Hi Folks,
In another thread I asked about the best way to access funds without a deposit. Turns out that as you run down the rabbit hole there's a whole variety of options (thanks guys!). Anyway, I had a thought about how to be structure a loan for renovation and subsequent renting of a property all on 105% borrow. Now my thoughts about the loan go something like this;
1) Borrow 15% of the purchase price in the form of a personal loan, place 10% deposit, 5% for closing costs
2) Get traditional finance from a bank in the form of a Line of Credit Loan to the remaining 90%
3) Selectively renovate the property, thus increasing the value and rentable income.
4) Get the property re-valued according to new renovation
5) Pay out the personal loan using the newly acquire equity (or as best you can at least, no reno will at 15% one would think)
6) Rent the property out, shuffle rent straight into the personal loan, amortize Line of Credit interest.
Using this ability there would be some fees involved but is it a viable approach?? I'm sure this is a simple question to old hands, I'm still trying to get my head around minute details while I set everything up for IP#1. One problem I see is hitting the debt-ceiling if I amortized the LoC interest after paying out the personal loan. Are Line of Credits typically limited to a certain LVR on a property?
Everyone I have mentioned this too sort of gazed at me, eyes glazing over and drool appearing in their mouths as I spoke finance at them so maybe someone here can offer some thoughts on this process, is it viable? Useful? Profitable??
Cheers
Alex
I'm interested to see what others think on this. How much are you intending to spend on selective renovations if you're maxed out your borrowings? Also, can you get a personal loan to use for a deposit? I asked a broker this years ago when I didnt want to save a deposit and he pretty much laughed at me.
Hi CH and Hank,
Hmm, what a shame no-one else has "got up to dance" on this one. I would be interested to hear from others too. Here's what I can think of for now :-
Quote:Also, can you get a personal loan to use for a deposit? I asked a broker this years ago when I didn't want to save a deposit and he pretty much laughed at me.I read in more than one book that Personal Loans are not issued for Deposits on investment property. So, these authors went to their lenders, saying "I need a Holiday" or "I want to build a garage", etc.
Then, having got the Loan(s), they decided "Hmm, I don't really need that holiday, and the old carport will do for now……" and they then <….you fill in the blanks ….>
… or, were they just good story-tellers? I haven't done it personally, so can't add anything more that I can point to specifically. I hope others can,
Benny
Chickenhawk6451 wrote:1) Borrow 15% of the purchase price in the form of a personal loan, place 10% deposit, 5% for closing costs
2) Get traditional finance from a bank in the form of a Line of Credit Loan to the remaining 90% –
Problem number 1- Your going for a 90% LVR loan and all your deposit and cost are borrowed in the form of a personal loan – a majority of banks won't accept your loan as you have NO genuine savings at all…you literally borrowed everything as a personal loan; if this was a gift all ok but if it's a personal loan that's a big no no….Having said that there's 1 credit union and a non-bank that will accept this set up ( will allow for some of the personal loan to form part of the deposit – not all) but your file needs to be absolutely strong!
– Employment for over 4 years with same employer
– Full time perm
– Low consumers debt, beside the personal loan
– Satisfactory conduct for savings account
– Must have SOME form of savings, at least 2-3% of the purchase price
– Strong income to service the loan + the personal loan
– Good credit file with low actives
Chickenhawk6451 wrote:3) Selectively renovate the property, thus increasing the value and rentable income.
4) Get the property re-valued according to new renovation
Easy said than done. Cosmetic renovations hardly get you the amount of equity your after…ie you spend $20k on painting and new carpets…the valuation may not even go up…and if it does won't be over 20k ( 97/100 of the time)
+ where you gonna find the money for the renovations?
Chickenhawk6451 wrote:5) Pay out the personal loan using the newly acquire equity (or as best you can at least, no reno will at 15% one would think)
Expect or plan to hold the personal loan for atleast 2-3 years on average maybe even more….it's not impossible to increase your property price by >15% but it's not easy as well.
Also this is subject to the LMI allowing you to pay out your debt with their new loan!
Overall NOT impossible, as i have done this for previous clients ( 2% of purchase price held in savings- borrowed the rest from personal loan and get a standard loan for the rest)
but definitely rare as a few hoops to jump through!
Alex your view as a whole is ok….but consider trying to save the min 5% and the rest is fine, as we can stick your loan with a normal lender and there's no need to worry about the personal loan or stamp duty.
Cheers
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
The idea of borrowing money to borrow money is never a good idea. Have you thought about a JV with a family or good friend.
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
Why a LOC on the property? This could be dangerous.
I agree with Shape – doesn't really work in practice. Personal loan will be short term, high rates and PI. It will hurt serviceability. It will also be hard to find a lender – not impossible though.
getting a quick and higher revaluation is also not easy.
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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