Interview with John Comino, Lending Specialist at The Home Guide
If you are an investor or experienced home buyer you may have some questions about how exactly negative gearing can work in your favour, what to do when you are short on cash and want to renovate and even what options are available to you if your credit rating isn’t looking so great. Lending Specialist John Comino talks property strategy from a lending perspective and gives advice on what to do when one of these tricky situations comes about.
mrkts: “What options are available to help negatively geared property investors?”
JC: “In terms of maximising tax offset, it’s a bit ironic. It’s actually a strategy that has you trying to lose as much money as possible on your property so that you can save on tax. For example, say you make $500,000 profit one year and the government says you owe $250,000 in tax on that profit, but one of your properties has lost $250,000 that same year. You can offset the tax that you owe the government by that loss.
If any investors out there are planning to use this strategy, your first point of call is to talk to a broker to figure out what your maximum borrowing potential is. Also talk to an accountant, because they are going to be the one that takes that borrowing potential and tells you how to split those costs to offset fees. It’s a complicated strategy, so you need to be talking to not just one but a couple of professionals.
Negatively gearing can be an excellent thing. I had a client, a single self-employed female earning about $120,000 a year through an ABN. She had zero deductions; she had no tax offsets whatsoever. Basically, she didn’t have any assets offsetting that tax in any way. For her, I did recommend she see an accountant because she definitely could have benefitted from having a different asset portfolio for her taxation.”
mrkts: “How can a mortgage broker assist with renovations?”
JC: “Let’s say that you needed to do some non-structural renovations – such as painting – and you need an extra $30,000. You might have had your home for four or five years and you haven’t had a valuation done in that time or you haven’t really thought about your equity, you’ve just been living your life as many do. What we do – and we do this not just for those looking to renovate, but for all of our clients – is every so often we will give our clients a call and check up on if there is anything that they don’t understand about their loan, and also if they are looking to do any sort of change we order a valuation to see how much equity the client has. From there, we can plan. So, if it is renovations, for example, we can find the best lenders for you and help you get the fund to do the renovations you want.”
mrkts: “Say I have a poor credit rating, what steps can I take to get a home loan?”
JC: “Poor credit rating can be very complicated. If can happen to people even from just seeking loans from too many people, as most like to shop around. You may make millions of dollars a year, but if you have gone around asking for personal loans from 20 or so different lenders across the last three months, that almost certainly will result in having a bad credit rating. This is why I say, it can be quite complicated.
There are three kinds of poor credit ratings: the one I just explained due to too many credit inquiries, late payments and defaulting on loans or payment. What we, a mortgage broker, can do is essentially plead your case to a lender. If you have late payments on a card, we look to establish a reason as to why they happened. There is also the option for those that have had a default that has been paid but is still on your file, we can go to a lender that takes on poor credit rating and reassess each year to find you better rates. After about two years with good payment records, we can usually find you a great loan.
Many people have a poor credit rating and it’s not always beneficial to just try a wait it out. What I always try and help people do in this situation is to try and swap their bad debt (personal loans or credit card debt) for good debt (home loan). Of these types of debt, a home loan is the only one with the potential to go up in value.”
mrkts: “Any final advice to anyone looking to buy property right now?”
JC: “No time like the present. Also, serviceability; the way that banks calculate your eligibility. The calculation that banks use does change from bank to bank. The way that they consider different points of income, for example, over time. One bank will consider 80% of that overtime another will consider 100% of it. All of these different things do change from bank to bank, which is why it is so important to see a mortgage broker. If you go and see one bank and they say ‘no’, it doesn’t really mean anything. You need to go across quite a range to see a full picture, and the way to do that without affecting your credit rating is through a broker.
A good mortgage broker would never submit a loan application that would result in a credit rating hit unless we are very, very sure of a positive outcome. We usually consult with a bank representative over the phone to get a verbal ‘yes’ or ‘no’ prior to officially submitting any documents. We can’t offer any guarantees, but it is our job to know what will and won’t work.”