Goal:
To purchase an investment property within the next 6 monthsI am 20 years old and have been interested in property investing since I was 10 years old. I have spent a few hundred dollars on books over the years and have spent hours reading all these boards.
I purchased my PPoR in March 07
Purchase Price $280000
I currently owe $264200
Current Price would be $300000 easyMy partner and I both earn $40000 per year
We have a $15000 car loanWe have a disposable income of around $1400 per month
I am only interested in general houses, NO units,commercial or resort rooms.
I want to go see the banks but I am not sure how to present myself and how to show them I can repay the dept. Would a personal cash flow chart be useful to show them?
What would you do in my situation?
James
All responses are appreciated.
The banks will look at what you earn from a wage, you may be able to project what the likely rent from your prospective property will be after you purchase it and rent it out. It would also be good to show the expenses likely to be incurred like Council Rates, Insurance, Water rates and property manager fees or provide a guess of between $2000 – $2500.
Some banks will factor in rental income to work out what you can borrow, some may even take family payments from Centrelink into account also.
Also banks look at equity so a list of your asset values like a rates notice and debt like the lastest mortgage statement for your PPOR and evidence of your wage like a payment summary (use to be called a group certificate) or recent wage slips would be useful for the bank.
Make an appointment with the banks lending manager and explain that you would like to find out how much you could borrow to purchase a future investment property.If your current property is worth $300k, your useable equity is 80% of this = $240k.
This means the banks will let you access 80% of the property's value for more investing, less any existing loans, and this is subject to loan serviceability.
You currently owe $264k on it, plus another $15k on the car.
No Bank will lend you any money right now, as you have no useable equity, and no cash deposit to put down.
The best plan for you to follow is to get rid of the car loan asap, and start saving as hard as you can, and/or decrease the property loan as fast as you can so you can put together a cash deposit, or have some usable equity for the deposit.
This'll probably take you a good year or two, providing you don't do something in the meantime like take out another $15k car loan on a $40k wage.
Congratulations – you are in a much better position financially than many.
With your projected disposable income, within 10 months you can acheive one of the below things.
1) Pay your car loan off completely
2) Have a 10% deposit for a $140k IP. A bit of skimping here and ther will no doubt allow you both to have 'closing costs' too.
10 months……it will fly….start planning (and saving) now!All the best
I appreciate your thoughts guys.
I worded it wrong, my girlfriend and I earn 40k each per year.
If I go strong I think theres a good chance we could pay off the car by 2009. Is that the right way to go about it,pay off car first then home loan? and should I put extra cash after the car loan onto home loan or leave it for deposit?My disposable income was calculated after the first 12 months of purchasing my home, I kept receipts for absolutely everything and kept and documented every bill. This has helped me to see what I have wasted some of cash on, this year I can see allot of opportunities to save even more.
We have a measly 5k in bank.
If I was to find a Really good deal on an investment property would the banks be more inclined to approve finance? Eg. I found a foreclosure for 250k worth 500k
Looking forward to your responses. If anyone else has something to say on topic or not I'd still like to hear it.
Cheers James
If I was to find a Really good deal on an investment property would the banks be more inclined to approve finance? Eg. I found a foreclosure for 250k worth 500k
The bank will only take into account the purchase price on the contract as marked price, no matter how much the 'real' market price is. You really need to try to get yourself into a position where you have a 20% purchase on a property. First step is to have your PPOR revalued to see how much it's really worth (your bank will do that) and see if you can borrow against that value. In today's market I wouldn't gear myself to more that 80% though.Another more drastic option would be to sell your PPOR, find a house to rent, and use the profits from the sale for investment property – though don't make this decision based on my comment – I'm merely flagging the idea!
I am a big fan of this forum, but I don't think I have come across a thread where so much bad advice was given in such a short time.
Cash flow projections?
NO Bank will lend you money. They will consider 80% of the value, less debts?
James,
For your own safety and financial interests, forget pretty much everything that was just told to you.
You and your partner do not have to waste your time doing any kind of cash flow projections or similar analysis. Why? Because they use a fixed 'Living Cost' and Expense servicing calculator to asses your ability to repay, and no cash flow projections will change that. If you pass, all good. If you do not service = No Loan.Also, the bank (assuming you are Full Doc) will lend you up to 95% of the COMBINED value of the security offered.
Marc's comment is completely incorrect and ill informed.
If your current property is worth $300k, your useable equity is 80% of this = $240k.
This means the banks will let you access 80% of the property's value for more investing, less any existing loans, and this is subject to loan serviceability.
You might pay a risk fee or mortgage insurance, but you are quite able to borrow more than 80%. It is a matter of how well you feey you are buying, and your level of comfortability in the debt.
