Forum Replies Created
Well to maximize his chances of winning the big one freckle he should put $50,000 on the lottery and then he's just increased his chances of winning by 1000
So you would like to do a development, yet you acknowledge that it requires more cash then your current available equity. But then you go talking about putting your deposit down and getting cashflow from the property.
How about asking yourself what do you really want? Do you want a lump sum cashprofit or do want to have cashflow.
You could put all your deposit on one house and you could do a renovation on it and achieve a small cashflow outcome at the end of it. Or you could look to target a property that would make you a lump sum profit.
Easy question to ask yourself. In 1 years time would you rather turn that 50k into 100k? Or would you rather have 5k cashflow. Ie positive cashflow of 100 bucks a week. That's assuming you put all your money onto one property, most likely did some improvements to the property and picked a area with relatively high rental yields (could be regional) . I for one would be focusing on building my equity base up so that you have the cash to buy the opportunities that come up. Which means looking for properties which would make a decent cash profit after sales. You could look at flips, buy renovate and sell, getting the DA on a land division and on selling. These strategies will require you to know your area/location of property inside out so when something comes up you can act with speed and the confidence that after looking at sold prices in the area for the last 6 months etc you know your getting a good deal.
Here's a different idea. Don't have enought cash to do a development. Go borrow the money to do it. If you want to be aggressive or think that's your nature.
Lets be honest if you found a subdivision that you could do and just selling off the land would make you a hypothetical profit of 50k after all your costs. But you needed your 50k deposit to secure the property at 95 percent with LMI up to 97% and you had no money left to pay for the subdivision costs and mortgage for 12-18 months. Would you turn that deal down ? Why wouldn't you just go take a personal loan for the interest required/sub d costs required. If you couldn't pay the interest costs on the personal loan why not borrow a bit more to pay for that.
If you borrowed a hypothetical 50k on a personal loan fully drawn at 15 percent, that's 7.5k interest for a year.
Your still making a profit after costs and interest on the personal loan of 42.5k.
So what would you do? Some might say that's risky and you should save up the costs for the subdivision.
But in 2 years after you've saved up that money. How many opportunities would you have missed. Food for thought mate
Wilko
Just out of curiosity is your buy renovate and sell going to be organized by a license builder, with you guys managing the project . Or are you going to be renovating the property yourself ? I would have some points on both answers.
A couple reasons I could think of why he suggested making it your PPOR but it really comes back to your goals,
yes you get CGT free after 12 months but what are your plans after the first renovation. Do you want to do another? Are you happy working in your job because buying as your PPOR means none of the potential profits you make can flow into either business/company or self employed income on your tax return.
If you were buying to renovate and sell after 6 month time period your high income would mean any profits are taxed at your Tax rate which would be 46 cents. Make 50k on a Reno pay 23k tax prob not the smartest idea. Hence where the broker proberly got his idea to buy as PPOR. Make 50k and not pay any tax but depending on your goals this might be counter intuitive to what you want to achieve. Ie if you desired to quit your job some people do to go property fulltime- then that might not be the right strategy. If you desire to build up some equity/cash and experience. Yes it might be the right idea.
I would say that you were choosing a house that was unrentable ie termites, floors missing , bad smells, holes in exteriors walls etc. it would be important to look at what LVR you go for. Going for 80 percent LVR..- 99 % of the time a valuer won't even come out to inspect and you'll end up with a desk top. If they go for 95 percent the valuer will be coming to have a look through.
Few things to look out for that will make a property valued at land value as opposed to your purchase price if a valuer gets the chance to come investigate.
– holes in exterior walls as mentioned
– bad smells (urine etc)
– no oven/kitchen
– no showering or bathing area
– no lights
Had a friend who had the most worse timing of a valuation, he was completing a renovation on the front house /subdivide back block off. He sold the land off the back, about a month before settlement they came to revalue the original house which he was renovating. He had just ripped the kitchen out about 2 weeks prior to make way for the new kitchen coming in/ ordered and paid for already. Valuer came in looked at the property . Normal Val would be around 400k. But without the kitchen…. Oh no the valuer couldn't see past a 5k kitchen that needed to be installed. Bam house is not livable, it's only worth land value. – his land sold 1 month prior for 200k. So he thought ok it's at least going to be valued at 200k. To rub salt in the wounds They valued it at 190k because they said it would cost 10k In demolition haha some people. When a 400k house gets dropped to 190k value and your dont have sufficient equity/cash to keep the LVRs in track. He could of been in a bit of trouble.
