Hi,

Nathan B has bought about this style of investing to reality, it’s not easy and takes a lot of risk; but it has paid off well for Nathan ( Maybe Nathan can post n comment on some hints)

Here are some answers to the above posters—>

—How equity release works( basic)—-

Say you have a current home loan of $300,000 and the LVR was 80% ( so home at that time was purchased for 375,000) lets call this the PPOR

Step 1 : You request the bank or broker to do a valuation and a loan increase ( split loan preferred way; for Tax reasons and simplicity)
Step 2: depending on which bank and how much you need – you can top up to a 80% LVR OR higher/lower
Step 3: say the value of the home is now $450,000 — that means your CURRENT LVR is 66%
Step 4: Say you choose to do a 80% LVR top up
Step 5: You have $450,000 x 80% = $360,000 ====== $60,000 equity to use.

Use this $60,000 for the deposit + stamp duty on the next purchase.
So the end results is
– PPOR loan of $300,000 still
– New IP loan of 100% LVR ( $60,000 + purchase cost) – tax deducible

Say you buy a place at 80% LVR and loan is $200,000 + $10k for basic renovations = on a 7% interest ~$1,150 PM ( interest only)
Rent = $350 x 4 = $1,400 PM

Minus insurance, management fee etc —- you will either break even or make a small amount of say $20-$30 PM…yes not a lot BUT it builds up…

1. Rent can be increased, and on average does go up over time…
2. You can renovate, build granny, furnish, paint to increase rent
3. The above does not take in any tax benefit or deprecation yet
4. Value of the land goes up …with inflation at least

Say your -VE or behind by $100 P/M — in effect this equates to a $90,000 mortgage in terms of serviceability.

SO term of serviceability; the bank will normally take in 80% of potential and current rent; so it may get to a point where your “serviceability” hits a dead end….But as long as your rent keeps going up + you have a job to support the ongoing “smaller ” debt then you got a long way to go.

Regards
Michael

It will affect the unconditional approval; but that doesn’t mean it’s the end- some changes are still within the banks standard.
1. Depend what the change is?
2. Which bank

Regards
Michael

Hi luke! – great buy!

The bank looks at both Property and location.
Karratha from memory is a mining town with a pop less then 7,000; so one of the reason why it may have that problem.

Regards
Michael

Hi Oz-
Yes the bank treats equity like cash; but make sure they do NOT x-cross your loan unless you really need to; so
1. Draw the equity and covert it into cash ( placed into a separate account/mortgage as a redraw or offset)

Use this 10% cash as per normal…

Regarding rent; most lenders will only take in 80% …some banks like ANZ will go off there “rent valuation” or the current rental agreement at 100% rental rate if requested….however ANZ “serviceability” ratio tends to be slightly tougher..so you lose some and you win some

Regards
Michael

It all depends on the “deal” and location….if it’s located in a good area ie in the CBD then vaccnay is not going to be a problem. In general smaller units has “less” capital growth ; looking at haymarket Sydney – the area went up by 30% in the last 4 years…but on average smaller units only went up by 20% on average….so growth can be drive up by location and demand of the area overall.

1. location is key for smaller units
2. 5% GROSS yield is low…you should be aiming for a min of 6-6.5% gross when it comes to units.

Regards
Michael

It’s a catch 22- no one is willing to take u in unless u have 2 years …u may have to stat off small and do something simliar- ie work for a bank or private lender in simliar role etc….but it makes sense for you to have some sort of expereicne before they would allow you to go on your own; There’s a lot of fraud going around especially in private money lending …plenty of fake ID and payslips out there!

Regards
Michael

Yep i agree with Richard – especially if your starting off “small” the risk is to high for them to take you on their books + they don’t know you.

The only way around this is for your to APPLY for your own Credit License via ASIC – as the Credit License are NOT just for brokers….to take up your own it’s gonna cost a bit + time.,

Regards
Michael

Yep- rent= income…
But speding $500k to achieve a rent of say $600pw-isn’t the best “structure” financially i have to say;
1. Risk
2. A huge lump sum into one investment
3. $600pw= $30,000 gross PA- can’t afford much for the next purchase + cash for deposit and stamp duty
4. Next purchase needs to be under 80%….LMI do not like “unemployment”

Regards
Michael

Speak to Paul Dobson who post on this forum on a regular basis; his knowledgeable in the world of vendor finance.

I dont have any relationship with Paul…just seen him post very high quality information.

Paul Dobson – Vendor Financier – http://www.negative2positive.com.au
Ph: 0447 973 235 – http://www.jvpropertypartners.com.au
http://www.vendorfinanceinstitute.com.au

Regards
Michael

ahha fair enough.

realcommercial and commercialrealestate are really the only 2 website i trust for Commercial deal search; you get a few buyers agent who will find deal you dont find on these sites but trust as you mentioned is an issue.

Regards
Michael