Hi guys I'm a total newbie to this forum, thanks for listening to my woes….
Hubby and I have been self employed for around 5 years now. We have a property, prior to buying our business it was valued at $400k, since then completed a massive shed and now would be worth around $500k (not actually been valued), loan on the was property $130k, but in 4 years its now down to $35k.
We used a broker to help us buy the business, set up a LOC with property equity and made it look more like and investment loan, rather than a commercial business loan. LOC $150K.
We are looking to buy and investment property, but we'd also like to build something better on our current property (totally over living in a 2 bed demountable with 2 kids!)
We both work in the business and in the last couple of years its made small profits (08/09 $40K, 09/10 $80K) its not a company only a partnership, for tax purposes this works fine. But as sole traders/partners we dont pay ourselves "directors wages" only drawings. Which makes it difficult to prove to banks our earning capacity. Also we dont want our current bank to know that the LOC is actually a business loan.Problem, thanks for sticking with me so far, we are currently only able to go LoDoc loan, which is 60%, taking out the current loans we have ($185K) we can only get around $350-400k maxiumum. To build a house where we live, would be around $400k. So there is absolutly nothing left for investing!
So we are kind of stuck. The profitabilty of the business is probably going to plateau if not go into a loss, its hard to find staff for this trade, and its unlikely we'd be able to sell it for more than 100k. We are renting the shed we are in, and cant work from home as we are located in an industrial estate, where majority of our customers are around us, moving home we would lose clientelle to competitors nearby. Its possible the rent will go up and there is a real chance that will adversely affect our profit.
He's 35, I'm 28, we are at a point now where we really should be getting into property (we sometimes regret buying the business instead of property now! But hindsight is a beautiful thing)
So what do we do?
Just get that investment property and suck it up living in my <moderator: delete language> demountable for another 10 years? Anyone have any ideas of how on earth we can get ahead?Which banks have you tried??
I'm a contractor and therefore ANZ hated me, but CBA was more than happy to give me money.
PS you'd be best of using a broker that knows which banks will say no to you and which are more likely to say yes. Don't apply directly yourself or you might simply end up with a string of "NO"s listed on your credit file. Not a good thing. Chat to Richard Taylor, userid Qlds007 on this forum. He's a broker.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks for the reply.
We've been using the same broker that initially set us up for our loan to buy the business. Our loans are currently with Colonial, which is pretty much CBA. So its really the broker telling me what I can and cant borrow, I'm assuming he's just using his software. I've only heard good things about this broker where I live, so maybe I'm just a cynic.
Maybe I'll look into some other brokers just to see what they can do for me.
Cheers, Te
Get another broker if your current broker is not willing to assist you further. I have the same problem with my previous broker since he we was pretty new to property investing….I when to mortgage choice and they sort me out without a fuss. Be prepared to chance your broker if you are not happy just like if you are unhappy with your accountant etc.
Hi Te
Firstly welcome to the forum and i hope you enjoy your time with us.
The introduction of the new National Consumer Credit Protection Code on the 1st Jan 2011 places a greater emphasis on lenders and introducers to ensure that clients can trully service their new borrowing and as a result many lenders including CBA / Colonial now request Business Activity Statements where the borrowing is over 60%.
This is not say that every lender requires this and many lenders still allow an 80% lend on a stated income basis.
Whilst your current broker does not believe he can finance future borrowing you may well find that an alternative lender will look more favourably at your loan requirements.
I am sure DHCP 's Mortgage Choice Broker suits his requirements but remember they are a franchise and the level of competance will depend on the experience of the franchisee.
A good independant broker especially one who owns one or two investment properties themselves should be able to assist you.
You wouldnt go to a Dr or had never done an operation but had read the surgeons manual and therefore you shouldnt use a Mortgage Broker who doesnt own any investment properties.
