Afternoon
I have seen an opportunity, and would like some ‘opinions’ on what I am considering doing.
I have seen a property which is currently an investment property. The tenants just moved out last week and the property is now vacant, and for sale and can be purchased at a very good price. It is also listed on the Agents books to be tenanted again, so it is either going to be rented out again or sold (or both).
My position is that I can ‘top up’ my existing investment loan to get enough for a 20% deposit etc, but would like to wait before applying for finance, say 6 months.
What I am thinking, is to top up my current loan and give the vendor a 10 – 20% deposit for the property, AND sign a 6 month lease with the current owner at the market rate for the house. At the end of the 6 month tenancy I would settle on the purchase and take ownership of the property.
The benefit of doing this would be to allow me to do renovations to the property (minor) and also to use this 6 month period to get things underway to subdivide the block (get the permits through at least).
Tell me if I am incorrect, but if the house is renovated, I have the money in the bank to pay the fees, stamp duty etc and have provided up to 20% deposit AND as a bonus I have the permits for dual occupancy all out of the way – I would ASSUME that getting finance would not be too difficult??
The house is in the Metro area, close to a ‘town centre’, university, train line, freeway, shops and schools.
Seems like a no brainer to me but wanted to check to see if I am doing something too risky or if there is anything I have not considered.
(PS, whilst I will check for sure, I am 90% certain the block can be zoned for dual occupancy as several in the street have already been developed. I am not sure if I can even apply for this until it is in my own name anyway, but you get my general plan…)
Thanks for reading!
[cap]
Sounds like a good strategy if you were confident about getting the finance. The trouble is, approvals are only vlaid for 3 months, and if interest rates rise, it may make it harder for you to service a loan. If you can’t pass the bank’s serviceability model, then you won’t qualify. Then you’d be in big trouble if you couldn’t get the loan.
If you can talk them into a one year settlement, banks will lend you on value if it is higher than contract.
What would it rent for as is?
Terryw
Discover Home Loans
Mortgage Broker
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
Terry
Thanks for the reply. I was thinking that I would apply for finance approx 4 months into the lease period (2 months prior to expected settlement date)
If banks will lend on value if it is higher than the contract, is there a period of time they prefer (you suggested 12 months) – is this a bank requirement or can it be any length of time providing the value HAS risen above the contract price. – Basically, if the renovation ‘magically’ added 20% to the contract price, would I be able to borrow 80% (or the whole contract price)? -based on serviceability being okay of course…
The property can be purchased for $215k and was rented at $190 per week. Estimated value is around $230- 240k now, and in 12 months who knows…
I think a 12 month lease & settlement would be an option with this vendor. If not, doing it over 6 months, and worst case scenario if I couldnt get a ‘normal’ loan it may be worth getting into a ‘non standard’ loan because of the $$$ that can be made from subdividing the block and getting the permits.
Is this strategy used often or am I thinking a bit too far outside the square?
[gossip]
devilcv8,
The 12 months that Terry is referring would be bank policy on the specific loan.
I am going though the process with finance on a contract for property, which was signed in Dec 2003. From my research only Bankwest, Macquarie & Adelaide Bank would lend on valuation up to 90%, as long as it was at least 12 months from contract date. Westpac do, but only to 80%, but to a maximum of contract price.
woodsman
Thanks for your response, does that mean that you would have to wait 12 months before applying for finance, or would you get an approval, say, 2 months before settlement is due so you can settle at the end of the 12 months as per the contract?
[cap]
Yes. Lenders generally want 12 months to pass since the signing of a contract for them to lend on a higher value (rather than contract price). So if you could get a 12 month settlement, that would probably work. I say probably because banks are not always consistant. They allow some but not all, and their policies could change within the 12 months.
Terryw
Discover Home Loans
Mortgage Broker
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
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