Anyway You said you had 140k equity/cash
If your looking at properties in extremely poor condition. I would be considering 80 percent LVR If your in and out in 6-12 months its not a big deal really.
Buying in at 360k
72k for 20 %
No LMI
Stamp 18k
Mortgage for a year 20k plus some bills.
110k leaving 30k for you renovation costs. Plus what ever contributions you make with your own income.
Going straight through the bank to get your loan approved wouldn't be a problem with you income/ cash available. Your problem is how are you going to renovate it. Yourselves ? Or a registered third party ie builder.
Because if your looking at the bank funding the renovation budget you'll have to have a scope of works with a builder. If you have any builder mates that could certainly help. If so, you won't control the funds and the funds will be released to your builder as the value of the house increase ie certain stages.
Simple example is a extension on a house
Payment paid to builder after
Slab
Frame
Roof windows doors
1st fix
2nd fix etc etc.
If you plan on doing the Reno yourself then you'll have to change your ideas out the bank paying out the renovation budget unless you had the appropriate licenses. Easy Finance ideas for the renovation would just be a personal loan. Take out personal loan. Instantly repay 90 percent of the loan leaving a bit to cover 1-2 months repayments (ie minimizing your interest repayments of your P/I repayments for the loan. Then when you require funds you just redraw it like a LOC but a personal LOC. At the end of the project you can get the project revalued pay off/down your personal loan and enjoy home lending rates until you sell. (You can keep your personal loan open if you want for other projects)
Just remember that your first Reno might not be the most profitable but you'll certainly learn a lot.
Enjoy
Wilko
Hi mosics which bank did you use to do that?
Did your original loan go into a term deposit first (as security) and then onto the new property or was it a same day settlement
Have security substitutions lost a lot of their value now since the gfc and change of credit policy? If you cannot substitute even a single security in and single out without having to do a full assessment again it seems its lost a bit of its power that it had previously
i was under the impression that if you did a straight forward one for one security substitution that borrowing requirements were relaxed. I.e You wouldn't have to provide documents proving income/payg or self employed income again for the substitution to occur. Just a valuation to show the new security is of the same or greater value then the original.
My scenario for this would be a self employed builder/developer who already has a series of loans for development projects and is happy to just substitute a old project in for a new project without having to go through providing all the income requirements again.
Qlds007 wrote:One of the products we will be launching at the Property Know How Club during 2013 is an exclusive 100% loan product for investors only with a 90/10 split between conventional and private loan.
sign me up to a few of these richard, got a few more properties i want to purchase this year.
What are the loan terms looking like. Pay off private portion of the loan within a shorter time frame, higher interest yes ?
Hi Richard
Assessment of serviceability for a SMSF though would that still be independent of personal guarantees given?
How about Low doc loans as well?
thanks
dragon_v723 wrote:thx for all the pros and cons appreciate itanother question is do u have to engage a surveyor(or town planner?) to determine if the block of land can be subdivided before making a offer to the vendor?
If you read and are able to comprehend each councils individual Development Plan. You could determine this yourself. Councils are making it easier and easier for everyday people to find the information they require. They can tell you themselves but do not take their word as you'll go in one day and get another answer the next day. Submitting a plan for subdivision for "feedback" to the council. your not actually submitting a application. just getting feedback on a preliminary drawing of the carve up of the land. Your level of subdivision though would determine getting a surveyor or building designer on board. If your doing a simple backyard corner block subdivision. working out setbacks, POS, frontage, driveways (where the sewage and power are as well) are easier to determine then if you were doing a 5 lot subdivision with turning circles, tapered driveways, POS in the form of balconies and open roof tops. You would prob want to to get your building designer and surveyor involved with that one.
What area are you in firstly because that would change all of the answers?
Are u finding it hard to sell the chopped backyard?
I agree with the above posts that battleaxe land is harder to sell (if incorrectly priced) then say a corner allotment subdivided land. Building a dwelling on subdivided land would increase the speed of what it sold at.
Do u find the original house at the front devalued a lot like >10% after the subdivision?