Also, Marc's comment that no bank is also completely incorrect, considering he has no idea (clearly) how much rental income you might get from your potential purchase. I personally have several clients that have properties valued at 300,000 that rent for $575 – $625 per week. This would considerably assist you in setting up a new loan.
My opinion is that you should work within your comfortability level, don't over extend yourself and try to buy well.
As for the advice from the others, I think it speaks volumes for why some people think poorly of Brokers.
I wish you all the best.
"First step is to have your PPOR revalued to see how much it's really worth (your bank will do that) and see if you can borrow against that value."
How much does it cost to have my property valued, I understand that a bank can appoint one on there behalf or I could get a private valuer, is this correct? if so which is better for me?. Can I 'sweet talk' a valuer into getting a higher valuation or is it strictly based on recent sales data in the area?
I've decided that paying off our 15k car loan first is the way to go.
The second stage would be to
1. Pay down as much on our home loan as possible to create more equity
or
2. Save up cash in the bank for a deposit
or
3. A bit of both
Of the options above what is better for us?I asked the commonwealth bank about how much expected rental income they take into consideration when calculating serviceability, they said 80%, does this vary from bank to bank?
Does anyone have an idea on figures for "fixed living" expenses from banks might be for a couple with no children?
Yes we are "full doc" we borrowed 100% on our property.
Unfortunately selling up and renting to purchase an investment property is not possible in our situation.
"The bank will only take into account the purchase price on the contract as marked price, no matter how much the 'real' market price is."
Can someone please explain this to me, just can't seem to get my head around it.I read everything with an open mind and will not base my decisions 100% on advice from one person.
Thanks again, I'am glad I made this thread it has boosted my confidence allot as has got me pumped!, good to talk to people that don't question everything about property investing or call me crazy for wanting to take on so much debt.
I asked the commonwealth bank about how much expected rental income they take into consideration when calculating serviceability, they said 80%, does this vary from bank to bank? YES
Does anyone have an idea on figures for "fixed living" expenses from banks might be for a couple with no children?
Most lenders use the Henderson Poverty Scale so for 2 Adults you are looking at around $1380 -$1400.
Richard Taylor | Australia's leading private lender
JamesandHannah wrote:I've decided that paying off our 15k car loan first is the way to go.
The second stage would be to
1. Pay down as much on our home loan as possible to create more equity
or
2. Save up cash in the bank for a deposit
or
3. A bit of both
Of the options above what is better for us?Paying off the car loan asap first is absolutale the way to go.
Instead of trying to decide between your points 1,2 & 3 above, my suggestion would be to see if you can convert your loan to IO with 100% offset account.. Rather than explain the benefits again, just do a search on this forum as it has been covered many times before.
"The bank will only take into account the purchase price on the contract as marked price, no matter how much the 'real' market price is."
Can someone please explain this to me, just can't seem to get my head around it.The bank will only initially give you a mortgage based on the actual purchase price.
For example if you buy a place for $200K even though the "real market value" is $400K, the bank will only lend you based on the $200K.
Of cause after 6/12 months you can have the property revalued and increase the loan.You're doing really well.
ElkaHow much does it cost to have my property valued, I understand that a bank can appoint one on there behalf or I could get a private valuer, is this correct?
Speaking from personal experience, all I have to do is tell my bank I am looking to buy another property and that I want to use my current property as security and they'll go out and value it (at no cost to me). You could have it valued independantly, but that will probably hold no weight with the bank as I'm sure they would want to value it for themselves anyway."The bank will only take into account the purchase price on the contract as marked price, no matter how much the 'real' market price is."
Can someone please explain this to me, just can't seem to get my head around it.
Also speaking from personal experience, I have bought some property at a lower price than where the market was at, but the bank would not value it any higher than the price I had bought it for. As far as their concerned, I am the market (seeing as I bought it), and the contract price is the value, therefore the contract price is the market value…I asked the commonwealth bank about how much expected rental income they take into consideration when calculating serviceability, they said 80%, does this vary from bank to bank?
This is pretty standard, unless you want to pay mortgage insurance, but remember, this is 80% LVR of your PPOR and your investment property put together…The second stage would be to
1. Pay down as much on our home loan as possible to create more equity
or
2. Save up cash in the bank for a deposit
or
3. A bit of both
Of the options above what is better for us?
I would go option 2, and set up the bank account that you use for savings as a mortgage offset account against your home loan, as this will have the same interest saving effect as paying it into your mortgage, but also give you liquidity of funds as you would be able to access that cash at any time (say as a deposit on an investment property). Having in an account also still in a way gives you equity, because if you needed to, you could dump in into your home loan at any time…but once again, what you do is up to you…I asked the commonwealth bank about how much expected rental income they take into consideration when calculating serviceability, they said 80%, does this vary from bank to bank?
This is pretty standard, unless you want to pay mortgage insurance, but remember, this is 80% LVR of your PPOR and your investment property put together…I just reread this and noticed that I didn't read your question correctly – I thought you were talking about the loan to value ratio – sorry if this confused you..
