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Although brokers are good I’d speak to a couple of bank franchises as well.
Note: some ANZ mobile bankers are actually ANZ franchisees. CBA mortgage Innovators are self employed CBA bankers.
If you read any industry mags (broker news / the advisor etc) there are a lot of brokers complaining that broker deals are not getting the same treatment as direct deals. These guys get paid like brokers but work within the banks – they can approve deals on the spot and their deals are prioritized when processed.
If I was in your shoes I’d speak to a broker, mortgage innovator and ANZ franchisee – avoid branch staff and mobile lenders (bank staff).
Banker
Banks generally work off a net surplus figure.
E.g. “Wages, 80% of gross rental, other income” less ” tax, living allowance, existing and new debts”…
If you have $1 surplus your are pretty much OK.
80% of rental income is based on the gross weekly or monthly rent. The 20% allows for agents fees, repairs, rates and maintenance etc. Repayments are usually based on rates above the current market to ensure you can afford a few rate rises.
most majors will also take into consideration tax benefits re deductable interest via reduction to the tax in the income calculation.
You need to run your figures through a few bank calculators.
Banker
With all banks your are required to disclose debts you have in your name or have guaranteed. Even if directors guarantee.
If you present a property well and spend money on marketing you can get a better price when you sell. If not a forced sale you also have time to wait for a good offer. Mortgage purpose valuations generally work on the bases of vacant possession – e.g. Empty house without too much emphasis on new paint, good presentation etc.
Banks also require a minimum amount of comparible sales e.g. If your property is a bit different and / or above the rest of the market the valuer will take a conservitive approach if nothing comparible has recently sold.
Real estate agents are often more optimistic. Valiers can be more optimistic if not valuing for mortgage purposes.
I guess think if you were lending your money. Would you want to take a security position based on a conservitive or optimistic valuation?
Banker
So Andy, are you saying you buy student apartments cheap on the secondary market rather than new?
It kinda confirms why not to buy them from a seminar / one stop shop property investors club type outfit. I’ve seen them sell up to 40% under original purchase price. I guess from your point of view they could be a good investment.
Good buy for the suckers that buy them new…
Good bye to their money that is…
If the market turns to custard these sort of properties are the hardest to sell. The secondary market is weak as you can always find a new one ( why buy something a few years old – miss the depreciation etc). This makes it hard to recover your money if you sell.
The value of the property / and potential rent is reliant on international students amoungst other factors – they are also reliant on a boyant investor market where property suitable for owner occ is not.
Default rates are on their way up ( due to rate rises). These properties are yet to be tested in a bear property market.
Crap properties… In my opinion….
A: variable. It depends if you are going to banks, second teir lenders or private investors. If the deal can be done on a retail basis; not much prep is required for the bank, commercial basis – a lot more is required, private equity or combination of bank and private equity is more complicated… You contribution (available cash and equity) will be a key factor that determines what sort of presentation you need.
B: re negotiating. 3 properties is too small for most senior commercial bankers. Therefore if residential you are better with less info via retail banking channels –
Where to go for help?
First you need to know finance options. The price difference from equity, retail or commercial bank will affect your costs – therefore you need to understand the funding options before you complete cashflow or real feasibility.
I would work on this basis
1. Basic estimate of costs – as you’ve outlined above
2. Finance options – bank, investor or both (talk to some bankers)
3. Feasibility study
4. Find investor – if required
5. Approached lenders formallySounds to me like you are at 1. You need to understand the finance part before moving to no 3.
Banker
Are they residential apartments or commerical?
I have seen a few 3 property developments done on fixed price building contracts which helps with costings. If not fixed price you will need a quantity surveyor. Best option is to push forward with plans and permits and them get some builders to quote.
In the short term it’s still worth seeing if you can get indicitive approval from a bank subject to plans, permits and contracts etc :- at least make sure you have enough equity / funds to contribute to keep the banks happy.
At a guess I would say you need approx 350k of your own money / avaialbe equity.
E.g. Land 700 plus build costs 300 x 3 = 1.6m
Bank loan 80%
your contribution 20% – (320 plus some costs)
I’ve added approx 10% (and rounded) the build costsWhat’s your. Little group called Matt?
Each loan can have an offset account.
This financial year e.g. Starting July 1. You have already now paid 1 years interest (paid July). If you break your fixed rate in June 11 to enable you to prepay in June 11 you will get another 12 months ( in this fin year).
That means your financial year ending ’30 June 10′ will show NIL interest and your financial year starting ’01 July 10′ and ending ’30 June 11′ you could have two years interest.
