
know, not make that mistake and
increase their borrowing
capacity?
Victor Lagos: Yeah, it's,
there's definitely a lot of
mistakes that people can make, I
think talking to a broker is now
done one thing that you can do,
rather than going to the bank,
and go to the bank, well, it's a
mistake to go to the bank
directly, at times, because what
you say can't be unset. Alright.
Whereas talking to a broker will
understand your situation, and
help you navigate it in a way
that's going to allow you to
achieve your achieve your
objectives. So it's typically
somewhat confidential he talked
about, because at the end of the
day, you're trying to figure out
a solution for each other. So
that would be I think, a common
mistake is, you know, providing
way too much information upfront
directly to the bank. Yep. Talk
to your broker first, to get a,
you know, a more broader picture
as to what's possible for your
circumstances. Another mistake
would be debts. So a lot of
people don't talk about the fact
that they had, you know, you're
talking about hex, but you might
have had some mis payments in
the past or old default that you
had on your credit file, and you
know, in the back in mind, that
could still be there. But you
try to hide it, or ignore it,
thinking that no one's going to
find out about it. And then you
apply for the loan. And, you
know, everyone spends time
getting it all together. And
then you find out later, the
bank finds out because they do
their checks, the mortgage
broker finds out but you knew
deep down so that's a mistake, I
think you need to be transparent
with your credit history. And
look for remedies around it.
There are ways to clean Everyone
makes mistakes, no one's got
perfect, squeaky clean credit
history, some people do but, you
know, for the most part, there's
people out there that made some
mistakes, and there's, there's
ways to remedy it to still help
you borrow. I'd say those are
probably the biggest ones.
borrowing capacity wise, the end
of the day, what you owe
actually, now there is another
big that just occurred to me
when you go and start your own
business or you become a
contractor. Lot of people want
to go out and invoice because
they're gonna get paid more, but
they go do that. And then they
go apply for a loan. They need
two years of training history.
So you want to get the loan
while you're still PAYG. Once
you got the loan, you can make
decisions for your for your
household. So that would be a
common mistake a lot of people
do.
Andrew Bean: So the mistake is
quitting your job first and
you're taking you're doing your
new venture, and then trying to
get the loan after you've quit.
Yeah, your PAYG job is
substituted exactly like first
year.
Victor Lagos: First, yeah, while
you've still got the recurring
income, if you plan on setting
up a bit, so starting a
business, well, obviously you
want to make sure that it's the
right move for you. But even if
it is secure, well, the bank or
the lender moneyless, you got
two years of history to prove
that. So keep that in mind
before you quit your job.
Andrew Bean: Yeah, if you need
finance anytime soon, that's a
good one. Yeah, cuz when when we
when you first started answering
that question, I said, What are
the mistakes? And you said,
talking to a mortgage broker?
And I'm like, I thought you were
leading into that same mistake.
And that's not a mistake.
Victor Lagos: I thought it was.
Andrew Bean: So make terms of
like trots. I've heard a lot
about like, how you can use
trusts and other entities to
increase your borrowing
capacity. And I think this is a
really interesting one. Because
if this is actually like, really
workable, it could definitely
change the game for a lot of
people. So how can how can you
use trusts or entities to to
dramatically change your
borrowing capacity?
Victor Lagos: Yeah, a lot of
people think that by having a
trust that you can increase your
borrowing. It's not necessarily
that increases it, it can help
you to not limit it, limit your
borrowing. And what I mean by
that is, by setting up a new
entity, you're the guarantor. So
you and your partner, for
example. So service ability is
based on your income and your
expenses. And the rental income
that that entity is that
property that the entity is
buying is going to generate. But
it's called a special purpose
vehicle. So it's not a trading
business, it is set up
specifically to own the
property. So the income is still
going to be based on you guys
use the guarantors work and not
hinder you in the future, is
that because it's a commercial
debt, and not residential, and
it's under a commercial entity,
then it can be excluded from
your personal borrowing
capacity, as long as your
accountant is willing to write a
letter to say that it's
profitable and able to meet its
financial commitments. If they
write that, you know, they're
not going to stress test that
commercial mortgage. So you
could have a million dollar
mortgage, and we talked about
earlier that they're going to
stress tested at 3%, about the
interest rate. Right? If it's
7%, commercial rate, stress
tested at 10% that kill the
deal. But if the rent is
covering the mortgage, and the
expenses, well, we can exclude
her altogether, we're going to
Kerala. But if it's your name,
and you buy in your name, you
can't get an account loan for
that, it will show up on your
credit file, and you must
declare, and we need and the
bank's going to stress tested
for what it is. So that's why
having a trust or commercial
trust specifically. So keep that
in mind has to be a corporate
trustee of the trust, not the
individual trustee. And then it
can be excluded. So that's,
that's where it can help you. So
similar to a self managed super
fund, that doesn't impact your
personal borrowing capacity,
because it is a separate entity
outside of your personal and
it's excluded when calculating
borrowing capacity. So that
that's really powerful. And then
in the future work and help you
borrow is when it becomes super
profitable. So say you've got a
new entity and say, two, three
years later, it's actually
generating you know, 50 grand
profit every year. Well, that
profit can now then be added to
your income to help you borrow
without stress testing the
mortgage that you are on. So it
can actually just be added to
your net profit can be added to
your to your income, and have
you gone. So yeah, it can be
really powerful tool, if you
don't properly.
