Hi everyone,
A friend of mine called me today to ask for my advice, but unfortunately, it wasn’t anything that I felt qualified to answer. Had it been a psychological issues (no sweat) but when it comes to “mortgage matters” leave it to the experts!!!
Her scenario goes as follows:
She is 35, single mum and in part-time employment earning a modest 15-20K per annum. So far, regardless of all this, she has managed to acquire 2 IPs, and wants desparately to buy a third IP, however between these and paying off her own home (valued at 350K) she owes the bank a whopping 500K. [blush2]
Her question to me was, what did I think her chances were of refinancing and being allowed to borrow more??? After picking myself off the floor in shock (as I am clueless on mortgage matters) I suggested she talk to her banker. But in the meantime I would ask my own source of experienced financial gurus [book]….namely my fellow PI forumities.
So guys/girls, does it look hopeful??? IMO it didn’t look promising, but then what’d I know??? [blink]
Here it is again broken down (as she outlined to me):
PPOR – valued 350K owes 200K
IP 1 – valued 250K owes 170K
IP 2 – valued 250K owes 130K
Salary – 15-20K part time
Dependants = 1 childWhat’s your verdict???? [guilty]
Cheers, [rolleyesanim]
Jo
Seems highly unlikely to me.
Based on your figures I dont know how she can afford to eat let alone pay 3 large mortgages.
She may be better of selling one of the investments and paying down the PPOR loan and trying to buy a second investment property.
I doubt very much she will get a loan for a third.
But ask the mortgage brokers – they should know more than me.
Equity wise she looks very good. It does depend on what rents are received and what interest rates she is already paying. Lenders are fastidious about how you are going to eventually pay the money lend back. The next purchase would have to be a very good deal. A cashflow positive buy to offset any losses on existing loans may make her finances actually look better rather than worse.
If you want to get out of a hole, first stop digging.
Hi Jo,
Your friend’s financial situation may not be as bleak as it first appears to be,
Most lending institutions will take rental income into account, including family payment and addbacks on investment,Based on your figures she has $180.000 available in equity, possibly more at a higher LVR,
I would also suggest a loan structure where the non-deductible portion of her debt is given priority,
But without all the relevant information it’s all guesswork.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Thanks Yack, Brenda, MM, [medieval]
I have made note of your replies and will pass on the relevant suggestions.
I tend to agree with Yack, that the probability is not good of borrow more money to finance her next IP, but then I am not a financial whizz and wouldn’t know where to begin.
I have reminded her that she needs to “shop around” and talk to different lenders, and at worst, consider selling one of the IPs if things get too tight. But she assures me all is good, and she will battle on, and that “if not now maybe later” she may be in a better position.
As far as her rents are concerned I can’t answer that, all I know is (according to what she has told me) the rents cover a fair chunk of her debts and her salary makes up nicely for the rest, but on 15-20K it has me beat!!!! [blink]
Thanks again for your comments; much appreciated.
Cheers,
Jo
I don’t know how she has got so far on so little. I reckon this woman is a legend. I’ve no idea how to help her (I couldn’t do it for myself) but tell her I think she’s doing great. Very inspiring story as we are rather income challenged as well.
Cheers
SonjaI’ve ran some figures and assumed a 5% rental yield on the rentals. It seems she wouldn’t be able to get a ‘normal’ loan based on serviceability. There is a lot of equity available there and she has done well.
Depending on her circumstances, it may pay to consider selling the property with the highest equity and paying down her PPOR loan, reducing her non deductible debt. While she has a small taxable income her CGT would be smaller, but she should seek professional advice on this. Once she does this, she could then borrow again to buy another property. Ineffect, this would be converting non deductible debt into deductible debt.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Jo, I reckon you should get your friend to contact one of the fabulous mortgage brokers on this site. I assume she is in Vic with you, so Steven would be a good choice… She can provide all info to him, and they can go from there.
I hope her IP loans are interest only… She’s doing a great job [
]Cheers
MelHi and thanks Terry, Sonja and Melbear,
I will pass all of your comments onto my friend; I am sure she will appreciate your thoughts. I agree Sonja, how she does it is beyond me, but hey, good on her; she has done well!!!
Melbear, I agree
someALL of the Mortgage Brokers on here seem so helpful that I am sure should she decide to utilise a MB, I would push that she approaches one from here definitely!!!Thanks again for all you imput; you’re a top bunch in here!!! [thumbsupanim]
Cheers,
Jo
Hey there Monopoly
Just wanted to offer a tip to your friend as
I am in much the same position, ie PPOR, 2 IPs and casual work at 15k/yr, plus family benefits of 15k/yr. What I found the killer was rates and insurance on these three properties. So I made a self contained flat downstairs.Boarders moved out a while back.
Next week, I have 3 international students moving in. Payment is $160/wk per student.
[thumbsup2]. This money is tax exempt and doesnt affect my pension.The only downside to all this is the risk to my sanity. Caring for my 4 boys, plus 3 more and all aged under 13!
I realise your friend isnt suggesting she needs more $ but it wouldnt hurt to mention the possibilities.
milly
I think your friend should sell the IP that she has the most equity in and use the profits to pay down the PPOR. At present, she only has $350K nett worth inthese properties. She would do better to pay off the PPOR sooner and buy another IP down the track.
The main reason is that cash flow is king and spare cash allows you the luxury of being able to hold onto assests (even in down times). your friend’s $15K-$20K doesn’t allow her this luxury. unless she has other income,eg., child support.
Thanks Milly, Jason
I will pass on all your comments to my friend.
Take care,
Jo
Just to explain my reasoning – your friend currently has $350K equity. If she sells IP2 and uses the $220K to pay down PPOR, she will still have $350K. So it seems that IP2 ad no equity, only adds risk. In the current market and with possibility of rising rates, I would err on the side of reducing the risk. Better to sell now under your own terms that when you are fuly stretched and desperate. [thumbsupanim]
PPOR – valued 350K owes 200K
IP 1 – valued 250K owes 170K
IP 2 – valued 250K owes 130K
Salary – 15-20K part time
Dependants = 1 childWhy not advise your friend to start up a business from home or something like that. Have her read ” One minute millionaire” for inspiration.
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