Hi,

I have now built my own tool to establish the benefit for a borrower under this loan product, where all variables can be applied for the individuals circumstances. After spending 8 months building it and now being on the verge of having all calculations fully audited and signed off on by Grant Thornton Accountants (one of Australia’s big 4), I can say that the product is 100% legitimate and worthy of investigating if you have a PPoR and Investment loan structure (provided you don’t have current rates locked in at under 4% p.a. for each loan).

As Jason has pointed out, the loan is charged at 4.25% p.a. on the aggregate loan balance with a minimum loan rate on the PPoR side of RBA cash rate + 0.50% and maximum rate of RBA cash rate + 4.15% on the investment side. In the current investment environment, this would mean your PPoR could be as low as 2% and investment loan as high as 5.65% p.a.

The loan rates are then re-calibrated on the outstanding loan balances either every 24 months or when the RBA cash rate changes (whichever is the sooner).

I will put an example of a real deal that was done in the past week to give you an idea of how it worked out:

Incomes
Him – $80,000 p.a.
Her – $35,000 p.a.

PPoR Loan Amount – $265,000 (IO)
PPoR Current Loan Rate – 4.54% p.a. (ANZ)
Remaining loan term – 29 years
Scheduled Mortgage Repayment Date – Oct 2045

Investment Loan Amount – $491,500 (IO)
Investment Loan Rate – 4.45% p.a. (ANZ)
Remaining Loan Term – 29 years (aligned with PPoR – but as we know it will need to be rolled over in 5 years)
Rental Income – $460 per week
Vacancy Rate – 3% p.a.
Rates – $1,650 per annum
Water Rates –

In doing an analysis I like to make the monthly repayments after tax dollar for dollar so they are no worse off from a cashflow perspective that what they are on their current loan structure. Once this is set up, I can supercharge the interest saving without the borrowers having to pay an extra cent into their loan structure (as I’m sure you all can). With that being the case the new loan structure looks this way:

Home Sooner PPoR Loan Amount – $265,000
Home Sooner Loan Rate (Day 1) – 2.00% p.a.
Home Sooner Term – 30 years (although repayments are calculated on 29 years so the term is at worst the same time)

Mthly Repayment Results in year 1

Pre-Tax
PPoR Loan Existing – $1,370.98
Investment Loan – $1,830.06
Total – $3,201.05

Pre-Tax
PPoR Loan Home Sooner – $1,064.17 (2.00% p.a. including an additional loan repayment of $60 per month to even out monthly loan repayments between 2 loan structures)
Investment Loan – $2,276.29 (5.54% p.a.)
Total – $3,340.46

Post Tax Home Sooner total out of pocket cost (year 1) = $16,368.63

Post Tax Existing Structure total out of pocket cost (year 1) = $16,353.59

Loan Paid on under Home Sooner Structure – August 2043 (saving of 2.17 years on loan term)

Total Repayment Saving to borrower – $86,761.38

Without doing anything else in this borrowers case aside from paying the exact same amount of loan repayments from day 1 as they were before (this reduces with time and becomes less pre-tax in 2026), they save $86K.

If the borrower has the right ratios and doesn’t have existing rates in the low 4% range, it is a no brainer.

There are no fixed term periods or fixed rates, so the borrower can refinance at any point, but essentially there is no reason to do so.

We will have an online calculator available for borrowers to insert their details in and figure out what (if any benefit) would be available to them in around 3 weeks.

I have been building and auditing the numbers in this calculator for around 8 months now (started in May 2016). I thought it would take me 15-20 hours to build the model, but I was slightly incorrect on that one :)

Ask any questions you may have.

Dave.

Hi Sam,

There are a few fundamental things to look out for and be aware of before you commit to that kind of fee:

1. At what point do you pay the fees for the service? Are they paid in advance to engage BInvested to go “searching” for the property for you?
2. Who defines what under market value is? What happens if you disagree with the valuation? Is there a third independent party that is able to adjudicate on the properties value?

Happy for you to send me a message if you would like to know more about the issues to be aware of when assessing the services of these companies.

Hi Bond,

If you were to split the loans and uncross the properties offered as security, the scenario might look this way (to avoid LMI on property B)

Property A
Value – $700,000
Equity Redraw – $200,000
New Loan Value – $475,000
New LVR – 67.86%

Property B
Value – $800,000
Deposit from Equity Redraw – $160,000
New Loan Value – $640,000
New LVR – 80%

You would have an extra $40,000 set side for any valuation shortfalls in property B so you could get your loan down to 80% LVR or below to avoid LMI. That being the case, the total property value is still $1.5 million and the total loans are $1,115,000 giving you a 74.33% LVR across the portfolio with a spare $40,000 in cash available for any unforeseen circumstances or simply put it back into property A’s loan (offset account if you can set one up) to reduce the loan to $435,000.