Andrew Bean: So that's, that's,
that's really cool. So you can
it's basically like you're
sheltering that debt. So you're
basically sheltering that debt
from going on to your personal
name or your personal borrowing
capacity, because it's its own
standalone entity. And I guess
that is essentially why you have
a trust or you are you have a
business account. So our
business entity, because you
don't want to be using your
personal name and your personal
like assets to won't be liable.
So you basically can set up
trust after trust just after
trust and shelter the debt, and
then potentially you could not
when you're assessing, you know,
borrowing capacity from the
bank. If you're doing that in
your personal name or a new
entity, then that doesn't take
into account those original
loans. Is that right?
Victor Lagos: Yeah, as long as
the account it allows you to
exclude it. So if, if not, the
bank is going to ask for
financials and they're gonna
they're gonna include that. So
if it's running at a loss, and
they see that they will put the
loss against you and It will
impact your bar. So if you do,
that's why having a good
accountant is super important.
They know that you're the
journey that you're on, and
they're willing to write letters
for you to help you. But if you
need that income to help you
service, like, if you say, Oh, I
get all this commercial rental
income, I want to use that to
help me borrow, well, then
you're gonna have to disclose
the debt as well. It's only
later when it's showing a strong
profit. If it's a very little
amount of profit. In the
beginning, you're better off
excluding it altogether. But if
it's running at a significant
loss, well, your accountant is
most likely not going to write a
letter for you to say it's
profitable. But say it was an IT
lead, they can was able to write
that it can be excluded, and you
can keep growing your personal
borrowing and by your PPO or
without that affecting you or,
Andrew Bean: you know, well, so
is this is it just accounting to
accountant, you ask that letter?
And then they provide it to you
or like the the mortgage broker?
Is that how it works?
Victor Lagos: Yeah, that's
right, well, the customer has to
ask for it. And then the
accountant will write it, and
then it's sent to the bank, the
bank will just happily exclude
because the bank will always do
a credit check. And any
directorships you have will show
up on your credit file. So
they're going to want a letter
for any directorship. They're
not going to do credit checks
against every single company
that you have, because then
you're not borrowing in that
company, you're applying under
your name for this particular
loan in the future. So they
don't have the right to just do
credit checks and all these
other companies. So that's why
they need an accountant letter
or financials, tax returns. One
or the other. It's a tax return
show profit, you don't need to
account for anything. But just
be mindful that then the bank
may then stress test the
mortgages and exist. So that
might not help you. So it's
better to exclude it altogether.
Andrew Bean: Yeah, cool. And I
like the fact that you can, you
know, exclude it. And then later
on when you want to borrow, you
can use the income as you know,
to help you. That's cool. So
like you get the best of both
worlds.
Victor Lagos: Exactly. Yeah.
Just timeline right. In the
beginning excluded when it comes
more and more than you use it.
Andrew Bean: Yeah. Nice. All
right, mate. Last question. You
have, obviously a large, you
know, view on all these
different banks. Which ones
right now particularly Are you
liking that you're able to
squeeze the most out of the most
out of like borrowing capacity
for people, other specific ones,
that you you like that you favor
or have better lending terms
right now that you you like,
Victor Lagos: oh, actually, I
touched on it earlier, we talked
about non banks. So the non
banks that are kind of more
generous with their borrowing
capacity, paper money, liberty,
financial offers Mac, they're
kind of the well known ones. But
there are a couple of others out
there that I'm sort of starting
to connect with and learning
more about their policies. So
I'm not going to tell you who
they are yet, just because I
don't know them well enough. So
of course, that's what I'm here
to do. So if customers do want
to reach out to me, I can always
look at their circumstances, and
then connect with these new
lenders and see if, if they're
willing to help. Because
remember, these lenders will
give you more, but they're gonna
charge you more. So just be
prepared for that higher fees,
and higher interest rates, but
they'll lend you more money.
Andrew Bean: Yeah, but it's all
about getting the deal done,
isn't it? So if you can just get
the deal done. You know, even if
you can pay it, you're paying a
little bit higher interest rate,
you know, your wells can grow a
lot from getting that deal done,
rather than just like, you know,
trying to find the best interest
rate possible because at the end
of the day, that little gap
between the interest rate
doesn't make you make you
wealthy that buying the property
and potentially having cash flow
and then the capital growth of
that behind it does so
definitely worth worth shopping
around.
Victor Lagos: Yeah, great.
Andrew Bean: All right, man.
That pretty much wraps up
episode three, cracking the what
is it? And what have I got? Yep.
All right. All right. Made that
pretty much wraps up the episode
three cracking the lending code.
So where can the listeners go to
find out more about you find out
which banks you like and help
you for to you? Oh, my God. So
where can you like because it's
blank face like you did not
laugh at all when I stuffed up.
All right. Game face.
Victor Lagos: All right. So
Andrew Bean: where can listeners
go to find out more about you
and your services made?
Victor Lagos: They can come to
us. They can hit contact us and
they can do an inquiry or they
can book in a call directly in
my calendar. And we will reach
out we'll set up a time. Well
that could be our time setting
up and we'll go through
circumstances and see what we
can do.
Andrew Bean: Fantastic night.
This has been financial expert
Victor Lagos and Andrew been on
the financial series. Thanks
guys.
That your face so but I want to
leave my eyes with no
Victor Lagos: Stan why it's good
Unknown: yeah