Michael Yardley (who comes here sometimes) puts out a monthly newsletter, one of which recently contained a brief analysis of growth vs yield. High growth was the winner. You may be able to access the newsletters online at http://www.metropole.com.au/

Terryw
Discover Home Loans
North Sydney
[email protected]

Sis is correct. it is basically using two (or more) properties as security for a loan.

eg. You have a house worth $200,000 with a $100,000 loan. You buy an investment property worth $200,000 borrowing $220,000 in total. For the IP both the IP itself and the home are used as security. This is an advantage as you can borrow 100% or more for the property and don’t need a deposit.

The disadvantage is if you want to buy many properties or want to sell one it creates difficulties. eg in the above example, if you want to sell your home, you would have to pay down the loan on the IP so that it was 80% below purchase price, or get the IP revalued and mke sure it is under 80% LVR (due to growth).

Another disadvantage is that both loans have to be with the same bank.

A more flexible way would be to set up another loan (ie a LOC or a redraw) on the original home and take a deposit from that account to use for teh IP and getting a 80% LVR loan with that or another bank. You owuld still be able to borrow 110% for the IP, but would have the flexibilty of using whatever lender happened to be more suitable at that time.

Terryw
Discover Home Loans
North Sydney
[email protected]

There are commercial second mortgage products available, but the interest rates are around 20% with a mximum LVR of 80%. It may be cheaper to find individuals to help you out.

Terryw
Discover Home Loans
North Sydney
[email protected]

Simon

That reminds me, I did a 95% loan with no LMI.

I had a client that purchased a unit, the valuation came in at 20% more than purchase price and the bank lent him 95% wihtout mortgage insurance. So it is posisble if you can get a good bargin (very rare).

Terryw
Discover Home Loans
North Sydney
[email protected]

It is standard practice for the mortgage insurers and the banks to use valuation where the contract is over 12 months. If there is no LMI involved, the banks ‘may’ consider lending on val if it is nearly 12 months.

A lot of people are now finding that there has been no growth at all in the last 2 years for off the plan properties.

Terryw
Discover Home Loans
North Sydney
[email protected]

I beleive that ‘the rules’ are different between the ATO and centrelink. Centrelink assess you on your income. If their house was rented than that rental income would result in their overall income increasing and so they may end up reducing their pension because of this.

They also base the pension on the assets of the pension(ers) with the home exempt from the assets test. Once it is rented out it is included in their assets list, so this may also result in a reduction or a cancellation of their pension.

From a tax perspective, they will also have to pay tax on the extra rental income they receive, but they could still count this house as their PPOR for up to 6 years as long as they do not own another property. They could sell it CGT free during this time.

I beleive that the person on the phone was probably correct in what they told you. But it wont hurt to ring again to reconfirm.

It may work out better if your parents were to sell their property and buy a new one, but please get some proper advise on the matter as I am not qualified!

Terryw
Discover Home Loans
North Sydney
[email protected]

I am often told that customers have gotten different figures when approaching the banks direct and when getting their borrowing capacity done on the same lender with different brokers.

It seems most bank estimates are on the low side. this is probably due to the bank’s (untrained?) staff not doing it properly by adding anticipated rental incomes etc.

On the other hand, some brokers seem to try to gain clients by getting their clients (or saying they can get) as much as possible and may even leave out little things (eg children, or credit cards) and/or exaggerate on the potential rental incomes of IPs, just to make the figure higher. (it is like some real estate agents exaggerating price to get a listing).

Get the person doing the calculation to tell you what they have included so that you can see if they have left anything out.

Terryw
Discover Home Loans
North Sydney
[email protected]

unforseen things that can happen include:
-one or more parties deciding they want to pull out prior to completion.
-blow out in costs, one or more parties not being able to come up with more money
-one party going bankrupt or getting into some trouble. creditors could possibly come after their asset.
-borrowing capacities being effected-may prevent you from doing other deals
-All parties, jointly liable for the project.

These can all probably be resolved if you plan ahead.

Terryw
Discover Home Loans
North Sydney
[email protected]

Hi Scarecrow

Most brokers have access to these types of funds. LVRs are around 70%, but can go up to 80%. rates can vary depending on the security property type and location etc. Generally, these are easier to qualify for and some do not even do a credit check.

Terryw
Discover Home Loans
North Sydney
[email protected]

try either of these:

http://www.strategicwealthmanagement.com.au

http://www.mintgroup.com.au

Terryw
Discover Home Loans
North Sydney
[email protected]