Of course the equity you draw from property A for use as a deposit in property B will be a tax deductible expense (interest incurred on the money used). Ultimately you want to put as much money into property A and reduce the debt as fast as possible as the interest being incurred on the non-investment loan is not tax deductible.

Dave.

Hi Shannon,

I would highly recommend Ripehouse (www.ripehouse.com.au) for all of that information. There is most, if not all of what you have asked for available on the site and the results it generates are strictly derived via these metrics for strategies (capital growth, flipping and cash flow).

Hi Ryan,

Its a pretty big topic the topic of property investment area research and one where you will have many people tell you their method/data is superior to someone else's. Basically I have done a thesis on property research at Uni, invested in many properties of my own, built and developed around $50 million worth or high rise unit apartments and renovated units too. It wasn't until I started to do the developments that I realized how important focused research of an area actually was. Basically in easy to understand terms, you need a demand/supply imbalance in the market in order for the area to grow in value.

Property research is therefore broken up into 2 categories being statistical and fundamental. Because there are 15,000 suburbs around Australia, I needed to come up with a rating system to pinpoint the suburbs that have a demand/supply imbalance in them now and as such have the best chance of increasing in value well over the state average and in turn give you the ability to purchase more property and increase your wealth at a much quicker rate than most investors in the market. Obviously property investment is much better if you can time the market more efficiently rather than sit and wait for 5 years for any growth to occur, so this helps do that for us and our clients.

Our rating system rates each suburb out of 480 and each category is weighted according to the importance it has in the demand/supply balance. A brief outline of what they are is as follows:

1. Number of Days a house unit in the suburb is on the market – The lower the better, this shows a higher demand for that type of dwelling in the area. If the number of days have been decreasing over the past 6 months this is even better
2. % of vendor discounting – The lower this number the better as it shows that buyers have less choice and less ability to negotiate. It also indicates a suburb could be in high demand
3. Auction Clearance Rate – The higher the better. Higher numbers indicate a higher demand
4. Rental Yield – The higher the better as it indicates a higher demand in the area from renters who are prepared to pay more to live there.
5. % of Stock on Market – The lower this number is the more demand a suburb has and the higher the chance of getting a premium for the property is
6. Online Search Interest – Takes the total number of online searches in an area and divide this by the number of properties available for sale in an area. The higher this number is, the more potential demand the suburb has and the lower the supply in the market is to fulfill the demand
7. Rental Vacancy Rate – The lower this % the better it is for investors and the more demand a suburb has
8. Proportion of Renters to Owners – The lower this number the better a suburbs perception is. Owners have a tendency to look after their properties a little better than renters and therefore lift the perception of an area’s quality

If these metrics combined give us a rating that indicates the demand is exceeding supply (market is imbalanced), then we move onto the fundamental searches to validate the statistical data.

Fundamental Indicators

1. Proximity to Water/Ocean
2. Views of Hills/Mountains
3. Transport Infrastructure – Recently announced, in progress or to be shortly started that will reduce commute times to the CBD and increase demand for a suburb
4. The ripple effect of close suburb neighbours. If suburbs within close proximity have grown substantially recently, the chances are that the subject suburb will grow quickly in order to maintain a pricing balance between the growth suburb and the subject suburb
5. Project Booms – Are there any large projects nearby that will create a spike in demand (Mines, desalinisation plants, shipping ports, pipelines)
6. Ugly Ducklings – Has the suburb been branded rough or ugly in the past and the only problem with the suburb is its reputation? Are private buyers updating their properties in the area? Are developers buying up new land and building new apartments? Are businesses and trendy cafes entering the area now?
7. Urban Renewal / Government Works – Has the government put forward a proposal to improve the appeal of an area (Parks, malls, entertainment, shopping precincts)
8. Lifestyle Features – Are there any lifestyle amenities nearby like golf courses, large entertainment precincts, tourist attractions

If those 2 searches reveal that the suburb is a potential hotspot, then we drill down to find the best streets within the suburb and then find developments within close proximity to those to give the best chance of fast capital gains.

