Your loan increases in size.

Yes, proportionally to the increase in the size of the loan.

You can either increase the loan amount with your existing lender by asking them to value the property and increase your limit, or (my preference) go through a broker and take out a whole new loan for 80% of the current value of the property. You can go to a higher LVR eg 90 or even 95%, but interest rates go up and LMI is payable. Of the new loan, some goes to pay out your existing loan, the remainder is cash in your bank account for you to do whatever you want with. (Though if used for private purposes, the interest on the increased amount isn't tax-deductibe.)

Yes, or if you're a bit smarter, you first instruct a valuer to do an assignable valuation for you. ie You buy the valuation before approaching the lender, then you retain control. When you have a valuation you're happy with, and your broker has lined up finance that you're happy with, then assign the valuation to that lender. If you ask the financier to get a valuation, you're then locked into that financier, unless you want to pay for another financier to get another valuation. Better to keep the lenders competing for your business as long as possible!

Then you have to pay back the higher amount, ie 80% of the new value.

Yes!

Sounds like you had a pretty good idea for somebody who claimed not to get it – well done!

Aimee, I think if you allow 4% for annual expensees, that would be ample. This should cover everything except mortgage interest quite comfortably.

When Steve refers to "cash received" and "cash paid" he's talking about the ongoing costs that recur every year so your income and expenses. Cash received is rental income, cash paid is mortgage interest plus all those other costs you're allowing 4% for.

"Cash down" is how much of your own money you invested in the property when you bought it, as outlined by Steve above. This is the one-off injection of cash at the time you bought the property. The majority item is your deposit, but as you see Steve (wisely) also includes the other costs of purchasing the property. These "other costs" of purchasing, payable when you buy the property, are also called "closing costs". These are your legal fees, loan establishment fees, stamp duty, etc. A good rule of thumb for "cash down" is deposit plus 5% closing costs. So if you buy a $200K property with a $20K deposit, it'll probably cost you another $10K (5%) in costs (stamp duty, loan establishment fees, legal fees, etc). So your "cash down" would be $30K.

Warmest regards, Tracey in Brisbane

Council rates, landlord's insurance, repairs, accounting (tax returns, plus fees for maintaining Trust and corporate trustee if applicable), body corporate (if applicable), possibly excess water charges, etc. I budget on all costs apart from finance adding up to 2.5% of total value of property, or more (3-4%) if the property is valued under $300K. ie no less than about $7K per year on any property.

OK, propertyboy, there are a few different aspects here. You're almost right at the end. You can buy the property in your name, AND you can have the loan in your name, and yes, your new house would be collateral. Your Mum GUARANTEES your loan.

1) SECURITY – the asset against which the lender has security. So if you don't pay, they can sell this asset to get their money back. You're proposing that your parents' assets could be security.

2) BORROWING POWER – the ability of a person to get a loan, based on their income and assets. You suggest that your parents have better borrowing power and could perhaps get a better deal than you could.

3) USE – ie after you've used your BORROWING POWER to take out a loan against the SECURITY, you can USE those funds for different purposes. Your proposed use is for you to buy a property.

The parties involved in each of these three elements could be different people.

You don't need to borrow against your parent's assets to get the benefit of their borrowing power; you could achieve the same thing by simply borrowing in your own name against your own new property and having your parents guarantee the loan. By guaranteeing the loan – saying that they'll pay if you don't – the bank will take all their assets and income into account, as well as yours.

If, however, you need to borrow more than 80% of the value of your new property (ie you don't have a big deposit), then you could effectively borrow 100% of the value of your property by borrowing against their equity. In this case, you could do it in two ways:

Option A: Two loans

1) A mortgage of 80% of the value of your new property, taken out in your name, secured against your property, but guaranteed by your parents, plus

2) A new loan against your parents' assets, which is a refinance of their equity. Basically they take out a new mortgage against their assets, to cover 20% of the value of your new property. This mortgage would have to be in their names, I think, but I'm not positive about that. In any case, it's tax deductible to you because it's a loan for the purpose of you buying an investment property. The names/arrangements aren't as important to the ATO as the purpose. When your parents take out this new mortgage (a refinance, or equity redraw), they get given cash by the bank. You then use that cash as your deposit.

Option B: One loan

Your parents redraw cash equivalent to 100% of the purchase price of your property, you pay cash for your investment property, and you simply take on the payments for this loan. Whilst it involves one loan rather than two, the disadvantage of this method to your parents is that you've limited their ability to borrow against their equity in future. But as your property increases in value, in a few years you should be able to refinance your property in your own name and pay them out (as 80% of the increased value will be less than 100% of its present value).

Hope that helps rather than confuses!

Firstly let me say that I know very little about the FHOG and don't know if any of my advice would render you ineligible. Having said that, I think that you look at the FHOG as a bonus if you can get it, but it shouldn't determine your decisions. Compared to the difference (in dollars) between a good and bad investment decision, the amount of the FHOG is trivial.

You can protect your interests by buying as "tenants in common" with 50/50 ownership – where you can leave or sell your half to somebody else, as opposed to the more common "joint tenants", which most husbands and wives do, where if one dies the other one automatically owns the lot, and the amount owned by each party is unspecified. If you also need asset protection, then you could look at a unit trust arrangement. Best ask an accountant about this, as there are potentially implications with regards to negative gearing, CGT, land tax, etc.

Not sure. But as I said, "no big".

Absolutely. Where the money comes from, what the security is, and what you buy with the money, are 3 separate issues. She refinances her properties, preferably allowing you to take out a loan against her property (which I think can be done). So if Mum fully owns a $400K house, for example, she allows you to borrow 80% or $320K, secured against that property. You then use that cash to buy your IP for cash. The interest on the loan is still fully deductible against your IP because it is the use of the loan funds that's relevant, not what property it's secured against.

As per Q1.

Ring up your mortgage broker and check, but I've done a bit more searching and I have a feeling that you'll be lucky to get 60%. Basically, the more "specialised" and "unique" the security is, the lower LVR you can borrow against them. So a "bog standard home or reasonably sized unit" – up to 100% or even 106%. Some commercial properties with a diversity of potential uses – max 85%. Specialised properties – max 60%. And various categories in-between.

Do you have an option to extend beyond 7 weeks if Council doesn't approve in that timeframe? That sounds very optimistic to me, but perhaps you know something that I don't which gives you reason to think that this is achievable. Can you share?

I'm with SNM and Marc; particularly I agree with SNM that the cat door has to be removed and the door returned to original condition when they move out.

Best wishes, Tracey in Brisbane

Have you tried getting a few credit cards? I think that's about the only way that you'd get it through, unsecured. Banks seem to give out credit pretty readily via credit cards – get 4 x $10K credit cards and you're home!

Regards, and good luck! Tracey in Brisbane

I'm with elka and Marc, but perhaps even more emphatically. Super is a lousy investment, IMHO, unless you've already built a very large portfolio and are approaching the age at which you can gain access to it.

See my blog entry: http://www.somersoft.com/forums/blog.php?b=8

Warmest regards, Tracey in Brisbane