Rental Income
Income earned from leasing out an investment property to a tenant, usually collected monthly or fortnightly.
In detail
Lenders shade rental income to account for vacancy, management fees, and ongoing costs. A common shading is 75 or 80 per cent of gross rental income. For existing rental properties a current lease agreement or recent rental statement is usually required. For proposed rentals on new purchases a real estate agent appraisal letter estimating market rent is acceptable at most lenders.
Rental income on short term accommodation is treated more cautiously. Some lenders will not accept short stay income at all, others will accept it at lower shading rates with twelve months of operating history. Negative gearing benefits on existing rental properties can sometimes be added back into serviceability at certain lenders depending on policy.
Why it matters for brokers
Rental income is the foundation of investment lending. Knowing each lender shading percentage and which lenders accept short term rentals shapes which files can stack up for investor clients.
Example in practice
An investor owns a unit rented at $650 a week, giving gross annual rental of $33,800. A lender shading at 80 per cent accepts $27,040 as assessable rental income which feeds into serviceability alongside PAYG income from the investor day job.
Related terms
Interest Only Loan
A loan where the borrower pays only the interest charge for a set period, leaving the principal balance unchanged.
Serviceability
A lender assessment of whether a borrower can meet loan repayments from their income after accounting for expenses, existing debts, and a buffer.
Self Employed Income
Business income earned by borrowers operating under an ABN as sole traders, through a company, or via a trust structure.
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