Drop us a line if you need further information.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Qlds007 wrote:You wouldnt go to a Dr or had never done an operation but had read the surgeons manual and therefore you shouldnt use a Mortgage Broker who doesnt own any investment properties.Haha great example Richard!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks for the replies.
When we bought our private residence, a while back now, we used Mortgage Choice, I felt we were steered towards the bank that would give them the best commission, that might not be the case, but as I said before I'm a cynic.
I'll look into some other brokers, ironically I recall brokers came about so we didnt have to shop around different banks, now it seems we have to shop around brokers!
Te wrote:Thanks for the replies.When we bought our private residence, a while back now, we used Mortgage Choice, I felt we were steered towards the bank that would give them the best commission, that might not be the case, but as I said before I'm a cynic.
I'll look into some other brokers, ironically I recall brokers came about so we didnt have to shop around different banks, now it seems we have to shop around brokers!
Mortgage Choice pay their brokers a flat commission accross all lenders, so i doubt your broker made a choice based on commission. There are very few brokers who do this anyway, the difference is rarely that large. I strongly suggest you not muck around speaking to 100 brokers, just call Richard he has already helped you and he knows what he's talking about.
Qlds007 wrote:I am sure DHCP 's Mortgage Choice Broker suits his requirements but remember they are a franchise and the level of competance will depend on the experience of the franchisee.
It is a lot to do with the capacity of the applicant to service the loan…Banks won't lent you their money on the basis of your mortgage broker's competence BUT rather the capacity of the applicants to service the loan. But, your mortgage broker play an important part to get your the right loan that suits your requirements.
Therefore, if you are unhappy with your current broker Te, be prepared to change your broker. Usually, broker has 12 or more banks on offer. BTW, your credit file don't get hit when a broker assess your servicesability…unlike you when you apply directly to a bank. Find the broker that is willing to assist you.
Allow me to be the bad guy…
Te wrote:We used a broker to help us buy the business, set up a LOC with property equity and made it look more like and investment loan, rather than a commercial business loan. LOC $150K.That’s OK. Honesty is not required by banks anyway.
Te wrote:made small profits (08/09 $40K, 09/10 $80K) ……
we are currently only able to go LoDoc loan……Is it only me that fines it funny someone can tell your income but there are 100s of brokers that will still start talking low docs?:
Are you going to declare you actual income or make something up?
Of course I'm sure a good broker will tell you how much you can declare.Te wrote:The profitability of the business is probably going to plateau if not go into a lossWell that’s OK then. Put that at the start and I would have suggested a low doc
Te wrote:Its possible the rent will go up and there is a real chance that will adversely affect our profit.Now you're talking… Why not just declare 150k profit and all your problems go away!
Te wrote:we sometimes regret buying the business instead of property now! But hindsight is a beautiful thingIt doesn’t matter. We can do low doc. Bad for you. Bad for the lender. Commission for me. Everybody wins!
Te wrote:Anyone have any ideas of how on earth we can get ahead?Unfortunately yes. Cashflow is king. It is important to have your cashflow in check before you start gearing. I would focus on growing the business and increasing your income before fudging a low doc declaration and gearing for investment. Especially if you are concerned about maintaining profits in the business.
There are hundreds of brokers that will help you. In terms of Richards comments re Doctors; you should keep in mind that you could also see 10 doctors that wont prescribe medication that is illegal in Australia. But if you shop around you will find a back yard unregistered doctor (most likely in QLD) that will give you anything you need for a fee…
Also – to all the other financial professionals out there. With ASIC and there new undercover investigators posing as potential clients (looking for someone to make an example of). This deal has compliance issues all over it… Not only has TE noted the requirement of low doc because declared income it too low. There are also comments such as "there is a real chance that will adversely affect our profit"
Have to go now. My dinner is ready. Would not touch it with a large stick!
Sorry Te. Maybe your existing broker is not doing a bad job if he has knocked it back. Could even be in your best interests.