Have you done any work to the original house? Was it in bad condition before. Just think about what you you would of purchased the house if it wasn't on a corner allotment. ie. if it was worth 500k on corner. Yet from your knowledge of the area. Lets assume the house right next door sold 1 month earlier then yours for 400k and is in exactly the same condition. You should put in resale value 400k of the original house when working out your costing for profitability
How much did u spend on in the subdivision process?including all the pro fees, council charges and utility contributions etcv
Completely dependent on State/territory.
example
SA – Straightforward Torrens title subdivision. 25k in council charges, utility contributions, private open space contributions etc. Add perhaps 500-1000 dollars on lodging the titles.
Add extras if you have a sewer extension, power pole shifting, Power shifting, transformer upgrades, crossovers.
how long did ur council take for the permits etc?
I would say council averages 10-12 weeks if your designs are correct and they don't need to go back for resubmitting.
Depending on your strategy and how aggressive you want to be in building your portfolio and your risk levels. You could take a personal loan out for your deposit on your IP. Your high incomes would easily support a personal loan of 50k which could could be used to purchase a high cash flow property or some sort of buy renovate/develop sell property. (not advising you to do such a thing but you could if you wanted to). Transfer P/loan from Bank A into Bank B. Hold for 3 months in Bank B (providing they only need 3 months statements of accounts) and suddenly you have 50k of assets. You also declare you have a existing personal loan of 50k. You would also add further money through saving into this account during that time period. IF you didn't want to wait 3 months and you wanted to buy NOW, found deal a lifetime type of scenario . Use your personal Loan money and pay a 10 % deposit. 50k for your 500k house. Not sure if anyone wants to confirm this. But some banks will go ok great you've put 50k towards this deal already ohh and you have a personal loan of 50k listed on your liabilities (how do we not put 2 and 2 together). You now only need 1k to settle. Assuming the 51k 95% with LMI up to 97% capped as before.
On another note. Trying to get a personal loan out to pay the shortfall on a property you've signed to purchase after you have paid the deposit the banks will go No you cannot use personal loan money to pay for your shortfall. But yet somehow if you paid a bigger deposit beforehand even with the personal loan its ok? The bank you use to get your home loan with should be different then your P/Loan bank.
Your goals will determine your strategy. I'm not advising to do the above. But in saying that if you were going to wait 6 months to save up your money but you have found a property that you can renovate and sell and make 10,20,50,100k today, i don't see why you would wait (obviously for risk purposes). You would lose you opportunity cost for the remainder of the year after you had completed the renovation/development. If you were buying a property to buy and hold long term then that strategy would properly not be that advisable. After all what is waiting 6 months for a property that you are looking to own for 10-15 yrs or the rest of your life.
Terry could you give a example of how having 2 or more directors all giving personal guarantees would hurt serviceability moving forward.
Am i wrong in thinking. Person A, B and C have signed personal guarantees. Net loans in the trust 1.5 million all for investment purposes. Person A then wants to go off and buy their own PPOR or do their own individual borrowing in another trust or in their own personal name. Their income is only 75k but the group total income was 250k.
Does this then mean that if your using the same bank they will say… You have given a personal guarantee for 1.5 million your income of 75,000 is not enough to service any future loans.
Is this avoided by going to another bank. Cant remember i have ever been asked if i have given a personal guarantee for another trust
thanks wilko
jindou wrote:There are some good areas in Elizabeth and to a smaller degree Smithfield. Davoren Park is generally quite bad. You really need a good "local" property manager. (I can give you some names if u wish). But for that price range… ie. 85-100k for a semi detached 3 br home., there is not much else you can get in Adelaide for the price7 years later and i just bought a semi out in elizabeth downs for $87,000. Good to see prices have changed haha.
Sorry pert, but are you only 44 years old and not 64 ?
"With renovating it can be really hard to know what you're getting yourself into … If you have major electrical problems you might be looking at $25,000 to rewire the house."
His electrician must be using that gold wiring again
http://www.ato.gov.au/businesses/content.aspx?doc=/content/57402.htm&page=4&H4
That pretty much sums up what would be treated as income over capital gains.
Terryw wrote:If you or a related entity is declaring profits on capital account it is likely to be treated one off. Even when using a discretionary trust the income would flow thru as a capital gain usually. If you are trading or treating the sales on the revenue account then you are unlikely to be treated as a residential customer and more likely to be a commercial loan clientIm with CBA and got asked to go to commercial lending as they said that our properties were to be treated as stock. NAB 100 percent would not let us go back to residential lending rates (wanted us in business banking for the extra money grab i suspect). After speaking with a manager at CBA they let us continue using residential lending rates/applications and have continued for at least the last 4 purchases. Might change in the future..
