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Who is on that list? I was one on that list in the past. Tens of thousands of dollars back in their pocket. Shout out to Benji Marshall at the West Tigers. Because people might look at the list and go, if I could get a waiver, happy as.
Even though it's a bit of a raw. True. Promotional LMI waivers, providers and the amount of claims that they do versus how much revenue they're bringing in. Could you imagine how much money they're earning? LMI can be tax deductible over five years.
You can get a partial LMI refund. So many people don't know that. It's a game of ROI. Leverage is the friend of Australia. There's so many.
That list is like dozens long. Nurses, midwives, physios. Even if you pay LMI, it actually can be better for you. Nerd alert! Property Nerds.
The home for data-driven property investors. Where we uncover Australia's hot and cold markets, latest headlines and trends. Jumping into today's episode, we're talking lenders mortgage insurance. I'm here with Jack from 4Acre Financial. And if you're new to understanding what lenders mortgage insurance is, it's basically a cost of doing business when you're having properties with loans that are higher than 80% of the value of the purchase price.
And it depends on whether you have waivers or whether you pay less with certain banks or how much you pay depending on how far you go up from 80% upwards. But love-hate relationship with lenders mortgage insurance, Jack. And the love part is, if I could get a waiver, happy as. But the other love part is, I get a property with much less cash down, leverage is my friend. The hate part is, I could be paying my repayments, could be a good client for the bank, but they service it pretty well, service it comfortably, but they still want to charge you just in case you don't.
And it's to protect them. So it's an interesting world. I mean, I'm in team pay LMI or get it waived, but go to 90% as much as possible. That's my camp I'm in. Keen to hear your thoughts.
But mate, let's talk LMI for a little bit and why it's become a hot topic or hot conversation for so many people to consider when it comes to Australian property investing. Yeah, so we decided to do a full episode based on LMI because recently there's been a couple lenders coming out with promotional LMI waivers. But it's also worth discussing all the plethora of LMI waivers that are out there. You know, we're also going to talk about when the LMI waiver strategy drops off a little bit. But yeah, I think getting comfortable with LMI, even though it's a bit of a raw, I mean, you're paying for the insurance on the bank.
It's like, can I have my... Imagine getting someone like, hey, could you pay for my building insurance policy? Yeah, exactly. I mean, I get it. Funny enough, you know what?
It happens in commercial property, but in residential property, imagine going, hey, look, I've got some expensive paintings here. Do you mind paying for my paintings? Mate, I'd love to see the statistics on the LMI providers and the amount of claims that they do versus how much revenue they're bringing in. Could you imagine how much money they're earning? Milking it.
I think, yeah, they'd be smashing it. It's like $12 trillion of assets in Australia. $3 trillion in assets, I mean, residential property. Over $3 trillion of like, just over $3 trillion of debt, which is very, very small. And then the default rate is, again, very, very small.
You look at long-term growth rates of 5% to 7%. It means the customer in front of you just has to pay their mortgages for two years. And if you take an average 5% to 7%, now, of course, it's not linear. Not everyone's having it, but 5% to 7% just for two years is that 10% of growth plus, and then back at 80%. Yeah, and I mean, that's happened a lot with your customers that are buying investment properties interstate.
They'll pay LMI, and this is not a very well-known thing. LMI can be tax deductible over five years. That's one thing, right? The other thing is that if you pay LMI on the way in, and then you refinance or sell that property within the first two years, you can get a partial LMI refund from what you paid originally. So many people don't know that.
Yeah, and it's super common when you buy well. If you don't buy well, and you're not aware of this, then you're not looking for it. But we've seen it happen so often with your clients that it's something that we even say at the beginning. We say, look, just keep an eye out on the growth because if we could refinance this loan to a different lender at 80%, we can get a partial LMI refund depending on the lender. But that also comes into play.
We can do that very well because even if the lender that you're currently with doesn't value it as high, we could look at five other lenders and try to get a better valuation or just track it over a quarterly period and look to get the LMI waiver for the client then. And if it's a game of investing, it's a game of ROI, right? Return on investment. And if you have to put in the least amount of money to get a purchase price that is higher, it's like that's the game of investing done right. I mean, Australian property is not one of these things where rental yields are amazing.
You can go globally and you see stuff like Spain or Bali or other countries. It's like 9% to 15% return. That's not common here, right? So when you're looking at that, it's important to understand that leverage is the friend in Australia and long-term growth and desirability is the friend here in Australia. So if you're looking at that, it's like for a million-dollar property, a 10% deposit is 100K.
And then you've got LMI, you've got stamp duties, you've got all these different things. But even then, under 200K to access a million-dollar property, that's the game of leverage and wealth generating because when you have a million-dollar property grow 10%, yeah, sure, it's pre-sale costs or anything like that, but that 10% is 100K is more than 50% on your under 200K funds of growth. So to get that sort of 50% gains on your own money so quickly is the game of why so many people should consider highly leveraged loans if it obviously can service and cash flow and things like that. But Jack, I wanted to ask you about LMI in terms of not just the benefits. We know how important it is.