Hi There
There have been allot of changes over the past 6 to 12 months in the Mortgage industry and with this LOW DOC loans are really becoming hard to come by. There are however still a few banks that will still lend up to 80% with No Financials.
It is important for you to have the correct finance structure in place so that you have the ability to take action and not get into a position that when you need the money you can not get it.
If you have allot of equity you should be able to look at doing what you are planning so long as you are bringing in the cash flow from the business. You may want to set up a couple of different loans with different lenders so that you spread your exposure also.
Hope that helpsTe
I completely understand your position being another self employed person as well. The only thing i can suggest is get a good accountant, try to improve your cashflow and save every cent you can.In my opinion only the uncertainty of mortgages is going to severely slow to stop lending in Australia. The introduction of this new legislation is going to cripple many hard working self employed people because they do not match the criteria of being in a "good credit position". I myself work all year turn over approx 100k a year – but because most of this money is made between Sept to April the banks don't like my serviceability. However the money i make over the summer months carries myself over the winter months and i usually end up living of a credit card at the end of august/september before we start to make our money and repay all our debts to start stockpiliing our savings to start all over again. How is someone like myself supposed to find money for investing – well we approached a bank and a financial plamming expert and the basis of their reports consisted of was to earn more money than you spend. like we didn't know this originally.
Sorry to hijack your post but does any financial people (Richard, TerryW etc) have an opinion on this. I had spoken to ANZ to look at borrowing to invest in an IP – but basically got told that most of the "borderline deals" would get refered to business banking for approvals and unless you have a lot of equity it would look like the deal would fall over.
JacM – surprised by your comment as CBA would not approve any loans but ANZ did!
Hi Airstrike
Not suprised Anz said the deal was borderline as they are not the best when it comes to self employed clients.
You mentioned that the majority of your income is earned between September and April so this will show up in your Annual Tax return upto June 30 of each year. Based on the fact that everything else remains equal i cant see thiis being an issue.
Will however need 2 years Returns in most cases.
Drop us a line if you need any further information.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
DHCP wrote:Qlds007 wrote:I am sure DHCP 's Mortgage Choice Broker suits his requirements but remember they are a franchise and the level of competance will depend on the experience of the franchisee.
It is a lot to do with the capacity of the applicant to service the loan…Banks won't lent you their money on the basis of your mortgage broker's competence BUT rather the capacity of the applicants to service the loan. But, your mortgage broker play an important part to get your the right loan that suits your requirements.
Therefore, if you are unhappy with your current broker Te, be prepared to change your broker. Usually, broker has 12 or more banks on offer. BTW, your credit file don't get hit when a broker assess your servicesability…unlike you when you apply directly to a bank. Find the broker that is willing to assist you.
Don't forget some brokers and bank staff have little idea about finance in general and business in particular. Some cannot read tax returns and they miss out many things which could be added back to the clients income and this may make all the difference.
I remember when i was a broker I had a client who had been rejected by a westpac branch and yet I was able to get them a $500,000 loan with westpac.
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
Ok so thanks for everyone's opinion of my broker….I spoke to him yesterday and he can get us $480k after assessing our BAS's *shrug*
Airstrike I totally get where you are coming from, our loan servicability is the main problem. Yet its ok for my cousin who is a single mother on Centrelink benefits – she can get a loan no problem as she has steady/regular income. Totally blows me away that we work our knuckles to the bone (literally I cut myself putting a bolt in earlier) yet we dont fit the criteria…oh I could go on…wooosaaaah….
I had a discussion quite a while ago now with a lady (from a particular property investment group) she advised I should look at taking out a LOC using that as deposit for purchasing IP, get a LoDoc loan for IP through another broker and then I'm off and running. Is this a feasible way of going about it?
I know its a personal choice, but do I just get into IP now for the future and stick it out in my little house, or do I blow it on building my dream home and look at IP down the track.As Terry mentioned taking the lodoc option used to be the easy route for a lot of bankers and brokers when with a bit of financial understanding you might find it is not necessary.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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