Newbies

With regards to holiday letting, it largely depends on the nature of the property. If it’s an apartment in a complex with existing onsite management and there’s demand for holiday accommodation in that area, then it may be worth a try. But if it’s a house in the suburbs (ie not in a prime tourist or business location), I’d be concerned about whether there’s sufficient demand, and the hassle of trying to arrange the increased management (cleaning, inspections, care of furnishings/fittings etc) from a distance. I’d very much tend NOT to get into holiday letting unless you’ve bought an apartment in a top resort.

Re difficulty of saving a deposit – yes, that’s extraordinarily difficult, in fact I try to avoid it [biggrin] As I said to my mortgage broker just yesterday “I try not to let the fact that I have no money stop me from buying more property!” [suave2]

Apart from it being difficult to save up a deposit, having the money sitting in a bank account while I accumulate it just isn’t having that money working hard enough for my liking. I have bought my past 4 properties without “saving” a deposit.

How do you do it?

1) Draw equity from other properties. Has the first property you bought gone up in value, either by the market or (better) because you’ve added value via a renovation/change of use/strata titling etc? Do some research and if it’s gone up in value you may be able to draw some more equity out of it by extending your mortgage.

2) Vendor finance. Admittedly this is not available on lots of deals, but if you find a “distressed vendor” or a more experienced vendor then they may be more open to the idea. As an example, you could ask the vendor for 20% finance for, say, 2 years at 8%. The bank pays the 80% you borrow to the vendor at settlement and they agree that you can pay them the 8% interest on the remaining 20% in, say, monthly payments for the next 2 years, then after 2 years your property will have gone up enough (if you’ve bought well and/or done something to add value) to enable you to refinance and repay the vendor their 20% as a “balloon payment”. If you obtain vendor finance you have to be careful how you structure the purchase contract and loan application so that you are careful not to alarm your lender, whilst of course remaining completely truthful. Many conservative lenders don’t like seeing “vendor finance”.

3) Borrow up to 100%. Some financial institutions will allow you to borrow very high LVRs, up to 100% of the value of the property. Yes, you pay LMI (Lenders Mortgage Insurance) of up to 2.5%, but to my way of thinking, if it gets you into the property more than 6 months sooner than would otherwise have been the case, it should be well worthwhile in terms of the capital gain that you make.

4) Extended settlement. Sign a contract to buy at an agreed price – today’s market value – with settlement a year or more in the future. Market growth may allow you to settle without having to put in any cash. Or you may have an agreement that you can do things to the property in the meanwhile to add value, eg subdivide, get a tenant (if commercial property), renovate etc.

There are lots of other ways – I haven’t even started talking about wraps or lease options etc – but these are some of my preferred methods.

Good luck!

Tracey Bryan
Brisbane