The data houses like Residex, RP Data and SQM Research provide data that fluctuates greatly, but is best used as a potential source to gather suburb short lists for investigation from. The issue with these data providers is that they don't provide past issues of recommendations to gage performance by. The trend of a suburb of interest is of particular value when deciding whether a suburb is worth fundamentally investigating. For example, it is no good going off to investigate a suburb that has been growing at 15%p.a. for the past 5 years. Like everything in life, when one area gets too expensive, people will compromise on the next best cheaper alternative until the prices of surrounding less desirable suburbs catch up.

There is so much more that could be written on the topic, but those items will give you a basic template of what you can use to instigate your research model for superior returns of investment properties.

Hi Paul,

Like everything in life, its pretty easy when you know how it works. I am an excel master. You can PM me and send the sheet to me and I will fix it for you. If you want to try and do it yourself, you will need to use the PMT function to calculate the weekly/fortnightly/monthly payment required. There are lots of variables in calculating the answer, but you need to have the rate and number of payments (first and second arguments) in the same units/time periods, so if you are doing monthly payments you need to divide the rate by 12 and multiply the number of years the mortgage is calculated over by 12. Being a financial function, you also need to put the present value (3rd argument) in as a negative (as its what you owe the bank) and financial functions rely on cashflow investments being input correctly, otherwise you get an incorrect answer.

Have a go and see how you fare, but if you struggle, send me the sheet and it will only take me a few minutes to fix it for you.

Hi Micky,

As Freckle said, you will definitely need to do up an accurate timeline of events for all of the issues you have had. I would suspect that the Property Managers would be at risk of having their Real Estate Licenses taken from them by the department of fair trade. Have a look through the management agreement you have with them (should be one of these – http://www.fairtrading.qld.gov.au/property-management.htm) and see if it actually states that they are supposed to do inspections once per year or anything else that may be a little irregular. If the agreement is silent it will revert back to what the legislation says about the adequate management of a property which includes, but isn't limited to:

Property manager responsibilities

A property manager must:

promptly respond to requests for maintenance or repairs

act in your best interests, including getting quotes for repairs

employ only licensed tradespeople for any repair or maintenance work

develop and comply with a complaint handling procedure

complete an inspection report and inventory

accompany prospective tenants on all property inspections (unless otherwise instructed in writing).

Start there and see where that takes you before you go down a legal route. Fair Trade takes all of this pretty seriously and they have the ability to do the following:

Grounds for disciplinary action

The Director General can take disciplinary action against licensees and certificate of registration holders, and former licensees and certificate holders, who:

breach the Act or Regulation, including the Rules of Conduct – for example, failure to account for money held in trust, or failure to properly supervise employees

breach a licence or certificate condition

conduct business in an illegal, unfair or incompetent manner

become disqualified from holding a licence or certificate

cease to be suitable ‘fit and proper’ for the duties of licensee/certificate holder

fail to pay a required contribution to the Compensation Fund

fail to comply with an undertaking made to, or a directive made by the Director General

fail to pay a fine imposed by the Director General following disciplinary action

hold a licence or certificate that has been obtained fraudulently or by mistake.

Disciplinary actions

Where there are grounds for disciplinary action, the Director General can take the following actions:

caution or reprimand – issue a written warning that an aspect of the person's conduct is in breach of the Act and could be grounds for further disciplinary action

directive – an instruction to take a particular action within a specified time

undertakings – a direction requiring the person to agree to operate in a certain manner

monetary penalty – impose a fine of no more than $11,000 for an individual, and $22,000 for a corporation

licence condition – impose a condition on the licence/certificate, for example, a condition that prevents the holder from performing certain functions

licence suspension – stop a licence/certificate for a period no longer than the unexpired term of the licence/certificate

cancellation – cancel a licence or certificate of registration

disqualification – declare a person as disqualified from holding a licence/certificate under the Act, either permanently or for a set period of time

disqualification from management – disqualify a person from being involved in directing, managing or conducting the business of a licensee

In addition to the disciplinary action option, the Director General can:

require an agent to discontinue unjust conduct, rectify any consequences of such conduct and apply to the Consumer, Trader and Tenancy Tribunal for an order restraining the conduct if the licensee does not desist.

issue public warnings – where urgent action is needed to protect consumers from significant loss or harm, the Director General may issue, where public risk is immediate, a public warning alerting consumers to the risks of dealing with a particular person

appoint managers and receivers – a manager can be appointed to carry on the business of an agent whose licence has been suspended or cancelled or who is no longer able to properly manage the business, to prevent disadvantage to existing clients. Also, in a range of cases, including where a licence has been suspended or cancelled, or where a failure to account is suspected, the Director General may apply to the Supreme Court to appoint a receiver.

