I have seen on this board what appears to be many examples of people talking about laying down 20% deposits etc on a property in which they have a positive cash flow. In other words, they are only financing 80% of the property.
Why would you do this? Why would you tie up your money in an investment property? Wouldn’t you be better off financing the whole price if you are able i.e using any equity in you home or in other investment properties?
Tieing up say $20,000 on a $100,000 property seems madness for the small monthly return on most positive cash flow proerties (putting aside capital gains).
What do you people do? Do you finance the whole lot or do you pay some hard earned into the property?
Cheers Kirby.
Kirby319
One of the main reasons as I understand it for the 20% down is for ease of getting the finance. Looking at the larger picture for multiple deals…Banks will be more willing to keep lending multiple deals with 20%.
Hope that makes sene
NealHi there Kirby319.
I have bought two investment properties and both times the ANZ bank has lent me 95%. I have only ever put down a maximum of 5%, which was only $3750.Generally the bank will force you to have mortgage insurance when you have less than a 20% deposit.
Apart from the cost of the mortgage insurance there are only a limited number of ins companies that actually provide this cover (about 2 ) and they then keep a record of how much they have covered with their upper limit at about 1.5mil.
So when you have borrowed 1.5mil the bank will refuse you any furhter loans as they can no longer obtain mortgage ins.
Cheers
On the first property the bank charged me mortgage insurance. From then on, it never charged me mortgage insurance because i had the first property. Thats with the ANZ bank, other financial institutions might be different. I also never got charged a loan approval fee after the first property, the ANZ is very good in that regard.
Hi Jumbo,
Mortgage insurance is payable on deals where you have 20% or less equity in the deal (aside from a few specialised lenders/ products).
What ANZ would have done is cross collaterilised your two loans. ie both properties are joint secutities for both loans. This escapes you paying LMI on the second loan as the overall equity of the two properties is greater than 20%. ANZ also allow for capitilisation of LMI if needed.
When people on the forum talk about putting 20% down they either have sufficient cash reserves to do it/ are working with an investor or are drawing funds from an available line of credit etc.
There a advantages to having your properties stand alone – easier if you need to sell one etc, and also if you are wrapping properties you want them as stand alone for obvious reasons.
Happy investing,
Nathan.
It is true that the Mortgage insurer will limit their lendings but if you use mulitple structures then that limit can apply numerous times.
Enjoy
AD [:0)]“Carpe diem, quam minimum credula postero.”
Lat., “Seize the day, put no trust in tomorrow.”
-Horace, Odes
It is true that the Mortgage insurer will limit their lendings but if you use mulitple structures then that limit can apply numerous times.Like companies or trusts?
I wondering….
If you negotiated for the vendor to finance 20% (or 10% + 10% deposit) could you get around paying mortgage insurance, and thus the whole “borrowing limit” as the bank is only loaning you the 80% on each property…
Quasimodo
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We are all but half formed images of our true potential.
___________________________________________________________________________Quasimodo
OPM (Other Peoples Money) in the form of…. Vendor finance !! [
]You need to negotiate with bank re second mortage (if Vendor loan is secured) as they may reduce the LVR to deal with it. We have been told no to LMI if we use a second mortgage, but, if it comes up we will ask again as the answers sometimes change given a little time and track record [
]cheerio
the bbb B
Thanks B!
Or should that be thanks “The” B? [
] Good to know it’s possible with negotiation (as almost all things seem to be!)Quasimodo
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Funny how action has a way of answering all of our fearful questions…
___________________________________________________________________________Hey Quasimodo
I have just realised that you are located in Cananda (well it is hard to answer questions and be observant… [
])I have just been reading “nothing down for the 90’s” by Robert Allen.
From this & other books I understand that there are a considerably broader range of techniques available in the USA and Canada for creative financing with Vendors. That text might be a good place to start !
cheers
the B (or just plain old B, or even Bruce if you like [
])ps: Thanks for all of your constructive posts too !
Hey there B
Yep! I’m currently staring out at a lake covered with snow on a balmy -2 degree day [xx(] (yes, others are commenting on how “warm” it is today.) The great thing up here is that being so close to the US there’s all sorts of financial products (like loans) and getting a 30 year fixed interest loan and a great rate is not hard. There’s still not much happening up here wrapping wise, probably because the government demands you pay a special extra juicy insurance if you put down less than 20% on a property. Still, prices are good (outside Toronto) and New York State is just across the lake. [8D] I’m looking forward to moving to Oz soon though! Sunshine! Warm weather! FHOG! [
]Quasimodo
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Funny how action has a way of answering all of our fearful questions…
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] Good to know it’s possible with negotiation (as almost all things seem to be!)The topic ‘A question on deposits for pos cash flow property’ is closed to new replies.
