How many investment properties can I have loans on?

There is no fixed limit. The constraint is your ability to service the debt. Some investors have 10 or more properties, while others hit the wall at two or three. It depends on your income, the properties' cash flow, and bank policies.

Do all banks count rental income the same way?

No, banks have different policies. Some shade rental income by 20%, others by 30% or more. Some count 100% of market rent regardless of actual vacancy. A broker can help you find lenders with favourable rental income treatment.

What is a good debt-to-income ratio for property investors?

Banks typically look for a debt-to-income ratio below 6 to 7 times your gross income. However, this varies by lender and may be higher for investment-focused loans. Some investors with strong rental income can exceed these levels.

Can I use a company or trust to improve servicing?

It is possible in some cases, but banks generally look through the structure to the individuals involved. Company or trust borrowing can be more complex and may not improve servicing unless additional income streams are involved.

Servicing Multiple Investment Property Loans NZ

As your property portfolio grows, understanding how banks assess your ability to service multiple loans becomes crucial. Many investors find that serviceability, not equity, becomes the limiting factor in their portfolio growth.

Each time you apply for a new investment property loan, the bank looks at your entire financial picture. They want to ensure you can afford all your debt obligations, not just the new loan you are applying for.

What Is Loan Servicing?

Loan servicing refers to your ability to make the required repayments on your loans. Banks assess this by comparing your income against your expenses and debt obligations. If you have surplus income after covering everything, you have servicing capacity.

Basic Servicing Calculation:

Income (after tax): $120,000 per year
Rental income (after shading): $28,000 per year
Living expenses: $60,000 per year
Existing loan repayments: $55,000 per year
Surplus: $33,000 per year available for new borrowing

How Banks Calculate Your Income

Employment Income

For PAYE employees, banks typically use your gross salary and may include regular overtime, bonuses, or commissions if they are consistent. They will verify income through payslips and employment letters.

Self-Employment Income

Self-employed borrowers usually need to provide two years of financials. Banks may average your income or use the lower of the two years. Some banks add back depreciation or other non-cash expenses.

Rental Income

This is where multiple property investors often face challenges. Banks do not count 100% of your rental income. They apply a "shade" or discount, typically 20% to 30%, to account for vacancies, maintenance, and expenses.

Rental Shading Example:

Actual rent received: $40,000 per year
Bank applies 25% shade
Income counted for servicing: $30,000 per year

The Stress Test

Banks do not assess your repayments at current interest rates. They apply a buffer, testing whether you could still afford repayments if rates increased. This is known as the stress test or serviceability buffer.

Typically, banks assess your ability to repay at 2% to 3% above the current rate, or against a floor rate (a minimum rate used regardless of actual rates). This protects both you and the bank from interest rate increases.

Stress Test Impact:

A $500,000 loan at 6.5% has monthly P&I repayments of about $3,160. But the bank might assess at 8.5%, where repayments would be $3,845. This higher figure is what they use for servicing calculations.

Why Serviceability Becomes the Limiting Factor

As you accumulate properties, you may find you have plenty of equity but cannot borrow any more. This happens because:

Each new loan adds to your total debt obligations
Rental income is shaded, so it does not fully offset the new debt
Your living expenses and existing commitments stay constant
The stress test applies to all your debt, not just the new loan

This is sometimes called "hitting the servicing wall" and is a common challenge for portfolio investors.

Strategies to Improve Servicing

Increase Your Income

The most direct way to improve serviceability is earning more. This could mean negotiating a pay rise, changing jobs, starting a side business, or finding ways to increase rental income on existing properties.

Reduce Other Debts

Paying off credit cards, car loans, or personal loans frees up servicing capacity. Even if you do not use these facilities, having them available counts against you in bank assessments.

Credit Card Impact:

A $10,000 credit card limit (even if unused) might be assessed as if you owe the full amount. At a notional 3% monthly repayment, this reduces your borrowing capacity by the equivalent of $300 per month, or about $50,000 in borrowing power.

Extend Loan Terms

Longer loan terms mean lower monthly repayments, which improves servicing. You can always pay more than the minimum, but the lower required payment helps with the assessment.

Use Interest-Only Loans

Interest-only loans have lower monthly payments than principal and interest loans. While banks still assess on P&I in most cases, some lenders offer more favourable treatment for interest-only applications.

Shop Around

Different banks have different servicing calculators and policies. Where one bank says no, another might say yes. A mortgage broker with access to multiple lenders can help find the best fit for your situation.

What Banks Look At

When assessing a multiple property application, banks typically examine:

Total debt levels: All your loans, credit cards, and other commitments
Debt-to-income ratio: Your total debt compared to your annual income
Net surplus: What is left after expenses and debt servicing
Debt servicing ratio: The percentage of income going to debt repayments
Equity position: While not a servicing issue, LVR still matters
Track record: Your history of managing debt and rental properties

Non-Bank Lenders

If main bank servicing is too tight, non-bank lenders may offer more flexibility. These lenders often have different servicing criteria and may count more rental income or apply smaller buffers. However, they typically charge higher interest rates and fees.

Non-bank lending can be useful as a stepping stone. You might use non-bank finance to acquire a property, then refinance to a main bank once the rental income is established or your overall position improves.

Planning for Portfolio Growth

Smart investors think about servicing before it becomes a problem. Consider these strategies:

Buy properties that are positively geared or close to neutral to minimise servicing impact
Keep credit cards and other facilities to a minimum
Plan your career and income growth alongside your property growth
Consider adding a partner or co-borrower if their income helps
Review your position regularly with a broker to understand your capacity

The Bottom Line

Understanding bank servicing calculations is essential for growing a property portfolio. While equity gets most of the attention, serviceability is often what determines whether your next purchase gets approved.

Work with a mortgage broker who understands property investment to monitor your serviceability and find lenders whose policies work for your situation. With the right approach, you can optimise your borrowing capacity and continue growing your portfolio.