Can anyone (such as one of the mortgage brokers on the forum) tell me what are the bank rules on investing in one horse towns?
I know they prefer 20,000 horses, or at least horse owners, but what if I find a good deal and the population is a bit light on? Do they want to do more conservative LVRs? Do they want to limit you to no more than $100K? Can they be talked around? Or is the 20,000 requirement a myth?
What if the town has few horses but the shire has the requisite number? Does this help me get loan approval?
It is the mortgage insurers that give us grief.
Check the postcode of the town on
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985NODOC Loan – 65% Loan – No questions asked! 6.85% Rate!!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon,
That link does not seem to work…..for me anyway.Thanks all.
I’m not too cluey on stables but I guess I could stick to 12 horses or more.
Thanks for the info on LMI. That explains it all nicely. The link worked okay for me.
Greg
gregss,
Use caution with getting LMI on your one horse town. I think LMI is only appropriate in a rising market or on growth properties. In 2004, none of our properties might have capital growth… but your one horse town might have even less. LMI can set you up for negative equity. It may be better for you to save a bit longer for the deposit.
kay henry
I’m interested how you manage your risk in a one horse town dependant on an industry thats traditionally fickle (say mining for example like Roseberry). Fixed interest rates only go part of the way when you consider the risk on the IP you have just purchased.
What happens in an industry downturn (I guess weirder things do happen in the world than mines closing) where your tenant supply dries up?
What happens when you emerge from a fixed interest period into an environment where rates are higher than they are today (this might just happen you know).
What happens if you find your +ve cashflow “investment” records minimal CG or -ve CG
What happens if the population decline that demographics indicates is happening (bush to beach) doesn’t reverse?
I have a few suggestions for managing risk for these investors.
* Hedge your risk re: industry specific downturn by short-selling the companies shares.
* Create “alternative use” for these places. Some of them would make excellent “rural retreats” or festival locations.
* Create your own demand: Offer them to Govt departments for leasing. Or bring in new industry to the town like tourism.
* Find something unique about the area.. “The healing powers of the local water supply” or something similar (Yowie sightings?) and get it telecast on “A Current Affair”.
* These a just a few ideas I have come up with, I’m sure there are many others.Cheers,
WaySolid“Write the wrongs that are done to you in sand, but write the good things that happen to you on marble.” Arab proverb
Thanks for the additional info.
Kay: I wasn’t worried about the 20,000 issue as I’m not looking at LMI. From the maths, if LMI gets you a higher LVR on a +ve property (and doesn’t cost too much) it would improve the CoCR but I’m sure you’re right on the risk side.
I have seen a 21,000 horse town getting CG this year – but mainly because of the frenzy of buyers snapping up good yields, driving up prices, and so destroying the yields. I’m sure many places will go backwards. It sure isn’t an easy time to buy.
But I do like WaySolid’s Yowie idea. If I go a step better and start an Investors-Rent-a-Yowie company, I could funnel all the money into properties. Then it really wouldn’t matter if they were negatively geared or didn’t get any growth for 20 years. Of course, competition might mess that up; or WaySolid (rightfully) insisting on royalties ….
greggs,
It’s good that you’re not htinking of LMI. CoCR is one thing… but when you look at interest on LMI… well, you still have to pay it back.
A friend of mine bought a property on 5% deposit and paid $8000 LMI. A complete waste of money, I think. Her property has not gained substantially, and now she has to pay back that 8k. OPM is fine… if people gain equity, but if not, it’s like having a maxed out 8k credit card.
kay henry
Originally posted by kay henry:A friend of mine bought a property on 5% deposit and paid $8000 LMI. A complete waste of money, I think. Her property has not gained substantially, and now she has to pay back that 8k. OPM is fine… if people gain equity, but if not, it’s like having a maxed out 8k credit card.
I used LMI when I bought my previous IP and borrowed 90%. The LMI cost about $1500.
Yes, I could have afforded the full 20% deposit but to do so would have required me to drain my non-property cap-growth oriented investments and eat into a cash buffer.
I didn’t want to do this (having already done this for previous IPs and wanting to keep a balanced portfolio) so I thought paying LMI was the best way to buy another IP sooner rather than later!
The property concerned was bought mainly for cashflow not growth. However the gross yield (9% based on a lowish rent) and the high building depreciation claimable (built 1991) meant that it is not a drain after-tax even with the higher lend.
Regards, Peter
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