hi there
My partner and I have been looking at property together with the view of purchasing 10 acres of land and owner building our home in the new year. He is already well informed and confident about investing in property and wants to increase the number of houses he owns over the coming year. He built his current home and has been looking at property in his area for years, so knows what's good value and what will work. At the moment I am a single mum and have always been very conservative about money.
He is wanting me to be absolutely clear and confident about what we're doing before we set out, so that there isn't an underlying feeling of doubt throughout our relationship, especially since my home as well as his will be used as security to finance the house we build.
I'd like to give an overview of our separate and joint financial circumstances and what options I see for comments and advice. Is this the right place to do it, or is there a specialist I should be talking to? It would involve a legal agreement made beforehand that ensures my home is secure in the event of bankruptcy and that his interests are also protected.
thanks for whatever advice you can offer.
Certainly you can post details for other members to comment on but personally I would be slightly careful about detailing too much personal information on an open web site.
Richard Taylor | Australia's leading private lender
I'm a bit confused. This bit:
waterfleck wrote:my home as well as his will be used as security to finance the house we builddoesn't sit well with this bit:
Quote:a legal agreement made beforehand that ensures my home is secure in the event of bankruptcy and that his interests are also protected.If you are using your home as security for the new loan, the bank will have first rights to that security in the event of default on the loan. You can't offer it to the lender as security but at the same time quarantine it against action to recover secured assets… Unless I've missed something?
If your partner is telling you this is possible, please seek independent legal advice.
Cheers, F. [cowboy2]
Thanks, Richard.
Here is a rough outline of our situation and known options. Please let me know if it is too much information or unclear and I'll edit it straight away.
I currently have a mortgage of $238,000, equity in my home of around $200,000 and other debts of $15,000. I'm told this is very modest. My bank is willing to personally loan me up to $325,000.
I really can't afford to continue paying my mortgage on my own for much longer, so I do need to look at doing something. My partner wants me to keep my home, rent it out and live with him until our home is built towards the end of next year. Rental income from my home would cover my mortgage.
Apart from the home he lives in and wanting to build together, he owns one investment property he purchased last year and is wanting to buy another investment property over the coming months. The only property in joint names would be the property we purchase together. We haven't yet figured out what my percentage share of the property would be.
To purchase the land and build a house we expect to borrow $700,000. This would mean that jointly we would have debts over $1.7million and assets of around $2.4million. My share of the mortgage repayments would be around 20% . Mine and his homes would be used as security to borrow the $700,000.
He would like to build a second two bedroom home on the 10 acres and rent it out for additional income.
The financial benefits could be enormous and I could possibly own my home outright within seven years if managed well. Because of the number of properties we would jointly own, any of them could be sold if we got into financial trouble. My partner is assured we would always be ahead, although he is wanting us to sign a legal agreement beforehand stating that if there were signs of an impending bankruptcy, my house would be secured. His aim is that we would retire comfortably and our children be well looked after. These are big figures though, and I'm use to be very conservative with money. Given the current housing market is so uncertain, other options I have recently considered include:
1. sell my home and repurchase something around $330,000 to reduce my mortgage and be debt free. This would ensure I could always afford my mortgage. However, I'm told it would cost me around $30,000 to do that and isn't the smartest thing I could do.
2. keep my home and rent it out. Rental income would cover my mortgage. Live with my mum lol!
3. sell my home and purchase a house to the value of around $480,000….. something with a flat attached that can be rented out. I saw a house like this online the other day that given the rental income, would make my mortgage much cheaper than it is now.
There are probably other options I haven't thought about……..
Behind these decisions are how they effect our children, so timing and the ultimate decision will depend a lot on them.
Any advice you have would be appreciated. Thanks very much.
Thanks for that, Foundation. My partner was us to see a solicitor together to find out what is possible first and for me to seek independent legal advice afterwards. The reason I'm here is that he wants me to ask all these questions independently, so I'm not giving him strange looks all the time
We'll need to raise that point with the solicitor though since in the advent of bankruptcy, the banks would have the first claim.
I really think you need independant financial and most importantly legal advice.
You need to be aware of what will happen to your assets if something happens to you if you have you assets mixed up with your partners. As you have a child and I'm sure would want him/her to be provided for if something happens I'd strongly suggest you seek legal advice. I have heard of children missing out on their remarried mothers/fathers estate because of inadequate wills etc. Ask about an enduring will (I think thats what they are called). Too complicated to go in to here to explain but a good solicitor should be able to advise you of this. You should also think about a power of attourney as well (if you are incapacitated in any way, someone needs to make financial decisions on your behalf that benefit you and your child).
I don't mean to sound all doom and gloom (and I'm not casting any doubts on your relationship) but if you have a child (and assets) you really need to have all bases covered for their sake.
Cheers
I don't mind you saying that all, bespoke. I appreciate being as well informed as I can be and you've given some very good advice.
I appreciate the helpful comments. Can anyone recommend where I could find good financial advice? This is something my partner was also encouraging me to do.
On the subject of real estate investment, does anyone have any thoughts on what the best options might be at the moment? Is it a good time to invest for the long term if you can afford it, or are there too many risks involved should housing prices suddenly plummet? Is it better to be conservative right now and wait for the market to settle?
