Hi All,
I am desperate for some simple advice… My partner and I are both REALLY keen to get started and we figure there's just GOT TO BE A WAY !!! If anyone could recommend what we can do to get started it would be greatly appreciated… Our situation is this:
– have a $505k mortgage currently owed on our PPoR
– PPoR valued at around $700k
– currently paying P&I (am happy to switch to IO if it will help however we are locked into a 3 yr fixed rate so i'm assuming there would be some hefty fees to break this contract)
– would like to start with a small IP, say around $200k
– partner is a builder, so reno's are no problem to add value
– would like to purchase with CG being our main objective
– want to purchase 2nd, 3rd, 4th, etc IP's as soon as practical
– assuming we would need to apply for a lo doc loan considering my partner is in low wage bracket (thanks to our creative accountant) and i'm a mum who's currently not working (although will be going back to work soon part-time earning approx $300pw after tax)
– we have no other assets (ie shares or available cash)…. however we do have a well trained border collie that i could rent out for weddings, parties, companionship, anything
Investing is our passion and whilst I'm trying to play mummy to a 4mth old and 22mth old, I am putting what little time I have into self development by continually reading, learning, reading, learning from experts on this forum, reading books, etc and have gained a huge amount of knowledge… however i'm finding that the simple basics of getting started are confusing me the most, particularly the financials !!!
If the bank revalues our home and says its now worth say $750k, what sort of equity does that give us? And how do we get that equity?? Do we re-finance (remembering that we would probably have to refinance on a lo doc loan)? And will refinancing increase our mortgage repayments?? Or do we get a LOC on our current mortgage and does this increase our repayments? What's the difference?? I really have no idea how this basic stuff works… So assuming we either refinance or get a LOC (and i dont know which is the better option) and use that equity as a deposit for our 1st IP then does that mean we get another loan or does it add onto our current mortgage??
If paying a higher interest rate for a lo-doc loan is our only way then we are happy to go for it, knowing that the CG of our IP's will hopefully outway these higher rates… Is there a point where the banks/lender will be happy to give us a competitive interest rate in the future (ie after purchasing a few properties and they know we are credible)…
Please help as I'm so confused and mind-boggled and i really want to get my head around it confidently. We are so keen and there's GOT TO BE A WAY …. We are hoping to be in a position to purchase (at least) one IP every 12 months for the next 20 years or so …Hi Boshie
Low Docs are generally only 80% LVR. There are some at 85%, some at 90% and even some at 95%, but rates are rather high at the high end.
So assuming your property is worth $750,000, 80% of this is $600,000. But you currently have a loan of $505,000. So that is potentially $95,000 in usuable equity.
You can stay with your current lender, possibly, if they have low docs and just leave the existing loan as is and set up another split of a LOC for $95,000.
You could then use this as a deposit and costs for the new one. If you are going for a 20% deposit on a 80% Low Doc, then you will need about 25% including costs, so divide $95,000 by 0.25 and that gives you a potential max purchase price of $380,000.
So you might be able to squeeze out two more $190,000 properties. But you will still need to consider whether you can service these loans.
Once you have purchase one or two more, then you can add value and/or wait for more equity and repeat the process.
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 terry,
thankyou so much for your reply… we will look at whats available with our current lender and hopefully take it from there…
if it's going to get us started do you think it's worth "wearing" the higher interest rates of a low doc loan? and do you think it's better to go for an 80% lend as opposed to say a 95% lend? I'm assuming the pros and cons are that an 80% lend is obviously better interest rate, no mortgage insurance (dependent on the lender of course) plus more chances of obtaining a cf+ property, whereas a 95% lend, whilst higher interest rate + LMI would be payable, it will free up more funds if we wanted to look at a 2nd property…
Which would be the better option? I'm assuming that an 80% lend would be better for us starting out, less riskier i guess…
boshie
80% low docs are available at rates lower than many normal loans. 95% Low docs are very high in rates, 9.5ish.
Either way you will be borrowing 100%, with the deposit coming from the LOC, so it won't really help to make a property cashflow positive by putting in more deposit (as this is borrowed too).
If it was me, I would be inclined to stick to 80% LVRs and start off slower.
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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