I mean, my first few purchases happened because of LMI. But at the same time, I mean, they didn't happen because of LMI. They happened because of me going at 90%, right? But LMI plays, that number starts to have conversations when it gets to 90%. There are professions that get waivers.
Yes. And the list of professionals that get waivers is a decent one. And many people get surprised by who is on that list. I was one on that list in the past as a banker. Unfortunately, I'm not on that list today.
I wish there was a way to keep your banking stamp forever. Like, do you know what I mean? Like an ex-former CBA, give me the waiver for life, please. I just don't understand why brokers don't have LMI waivers. True.
You're in the finance profession. Isn't there like 17,000 brokers in the country? And if it's like 17,000, that's a big workforce that supports the banking industry. I could imagine there'd be a lot of people. Because, I mean, it's not that difficult to become a broker, really.
So I think you could just do a Cert IV, become a sole trader broker on the side. But also, it wasn't difficult for me to be a bank teller. I was an 18-year-old with a purple stud in my left ear, a fringe, and a bit of a rat's tail. Obviously, I had to chop off the ratty, which is bad luck there. Unfortunate.
But I had a tie that couldn't get down to my waistline, and I got the gig. I was 18, right? Grow fresh off your first year of uni. So I'm like, hey, if you're giving me that teller, that LMI waiver, you might as well give the brokers ones too. But let's talk professions.
And we're going to do something different. So if you're listening to the Property Nerds podcast, of course, you're still going to get the gold from listening to it. But if you're watching it, this is cool. Jack's going to get on the whiteboard. We're going to bring a whiteboard in the studio.
We're doing a Joe Rogan style. Pull it up on the screen. Pull it up on the whiteboard. Let's talk this through. How convenient.
We have a whiteboard right here with a list of LMI waivers. Tune in to our podcast for real-life case studies, the latest data, and even expert guidance on residential and commercial investing. It's everything you need to stay sharp straight from the field. Make sure to like and subscribe to get insights that only we have. And now let's get back into the show.
So let's go through, Jack. I want to hear about the professionals that get LMI waivers because people will be shocked and surprised by who actually gets them, which means there's a lot of money that's about to be saved from your whiteboard skills here today. Low-budget whiteboard That's a very real thing that we do a lot of, first home buyers. And then coming over here, we've got just professionals, lawyers, barristers, judges, accountants, financial planners, things like that. That's very common.
Most professionals, while they're going through uni, they just can't wait for that LMI waiver. And that's like the bankers and finance professionals in there. And one thing some people don't know, and this is interesting, sometimes even if you're a banking employee of another bank, you can get LMI waivers for another bank. That's right. So I used to have that misconception that it was only my own bank that would give it to me, but other banks were willing to look after us too.
Well, that bank will do it for every employee if you're working for a bank. Just full stop. But you can go in the professional space, you can go up to 95% as well. So then we've got the other, which is less common, it's harder to qualify for. There's income requirements and things like that, but you've got mining and engineering, high income people in those sectors, professional sports and entertainment.
Shout out to Benji Marshall at the West Tigers. He just stopped, mate. We saw you out, Benji. And lender promotions. So every now and again, you'll have a lender that's maybe having a quiet quarter, and they're like, we need to ramp up this business.
Let's get a 90% LMI waiver for investors, anyone, don't discriminate. So that happens in the major, not so much a major bank, but like second tier, still bank, second tier, and third tier space as well. So depending on what you need for borrowing capacity, if you're still in that second tier lender space for borrowing capacity, versus even if you've got a big portfolio, you want to go to a third tier, get a promotion at 90%. We're doing a lot of that too, and it works in trust. That's a game changer.
That's a big workforce there. As in, if you think the biggest bank in the country, like CBA, they have like 50,000 employees or something, right? You're talking hundreds of thousands, maybe even touching the million plus of people who work in these jobs across the country. And those people are able to get into the market quicker with less cash and with less costs in their pocket by having LMI waivers. But these aren't just all one bank doing them, right?
Are they different banks doing them and you need the right broker on your team? Of course, of course. Mate, this is a very simplified version of a massive list of banks and different requirements in each. But yeah, this sums it up pretty well. Okay, so I promised at the start that if you are going to be one of these professions here, you're going to be saving like tens of thousands of dollars.
So if you're watching this or hearing this, let me just repeat that list again. You've got doctors, GPs, specialists, dentists, 90 to 95% loans with LMI waivers. You've got nurses, midwives, physio, 90% loans with LMI waivers. You've got lawyers, bankers, financial professionals, accountants, judges, barristers, financial planners, some mining and engineer professionals, professional sports, athletes, and entertainment. And entertainment's a wild list too.
