Hi All,
I'm just in the process of detailing a property investment strategy. I'm at the stage of working out my finances and have put together a document detailing a way that I would hope the finances could be structured.
I was hoping that I could get some feedback from any mortgage brokers on this site to see if what I'm trying to do is possible?
There's also some questions at the bottom if you've got plenty of time on your hands:)
Here's a link to strategy – http://www.tlfcontracting.com.au/cash%20positive%20strategy-v2.pdf
thanks
Wayne
Hi Wayne
I believe the above can be done and while it makes sense there a couple of thing that you need to note:
1. Serviceability – you need to prove the bank that can afford to pay/service the loan. Banks will assess you ability to to repay the loan based on the income on your tax returns if you go for a full doc product. If you go Low Doc then LVR below 60% is desirable – in this instance as you avoid LMI
2. Valuations – bank valuations are more of an art than a science at times so you need to ensure you go with a bank that has a good track record with valuations – last thing you want is a branch banker doing the valuation
3. Cross collateralisation – try to avoid this and any decent broker will be able to show you how to do thisJust some food for thought.
Hi Spiro,
Thanks for your feedback.
1. Serviceability – yes, i thought this would be a problem. As I'm a sub-contractor and run my own business I've heard that banks aren't comfortable lending over 60%. If you keep your LVR under 60% do banks even look at your income? I've heard that if you go for a Low Doc that you sign a declaration or something similar? Also, Are Low Doc rates usually higher than other loans?
2. Valuations – interesting point. How do you know if a bank has a good track record with valuations? I guess this is something the mortgage broker will know?
3. Cross Collateralisation – can you expand on what you mean by this? Are you saying it's not a good idea to secure property loans by other IPs?
thanks again,
Wayne
Hi Wayne
1) Lodoc is still very much available for self employed clients who are unable to quantify their income through 2 Years Tax returns and to be honest the interest rates are certainly not as high as most clients think. An 80% lvr is available.
2) Yes although in most cases a valuation on a purchase would come in at purchase price. Refinances are different although as long as you can justify the valuation with good market evidence and comparative sales then normally not a problem.
3) I certainly wouldnt Cross collateralise your loans although structured correctly nothing to stop you using available equity in one property to fund another as long as it is dont correctly.
Have each loan as a standalone loan and you wont go far wrong.
Just need to make sure your Broker is mindful that if the first loan is done on a lodoc basis then other loans with the same mortgage insurer need to reflect the same income declared.
Seen too many clients come unstuck here.
Richard Taylor | Australia's leading private lender
Using your PPOR as security for the IP would not be a good idea even for a short period. It is not necessary as you have equity which you could use for a new LOC.
For subsequent properties you could use the deposits from LOC 2 and get stand alone loans. After a while you can revalue each property and increase the loan and repay the LOC the initial money you borrowed.
No reason to keep your LVR to 60% unless you just want to use Low Docs. If you have tax returns I would start off on 80% LVR loans.
You need to carefully plan ahead with the loans so that when you do hit the servicing wall you can then go to a lender and use Low Docs.
LVR = loan divided by value.
If you are going to upgrade the PPOR are you going to sell the existing one? If not maybe a strategy to save you tax is worth implementing now.
Country towns are generally no good for investing. You may find it hard to get revalues and little or no growth. Banks will not like getting too many in the one town.
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 Guys,
Thanks for your detailed responses. Great to hear that loans with 80% LVR are available.
TerryW – what you are saying seems to make a lot of sense. I guess this is what Richard has touched on by saying to avoid "cross collateralisation". If I structure it how you've mentioned then this would be easy for me to sell my PPOR and not have to re-organise my loans:)
Yes, we would be selling are PPOR when we upgrade.
In regards to your comment "Country towns are generally no good for investing" – would you say that they are good for high yields, though not good for CG? As my strategy is all about generating a cash flow I don't see how I'm going to be able to generate the required yields in the metro area. I would like to be proven wrong though I've found it very hard to locate deals that can provide me with high yields in Perth metro.
Once again – thanks for your replies, all making sense now:)
Rgds
Wayne
Hi Wayne
Yes would agree in the main regional properties will give you greater cash flow and also open up other +cash flow strategies such as wrapping etc.
Remember structured correctly you could sell your PPOR and would have no bearing on your individual IP's.
Richard Taylor | Australia's leading private lender
waynel2 wrote:Hi Guys,Thanks for your detailed responses. Great to hear that loans with 80% LVR are available.
TerryW – what you are saying seems to make a lot of sense. I guess this is what Richard has touched on by saying to avoid "cross collateralisation". If I structure it how you've mentioned then this would be easy for me to sell my PPOR and not have to re-organise my loans:)
Yes, we would be selling are PPOR when we upgrade.
In regards to your comment "Country towns are generally no good for investing" – would you say that they are good for high yields, though not good for CG? As my strategy is all about generating a cash flow I don't see how I'm going to be able to generate the required yields in the metro area. I would like to be proven wrong though I've found it very hard to locate deals that can provide me with high yields in Perth metro.
Once again – thanks for your replies, all making sense now:)
Rgds
Wayne
Yep, I would avoid cross x altogether as it serves no purpose.
I don't like country towns because of the lower growth – though this is not always the case. Without capital growth I see no point in investing even if you are getting ahigher yield.
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
Cheers Richard!
Terry, i see where your coming from though in my scenario I'm trying to structure an income based portfolio that will allow me to increase my income. With this increase in income I then plan to migrate from working as a roof plumber to investing/renovating/developing property on a full-time basis – hence requiring such a yield.
Hi Wayne
I can see where you are coming from, but imagine if you could, for example, get one of your builder mates to build a house for you with you doing the roofing etc and then selling it for a $50k profit. Surely that would beat earning $50 pw from a cashflow property that doesn't increase in value – and then what happens to your cashflow when rates rise or the hot water system needs replacing!
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
yes – the building side of things is something I've been looking at. Again, within metro my problem here is that the holding costs just for the land itself wouldn't be viable and time to build the property is also an issue.
One thing I have been looking at is building a kit home on a cheap block of land in regional country areas. This way the holding costs are minimal and I should be able to get instant equity once i finish the house, and also get the property + geared. However, my issue here is that I would only be able to build one house as an owner builder and would then have to wait 6 years until I could build another.
I have been looking into getting my builder licence though this is a lengthy process. There is also the option of finding a builder that would let me use his ticket for a % kick-back though I have yet to find a builder that is happy to do this…
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