Disciplinary procedures

Complaints and investigations

Any person can make a complaint to the Director General about a breach of the legislation.

NSW Fair Trading can conduct investigations and take disciplinary action whether or not a complaint has been made, for example, where an investigator has identified a breach.

Penalty notices

Penalty notices are a quick and efficient means of dealing with minor offences.

QLD Fair Trading can serve a penalty notice on a person if there is evidence that they have committed an offence under the Act or Regulation.

If the person does not wish to have the matter determined by a court, they may pay the amount of the penalty within the time specified in the notice.  Payment of the penalty is not regarded as an admission of liability and prevents further disciplinary action from being taken for the offence, but does not affect any civil claim arising from the matter.

The aim of the penalty notice scheme is to encourage changes in an agent’s conduct to achieve compliance with the laws. NSW Fair Trading has guidelines on the use of penalty notices to ensure that the integrity of the penalty notice scheme is maintained and that it is used consistently and only for appropriate offences, that is, offences of a minor or technical nature. Circumstances where stronger disciplinary action would be more appropriate might include repeat or deliberate offences or behaviour that has caused serious detriment to consumers.

When new penalty notice offences are introduced, it is QLD Fair Trading’s policy to proceed with gradual implementation in the first six months. During this time on-the-spot notices are not issued and all penalty notices must be approved at a supervisory level before being issued.

Penalties

Penalties under the Act reflect the seriousness of offences. For example, a person who commits trust account fraud will be guilty of an indictable offence and liable to imprisonment for a term of up to 10 years. A maximum penalty of $22,000 will apply for unlicensed trading by a corporation and $11,000 for an individual. Similar penalties apply for collusive practices at auction sales.

Disciplinary action by the Director General may be reviewed by the Administrative Decisions Tribunal.

Show cause notice

The Director General can serve a show cause notice on a person where there are grounds for taking disciplinary action against the person.

A show cause notice gives the person the opportunity to make a submission to the Director General to demonstrating the reasons why he or she believes that the proposed disciplinary action should not be taken. A person to whom a show cause notice has been issued is able to seek legal assistance in the preparation of a submission.

The issue of a show cause notice is usually the first step taken in a procedure which may result in a licence being suspended or cancelled or a person being disqualified from holding a licence.

In situations of serious risk, the Director General may immediately suspend a licence or certificate when issuing a show cause notice.

Show cause notices:

are issued in writing

give the person at least 14 days to respond

indicate the range of penalties and action which might be taken under the Act, and

describe the alleged conduct for which the action is proposed to be taken.

A person who receives a show cause notice can make oral or written submissions to the Director General. For more information, go to the Notice to show cause page.

Appeals against disciplinary decisions

A person against whom disciplinary action is taken may apply to the Administrative Decisions Tribunal for a review of the Director General’s decision on the disciplinary action.

Related information

Rules of Conduct

Grounds for disqualification of a person

Property, Stock and Business Agents Regulation 2003

Administrative Decisions Tribunal

Hi DaOne,

Those questions can only be answered by seeing a copy of the contracts you signed for each component of the deal (land and construction contract). The terms and conditions should all be outlined in there for you and have remedies for events like the ones you have stated above not proceeding. Of course if the contract is silent on those items, you can use the courts to resolve the disputes, but of course that is a very time consuming and costly exercise from a legal fee/court cost perspective and an interest accumulation perspective too. 

Have a look through your contracts to see if there is anything time limits put onto those items or if they are dealt with at all in the contract. 

Lastly, if you were verbally told that something would happen in a certain time frame by a sales agent or representative of the vendor, then that can also be taken into account too if you need to litigate down the track, but obviously staying away from the courts is the best way to resolve all of that.

I have Muswellbrook houses as a current rating of 150/500. Basically you wouldn't want to be an owner in the area at present and from a statistical point of view I wouldn't waste another minute of time on it.

The stats are as follows:

Typical Value

$324,000

Days on Market

93 days

Vendor Discounting

6%

Auction Clearance Rate

56%

Rental Yield

5.11%

Stock on Market

2.50%

Online Search Interest

4.30

Vacancy Rate

8.35%

Proportion Renters

40

The big 2 to note there are online search interest, which is only 4.3 times the number of properties for sale in the area, the vacancy rate of 8.35% and the fact that 2.50% of the available stock is on the market with such little search interest means that you aren't going to see any capital growth there any time soon as there is simply not enough demand and too much supply on the market to drive prices upwards. A purchase in that area would be pure speculation and not investing.

