Hi,
I am looking for ideas for the initial deposit for an IP without having to liquidate my managed funds.
Background: I have:
1. 35K in managed funds (25K in Platinum International and 10K in Colonial Managed Funds)
2. 20K cash in savings
3. No equity or other properties.
4. Would like to borrow 250K for an IP.
5. Have stable income and should satisfy other loan criterias.My questions are:
1. I would like not to have to use the 20K cash as deposit but instead request for the banks to borrow against the managed funds (or the 20K cash??Is it possible to secure against cash in savings account??) . Possible?
2. If the lenders agree to borrow against the funds or the savings account, is the loan packaged offered usually with a higher interest and less flexibility? In which case do you think it would be better to use the 20K cash as deposit?
3. Anyone else has experiences of innovative ways in getting the deposit without cash or equity? I heard there is a new Wizard package (110% loan) but they share your CG. package coming out in Nov 04. hmm.Any ideas or suggestions is appreciated.
Thanks
It would be very hard to use a managed fund as security, but you migh be able to use a term deposit as security for a housing loan. But in the end, this would be just like putting down the cash for the loan which would be a lot easier and cheaper.
There are also a few lendersout there lending 100% of the pruchase price.
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
Hi,
There are 100% loans out there at fairly competitive rates like the wizard one. They are also releasing a 105% and 110% product sometime however I don’t know any specifics on them.
If you don’t go down that road then perhaps think about what return you are currently getting on your managed fund and what return you will get out of the Investment property.
Remember that leverage is the most powerfull thing there is. With $35k deposit you can get a loan on a 95% lend (if I’ve done my math right)of $700,000!!!
Now how many investment properties can you buy with that sort of money??Lets say you only buy 2 properties that are valued at $250k. Do you think that it is possible to buy these properties at $225k? Well with a bit of negotiation I’m sure it is possible.
Now, have you just made $50k (in equity) for simply using the leverage you get with a 95% loan. If you were to sell those 2 properties now for even $245k each, you will still have made $40k AND you will also get back the original $35K or whatever deposit you put in. Now that is over a 100% cash on cash return. I’m not sure what the returns you would get if you simply kept them as rentals, however i think $40k for doing not much at all is a fantastic return that will alow you to buy even more properties.(if you like you can stick that $35k back into the managed funds and use the money you just made to keep investing)
The Golden rule here is to use the leverage the banks offer and always remember that you make your money when you buy not when you sell.
Now I hope that makes some sort of sence as it is late, however I’m just offering another view point that you may find helpful.
Best of luck with your future investments.
Dave M
Originally posted by Terryw:It would be very hard to use a managed fund as security
TerryW,
You CAN use managed funds as leverage/security, however (according to info from my accountant) the issue is in the percentage permissable. That is, it will be lower than if you were putting up other means (eg. home) but is still quite an accepted and feasible option.
Cheers,
Jo
This is what i would do
1. Use the $20k cash as deposit.
2. Borrow the rest for a property worth $250k.
3. Sell the managed funds (pay any capital gains) and put proceeds into offset or line of credit.
4. Then take out the proceeds and buy managed funds again and this way you can deduct the interest on these borrowings for the fund.
So here is the end picture.
House $250k
less deposit $20k
Home Loan $230k.
Sell mgd funds $35k
Home loan $195k.Buy Mgd funds $35k
Assets = $250k and $35k and loan = $230k
Go to bank and say I want to have loan at 80% ie (250k * 80%) = $200k.
Loan now is $195k less $200k – so bank will give you an extra $5k to do whatever.
Anyway its a rough idea – but best to wait for property value to go up before refinaning and then you can get more money from bank.
Maybe Yack, but you have completely left out all the closing costs. Remember that the more you borrow (% LVR) the more you pay in closing costs. If you were to borrow 95% on a $250k purchase price, you are up for around 2.5% of the loan amount in LMI, which is about $6k, plus stamp duty on the LMI, plus stamp duty on the purchase (which varies state to state), but if you were in Vic which is the most expensive you would be up for about $11k, plus stamp duty on the mortgage amount, about $1000, plus any application fees, plus conveyancing, plus registration of the mortgage, plus rates adjustments, plus building and pest…. rule of thumb, you need about 5% of the pp for deposit (most 100% loans are for owner occ only) and an additional 5-8% of the pp for associated costs.
The biggest thing to remember is that having cash available is really important. Its like driving through the desert, you absolutly have to have enough petrol to get you to the other side, if you run out of petrol, you are in big big trouble.
If you run out of cash prior to settlement, you are in BIG BIG trouble.
Pete
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