Bridging the Gap: Financing a $700,000 Investment Property

Mel and Ronald want to buy a $700,000 investment property but currently have only $154,600 in borrowing capacity and $194,000 in deposit and usable equity. To secure the required $560,000 loan, they need to explore strategies that boost borrowing power or reduce liabilities. Below are four practical approaches.

Financial Snapshot

Combined Gross Income: $154,000/year
Net Income: ~$116,000/year (~$9,667/month)
Rental Income: $39,000/year (assessed at 80% = $2,600/month)
Existing Debt: $1.418 million (PPOR mortgage + investment loan + Zip Pay)
Monthly Commitments: $7,079 + $4,000 HEM = $11,079
Surplus: $12,267 – $11,079 = $1,188/month
Borrowing Power: ~$154,600
Target Loan: $560,000 (80% LVR on $700,000)

Strategy 1: Increase Income

• Mel goes full-time (+$33,000 gross → +$2,083/month surplus)
• Ronald earns $140,000 (up $43,000 gross → +$2,583/month surplus)
Result: Combined surplus +$4,667/month, lifting borrowing power to ~$761,600. Drawback: Total debt ~$1.978 million exceeds a 6× gross DTI cap ($1.614 million max).

Strategy 2: Reduce Liabilities

• Pay off Zip Pay ($8,000 → saves $317/month)
• Cancel $7,000 credit card ($210/month savings)
Result: +$527/month surplus → adds ~$68,500 borrowing capacity. Still short of the $560,000 goal.

Financial Planning for Property Investment

Strategy 3: Sell Existing Investment

• Net proceeds ~ $291,000
• Allocate $140,000 to deposit
• Use $143,000 to pay down PPOR mortgage (removing $2,969/month in commitments)
New surplus: $1,188 + $3,553 = $4,741/month → borrowing power ~$616,800
DTI fix: Reducing PPOR by extra $379,000 brings total debt to ~$924,000 (within 6× cap).

Strategy 4: Combine Actions

• Sell the investment property
• Pay off Zip Pay and lower credit limit
• Use sale proceeds to cut PPOR debt by $522,000 (down to ~$364,000)
Result: Surplus ≈ $5,911/month → borrowing power ~$768,800
DTI: $924,000 debt vs. $154,000 × 6 = $924,000 limit (compliant).

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Final Recommendation

Sell the existing investment property.
Use $140,000 as deposit.
Apply $379,000 to reduce PPOR mortgage to ~$364,000.
Pay off Zip Pay and cancel the $7,000 credit card.
If needed, consider boosting income further.

Outcome:
• Loan: $560,000 (80% LVR)
• Purchase Price: $700,000
• Estimated Repayments: ~$3,357/month (at 6%)
• Total Commitments: ~$5,503/month
• Affordable within $9,667/month net income.

Useful Tools

By selling their current investment and restructuring debts, Mel and Ronald can confidently secure a $560,000 loan for a $700,000 property purchase in 2025 while staying within lender limits. For personalized advice, they should consider a tailored investment strategy review.