I think now is the wrong time to act bold. How long can you balance a pencil on your nose ? From what you said there is to many things that could go wrong and 1.7mil is a huge financial burden to pay. Weekly repayments will be around $2,736 that means you will be paying $547 a week for the mortgage
Then there is many other expenses and "things" to consider as well: Children, Mortgage Insurance, House Insurance, Rates, LAND TAX, Property Management fees from real estate agency's, Rental Repairs, More Insurances, More Rates, You could write a list a mile long.
Both you and your husband must be earning some serious Ching Ching to be able to afford to pay off so much debt, I have spoken to real estate agency's where I live in Hervey Bay (Huge pop growth area in QLD)and they have told me that the amount of Rentals becoming available is exponential at the moment, There is thousands of properties avaliable for rent that can't be rented which is pretty funny because everyone on this Forum keeps telling me about the housing shortage and how people have to live "somewhere" yet houses are becomming more empty by the day, Have you considered the possibility of having an empty rental ?
Do you have sufficent casflow to pay your debts and buy food for 6 months if you both lost your job tomorrow ?
My partner is earning serious Ching Ching, whereas my income is modest.
His tenant on his rental property in Wollongong just signed a 12 month lease, so all is going well there. I'm in Canberra where there is a rental property shortage, so I'm confident of finding a tenant for my place. My partner intends to purchase a property in Adelaide for his daughter to live in who is just starting a family.
My partner mentioned having unemployment insurance. As my share of the mortgage for the house we build would be around $250 a week, that's affordable for me. Once a second house is built on the property and rented out, that would be further reduced.
Working off my partner's figures, he has projected monthly mortgage repayments for five homes to be $12,273. Rental income from those properties would be $7,200 per month. That's a shortfall of $5,073 per month, or $1,268.25 a week. At the moment, he can comfortably make that repayment of just over $1,000 per week (less my contribution). He is also confident of his ability to stay in work over the coming years……. but therein lies the risk, as you rightly point out! The question being that if this occur, could we sell those properties and secure my home?
He expects costs of $9360 per year and a tax return of around $13,800. That leaves a balance of $4440 per year.
You're right that there needs to be some serious savings behind us to cover the possibility of him not being able to work for several weeks or months at a time.
Ok, you can call me a pessimist like everyone else does and laugh at me, But i will be the one laughing in 2 years time.
No job is secure, My great grandfather gave a job on his farm to a judge during the great depression, My family where that poor during the depression that they where forever changed for the rest of there life, They never threw away one bottle, Jar, Or plastic container, They would hoard newspapers, Wash and reuse cling wrap, Eat half rotten food, Never use fans in summer, make there own conserves ect.
Things where that harsh back when the roaring 20's bubble burst everything was rationed, Food, Fuel everything, And the accumulated debt from then is nothing compared to what there is today, There where no Credit Cards, Equity loans, 2nd Mortgages, pay day advances, Government deficits ect.
Good luck in your pursuit of great wealth but I would not be expecting to double your money any time soon.
Thank you. I appreciate your outlook as it’s always helpful to have a range of opinions when making such a major decision.
I’m wondering what could be considered a fair percentage share of the jointly owned property that both homes would be used as security to borrow against. Once the house is built, the property could be valued in the vicinity of $900,000. My contribution to the mortgage repayments would be 20%, while my home used partly as security could be put on the current market at $430,000 (as recently advised by a real estate agent). My partner’s home is currently valued at around $550,000.
Why do you need both your homes as security for your new building? That amount of cross-collateralisation seems a big worry to me. If the bank won't lend you enough on the strength of the security in the 10 acres and new building, why not? Are you overcapitalising?
Is it legal to build two dwellings on one land title in that area?
It seems to me you are proposing jumping in with both feet, hands, ears, boots&all. Couldn't you live together in his house first and think about building an investment property together in a couple of years?
What % growth on the properties are you relying on to own your own home in 7 years? How confident are you of this? Given that property growth has to be ahead of inflation PLUS interest to make money.
Are you sure of being able to make the payments without you and your child going without, especially as you suggest you (now or soon) can't afford your home mortgage?
Sorry some questions are harsh and may be discouraging! Don't give up and do keep thinking… this may well not be the best way but you may find another. Good luck.we’re beginning to think about a further option of extending my partner’s home to accommodate my family, with both of us retaining full ownership of each of our homes separately. He would build the extension himself at a cost of around $150,000 and increase the value of his home by as much as $200,000.
My partner explained that it was only because I had mentioned wanting to eventually build our own home together that he was proposing to do that
I would be happy for him to increase the value of his own home and make life more relaxed all round. Even so, he remains confident he could comfortably afford to build a new home and that it would be financially viable.I think we’ll let this rest a while and possibly revisit it some point in the not too distant future. It would most likely mean losing the opportunity to purchase a block of land that has dual occupancy approval and a number of other features that make it very good value for money.
Thank you for all your comments and good wishes.
Much appreciated
Don't feel like you have or are missing out. There is always other good opportunity's around the corner, And there will be many many awesome ones coming in the near distant future.
Let everyone laugh at you and call you stupid while they tell you that your missing out because a recovery and a boom is coming next year or the year after that, Then when your buying there property and there 2 year old FPV GT within the next few years at a bank foreclosure auction you can laugh at them
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