You could delay your 2010 tax return for a year and process together with 2011 – might prevent paying the tax as they will partly balance. the tax rates will vary but it will limit your loss…
The only thing I could say is to do it a month earlier next time… Nothing wrong with paying interest in advance at the start of June or mid June as long as you don’t miss the 30th. Noting it’s one of the busiest times of the year in finance.
Re the problem you have:
1: Lodge an internal complaint with the banks complaints area (get a reference number)
2: Lodge a complaint with the banking ombudsman (they won’t take a complaint without the banks reference number)
3: Ensure that you request confirmation of the system error; noting the bank will be required to reply in writing. If there was an actual error the bank can track via their IT department. If not your second complaint is that they have lied to you to conceal the true cause of your loss.
4: if is turns out no: 3 is not a system error you might have a good case for the ombusman.Feel sorry for you but the problem is trying to pay on the last two days of the financial year; therefore some risk must be accepted if something goes wrong ( you didn’t leave enough room for error).
next year aim to have it paid before say the 15th… I try to process these in the first week of June :
p.s. If you are one year fixed the rate won’t mature until July 11. Make sure the future break costs are coverred in your complaint if you want to prepay next June… You might get two lots of interest in this fin year / one paid July 10 and one paid June 11.
I’m against these set ups. Often these companies get up to 4% commission on the properties, upfront and trail commission from the lender and spotters fees from financial planners that sell insurance etc.
Problem is the whole concept revolves not around offering an all in one service, but rather creating a wall from any real independent advice.
For example; bank calls the broker and tells him the valuation has come back short say 300k as opposed to the 360k sales price. Finance can still be approved as the customers house was also security and has plenty of equity. Broker let’s the deal go through and settle without informing customer about the low valuation (finance brokers alliance is to the company and his commission rather than the customer).
I’ve seen too many people lose money on real estate due to these companies. Especially studios, retirement apartments, student accommodation – especially off the plan…
Get some independent advice. Complete independant research on their properties (not the info they give you), and use an independant financier and financial planner.
Albeit the proposal is important; most bankers get commission and bonuses and will help package a deal (bankers are sales people – just like brokers).
The key points are;
Experience – is it your first deal / or have you developed other properties
Hurt money – you need money in the project. You can not rely soley on end value. In most cases you will need min 20% of costs to contribute; in either cash or equity in other property.
Exit stratergy – can you service the total debt or do you need to sell to repay debt. If you are buildig to sell you may require pre-sales.If you want some more detailed feedback e.g. Will it be retail banking or commercial banking? let us know the following;
How many properties are you building?
What is the land value?
What are the construction costs?
What is the estimated end value?Banker
Have you tried going to a major. As I’ve said in a few posts CBA use gemworth however get automatic approval up to 1M. E.g. If they approve the insuerer automatically approves. Cba in my opinion is far more flexible than the other major 3: – saying that I think Westpac insure there own loans ( standard deals).
Go to a major and the deal won’t have to be seen by a mortgage insurer.
If you have a loan of 380k you need a Val of 475k to avoid LMI.
6.3% is a bit far fetched. There will be other fees and charges.
I clicked post before reviewing my last post…
Similar applies to offset: your direct debit is based on the limit not the net amount interest is charged on. Change to interest only (as Richard mentioned) and you should only be charged the relivant interest amount.
If you let us know the bank the feedback can be more specific.
Reading your first post it sounds like you have a 30 year P&I loan not an interest only loan- which bank is it?
If you have a 30 year loan you will have a set repayment over 30 years to clear the debt. If you put in extra cash you can redraw to where you would have been if you made your standard repayment. Therefore think of your balance plus available redraw as your limit:- it is this limit that your repayments are set on (noting you can redraw to this point at any time).
If your loan is paid by direct debit; ring the bank and tell them you will make payments manually. Most lenders don’t need repayments if you are ahead (accept lenders like Westpac whocall it a repayment holiday and promote it as a feature). Therefore you can simply recalc your own repayments with a loan calculator to recalc the original term based on the balance rather than the limit.
Obiwan,
Which bank are you dealing with?
Banker
Your second scenario is correct.
If your property is $600,000 and the bank allows 80% lend; you have a 'shaded value' or 'bank value' of $480,000. You can take your 480k in a wide range of products e.g. loan or line of credit (or a combination).
As Greg said: – you might need to go a 90%er.
If you did go with the first scenario you would have:
existing loan 300k, new loan 240k; TOTAL 540k (90% LVR).