I don't actually know what the standard is for this.JamesandHannah wrote:"First step is to have your PPOR revalued to see how much it's really worth (your bank will do that) and see if you can borrow against that value."How much does it cost to have my property valued, I understand that a bank can appoint one on there behalf or I could get a private valuer, is this correct? if so which is better for me?. Can I 'sweet talk' a valuer into getting a higher valuation or is it strictly based on recent sales data in the area?
I've decided that paying off our 15k car loan first is the way to go. definitely – high interest rate on depreciating vehicle
The second stage would be to
1. Pay down as much on our home loan as possible to create more equity – this is better as if you need to redraw it for the new property it becomes tax deductible debt – not the same if you use an offset – as long as you first check that you have a redraw facility and if there are fees for redraw
or
2. Save up cash in the bank for a deposit – pay tax on the interest at a lower rate than your home loan – no go
or
3. A bit of both don't bother!
Of the options above what is better for us?I asked the commonwealth bank about how much expected rental income they take into consideration when calculating serviceability, they said 80%, does this vary from bank to bank?
Does anyone have an idea on figures for "fixed living" expenses from banks might be for a couple with no children?
Yes we are "full doc" we borrowed 100% on our property.
Unfortunately selling up and renting to purchase an investment property is not possible in our situation.
"The bank will only take into account the purchase price on the contract as marked price, no matter how much the 'real' market price is."
Can someone please explain this to me, just can't seem to get my head around it.I read everything with an open mind and will not base my decisions 100% on advice from one person.
Thanks again, I'am glad I made this thread it has boosted my confidence allot as has got me pumped!, good to talk to people that don't question everything about property investing or call me crazy for wanting to take on so much debt.
You have achieved a lot at your age – much more than many people many years older! Congratulations.
An investment property is generally a good "equity sink" for future investments. Property market a little up and down in Brisbane – some opportunities to cherry pick from those who haven't managed their finances as well as yourselves.Would not recommend making your PPOR interest only – remember it is "high net worth" you are aiming for – not high assets – high debt – one little issue and the house of cards falls over.
Also to further support your position – have both of you insured your income? Do the sums – 45 year till your turn 65 multiplied by your $40,000 income – that is an asset over $1,800,000 let alone the debt and investment servicing potential of your income along the way. I had a client in their 20's be diagnosed with severe clinical depression – off work for considerable time – years – that would throw a spanner in the investment plan. Do it while your young and healthy and you can lock in much cheaper premiums for when you have even more responsibilities like children etc. Email me at [email protected]. Again congratulations and good luck!
elkam wrote:JamesandHannah wrote:I've decided that paying off our 15k car loan first is the way to go.
The second stage would be to
1. Pay down as much on our home loan as possible to create more equity
or
2. Save up cash in the bank for a deposit
or
3. A bit of both
Of the options above what is better for us?Paying off the car loan asap first is absolutale the way to go.
Instead of trying to decide between your points 1,2 & 3 above, my suggestion would be to see if you can convert your loan to IO with 100% offset account.. Rather than explain the benefits again, just do a search on this forum as it has been covered many times before. Problem – maintaining higher level of non tax deductible debt by making it IO. Want to clear the "bad non deductible debt as fast as possible.
"The bank will only take into account the purchase price on the contract as marked price, no matter how much the 'real' market price is."
Can someone please explain this to me, just can't seem to get my head around it.The bank will only initially give you a mortgage based on the actual purchase price.
For example if you buy a place for $200K even though the "real market value" is $400K, the bank will only lend you based on the $200K.
Of cause after 6/12 months you can have the property revalued and increase the loan.You're doing really well.
ElkaThe point about having a IO loan coupled to a 100% offset account, even for your PPOR, is flexibility.
Please read the following threads where it's been explained.https://www.propertyinvesting.com/forums/getting-technical/finance/4324661
Naturally if the next property you buy is an IP you would first pay down some of your PPOR loan and then reborrow it for the deposit and costs of the IP.
Cheers
ElkaUpdate…
New account as I cant remember the email i used back in 2008. Partner and I went separate ways and that house was sold around 2011. Fast forward to now. Been living in the UK for 10 years. Put together decent portfolio of BTL properties, took advantage of interest rates and my plastering trade. Started with BRRR Buy refurb refinance and rent. Gross around 70k aus a year from them. Added 2 properties last year, looking to add just one this year. Uk market been great, btl rates of 2% up until last year. 30 year interest only, 90-100gbp a month payment and 500-700 a month rent.
Jesus christ cant believe I had 15k car loan on a 40k salary. Currently drive a 6k skoda on a combined income of over 200k. If only I could go back in time and give myself an uppercut.
James
I don't actually know what the standard is for this.
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