Building multiple property portfolio. Type of properties lenders like.

Rental yields play a crucial role in determining the borrowing capacity for individuals looking to build a multiple-property portfolio. Borrowing capacity refers to the amount of money a lender is willing to lend to an investor based on their financial situation, income, and other relevant factors. Rental yields, which represent the income generated by a property as a percentage of its value, can positively impact borrowing capacity in several ways:

1. Income Generation:

• Rental yields directly contribute to the investor's income. The higher the rental yield, the more income is generated from the property. Lenders often consider this rental income when assessing an investor's ability to service a loan.

1. Serviceability Assessment:

• Lenders typically assess an investor's ability to service a loan by examining their income against their expenses. Rental income, as a component of overall income, helps improve serviceability. Higher rental yields provide a stronger income stream, making it easier for investors to meet loan repayment obligations.

1. Debt-Service Coverage Ratio (DSCR):

• Lenders may use a Debt-Service Coverage Ratio to evaluate an investor's ability to cover debt payments with rental income. A higher rental yield improves the DSCR, indicating better coverage of loan obligations and potentially enhancing borrowing capacity.

1. Risk Assessment:

• Rental yields also factor into the overall risk assessment conducted by lenders. Higher yields can mitigate perceived risks associated with property investment, making lenders more comfortable extending credit to investors.

1. Portfolio Growth:

• A portfolio with properties that generate strong rental yields enhances an investor's overall financial position. Lenders may be more willing to lend to individuals with a diversified portfolio of properties that demonstrate a history of generating consistent income through rental yields.

1. Equity Accumulation:

• Positive rental yields contribute to the growth of equity in a property. As the equity in existing properties increases, it provides additional collateral for future loans, potentially expanding an investor's borrowing capacity.

1. Loan-to-Value Ratio (LTV):

• Lenders often use the Loan-to-Value Ratio, which compares the loan amount to the property's value. Higher rental yields may allow investors to maintain a lower LTV ratio, making their loan applications more attractive to lenders.

In summary, rental yields play a pivotal role in building borrowing capacity when constructing a multiple-property portfolio. Investors with properties that generate higher rental yields are generally better positioned to secure financing for additional property acquisitions, as the income generated from these properties enhances their overall financial profile in the eyes of lenders.