Hi Juichi,

Its a pretty big topic the topic of property investment area research and one where you will have many people tell you their method/data is superior to someone else's. Basically I have done a thesis on property research at Uni, invested in many properties of my own, built and developed around $50 million worth or high rise unit apartments and renovated units too. It wasn't until I started to do the developments that I realized how important focused research of an area actually was. Basically in easy to understand terms, you need a demand/supply imbalance in the market in order for the area to grow in value. 

Property research is therefore broken up into 2 categories being statistical and fundamental. Because there are 15,000 suburbs around Australia, I needed to come up with a rating system to pinpoint the suburbs that have a demand/supply imbalance in them now and as such have the best chance of increasing in value well over the state average and in turn give you the ability to purchase more property and increase your wealth at a much quicker rate than most investors in the market. Obviously property investment is much better if you can time the market more efficiently rather than sit and wait for 5 years for any growth to occur, so this helps do that for us and our clients.

Our rating system rates each suburb out of 500 and each category is weighted according to the importance it has in the demand/supply balance. A brief outline of what they are is as follows:

1. Number of Days a house unit in the suburb is on the market – The lower the better, this shows a higher demand for that type of dwelling in the area. If the number of days have been decreasing over the past 6 months this is even better

2. % of vendor discounting – The lower this number the better as it shows that buyers have less choice and less ability to negotiate. It also indicates a suburb could be in high demand

3. Auction Clearance Rate – The higher the better. Higher numbers indicate a higher demand

4. Rental Yield – The higher the better as it indicates a higher demand in the area from renters who are prepared to pay more to live there.

5. % of Stock on Market – The lower this number is the more demand a suburb has and the higher the chance of getting a premium for the property is

6. Online Search Interest – Takes the total number of online searches in an area and divide this by the number of properties available for sale in an area. The higher this number is, the more potential demand the suburb has and the lower the supply in the market is to fulfil the demand

7. Rental Vacancy Rate – The lower this % the better it is for investors and the more demand a suburb has

8. Proportion of Renters to Owners – The lower this number the better a suburbs perception is. Owners have a tendency to look after their properties a little better than renters and therefore lift the perception of an area’s quality

If these metrics combined give us a rating that indicates the demand is exceeding supply (market is imbalanced), then we move onto the fundamental searches to validate the statistical data.

Fundamental Indicators

1. Proximity to Water/Ocean

2. Views of Hills/Mountains

3. Transport Infrastructure – Recently announced, in progress or to be shortly started that will reduce commute times to the CBD and increase demand for a suburb

4. The ripple effect of close suburb neighbours. If suburbs within close proximity have grown substantially recently, the chances are that the subject suburb will grow quickly in order to maintain a pricing balance between the growth suburb and the subject suburb

5. Project Booms – Are there any large projects nearby that will create a spike in demand (Mines, desalinisation plants, shipping ports, pipelines)

6. Ugly Ducklings – Has the suburb been branded rough or ugly in the past and the only problem with the suburb is its reputation? Are private buyers updating their properties in the area? Are developers buying up new land and building new apartments? Are businesses and trendy cafes entering the area now?

7. Urban Renewal / Government Works – Has the government put forward a proposal to improve the appeal of an area (Parks, malls, entertainment, shopping precincts)

8. Lifestyle Features – Are there any lifestyle amenities nearby like golf courses, large entertainment precincts, tourist attractions

If those 2 searches reveal that the suburb is a potential hotspot, then we drill down to find the best streets within the suburb and then find developments within close proximity to those to give the best chance of fast capital gains.

The data houses like Residex, RP Data and SQM Research provide data that fluctuates greatly, but is best used as a potential source to gather suburb shortlists for investigation from. The issue with these data providers is that they don't provide past issues of recommendations to gauge performance by. The trend of a suburb of interest is of particular value when deciding whether a suburb is worth fundamentally investigating. For example, it is no good going off to investigate a suburb that has been growing at 15%p.a. for the past 5 years. Like everything in life, when one area gets too expensive, people will compromise on the next best cheaper alternative until the prices of surrounding less desirable suburbs catch up.

There is so much more that could be written on the topic, but those items will give you a basic template of what you can use to instigate your research model for superior returns of investment properties.