There's like certain content creators, there's videographers, there's like certain actors and actresses, like certain roles there. So you have to really get to know deeply where it fits in. And then there's certain lender promotions. You know what I'm most impressed with? The fact that you were able to read my handwriting, mate.
I never got my pen license. I was worse than yours. I made doctors look like calligraphy artists, mate, when I had to look at my handwriting. But no, honestly, this is a big, big money saver. Because this will do two things for you.
Not only will it actually save you dollars from building a portfolio, but the second thing is the amount of people stuck mindset-wise, they're just like, oh, we need to save a bit more. We're not up to 80%. We're looking for a 20% deposit. We want to reduce this and improve that and reduce these costs. Like cost savings is just one part.
The mindset of opportunity cost versus build more savings to eventually get a property, it's held back hundreds of thousands of equity growth. But speaking of how much LMI could actually save you, it's funny you mention that because on the other side of this whiteboard, we've got a comparison. Let's go numbers. We're on a roll with the whiteboard stuff. Sorry about the scratching and all in the audio as well if you heard that.
We'll get an upgrade, all right? So here on this side, we've got a $750,000 property purchase and it's a 90% scenario with an LMI waiver. And then we're comparing it to the highest LVR, well, one of the highest LVR products on the market with a major bank at 97% LVR, even for investment, but that's with LMI. So basically in the second scenario, you're paying 95% loan. 97% loan.
Including LMI though, right? LMI is capitalized. It works out to be about 3. 5% to 3% in LMI costs. So you're probably getting a 94% go to the seller.
- 5% to be exact. And then 3. 5% is the cost of paying LMI. So you have a loan that's worth 97% of the whole property.
So on the 90% LMI waiver, you've just got the 10% deposit stamp duty and legals total about 106,000 for an LMI waiver at 90%, right? Then you've got 97% with LMI. The deposits, it's going to be around 80,000. 26,000 of that is LMI. Got it.
So even if you're getting the waiver, at 90%. If you go to 95% LMI waiver, then you'll beat the 97%. But I think people get caught up in when they actually look at that LMI fee and say, oh, $26,000 in LMI on a purchase like that. The reason that's so high is because it's 97% LVR. At 90% LVR, your funds to complete is going to be about 2% more than this.
But you know what's interesting seeing that example is that that's an exact moment there that even if you had a waiver, the cost of doing business is still in your favor because you're getting in with $26,200 less. So would you rather purchase a cheaper property or a more expensive property with LMI? And LMI that can be partially refunded if the growth happens in the first few years. Absolutely. And you got in with $26,000 less.
Yeah. Right? So that's a big thing. So it feels mentally when you look at the breakdown, what the hell, I'm paying $26,000 of LMI? Yeah.
But then secondly, you're going, oh, well, with $26,000 less cash, I purchased the same property. Now at $2,000 a month, Jack, that's more than one year of savings. In one year of savings, if we just took the last 12 months of InvestorKit growth across clients, it's around 15%. Yeah, you can't. So if you took 15% of growth, that is over $100,000 a gain.
Yeah. So that's $100,000 a gain you waited and paid more on instead of paying $26,000 in LMI. Yeah. So this is a classic example of where even if you pay LMI, it actually can be better for you in certain circumstances. If it gets you the property that you want in the market that you want, just that extra bit of purchase price and that compounding growth factor of having more exposure to real estate, definitely.
But it's worth talking about when is the right time to ditch the LMI waiver strategy or when's the right time to just pay it. So I think what it comes down to is just the client's risk appetite. I've had clients that they say, I've got $300,000 as a deposit, but I'm getting told to do an LMI, like a go 90%. I'm like, you've got a $300,000 deposit, why are you paying LMI? So the only reason you would do that is if you're going to buy another property immediately after or within six months after.
So then you go aggressively because that's why you want maybe two properties and you can use that money and stretch it. But if you're only doing one, going to the waiver place can sometimes mean less loan options, higher interest rates, lower purchase price. Lower purchase price. So I think when people get to a certain point in their portfolio where they've got a good base residential portfolio, they don't really need to worry about LMI waivers because if you've got a $2 million portfolio and it goes up by 10%, that's $200,000. That's a 20% deposit every day of the week.
So you don't need to worry about LMI waivers at a certain point. It's good in the early stages when you're trying to save a bit of money, make your cash go a bit further for you. But at a certain point, once you get to third tier lender space and with all the additional borrowing power, you don't need to go to a high LVR as much. Makes total sense. So let me summarize today's learnings on LMI.
Number one, there's a lot more professionals out there than people recognize and professions out there that people recognize that you can get LMI waivers. So reach out to the team at 4acrefinancial. com.
