Hi Guys,
I’m looking at buying my first IP and have been talking with Alan Fox and Jamie Moore who are both fantastic and I would recommend them to anyone. It’s seems financing an IP has come down three option to secure a loan of $400k (I have $35k savings)
1. Mother guarantor and use her PPOR to pay 0% deposit and put savings into offset account for further IP
2. Mother or close friend with same goals to co-applicant (split deposit)
3. Wait 6-8 months and save the remaining $35k for deposit and go soloWhat would you do and why? (I don’t know anyone to beg or borrow money from)
Thanks everyone.
1. Mother guarantor and use her PPOR to pay 0% deposit and put savings into offset account for further IP — I would only recommend this way if literally have no money/savings….as you can leverage the full 20%. The risk for your mother is not something i would want on anybody else if your mother is no longer working etc…her security is tired up for a good 3-4 years + …she can’t move,downsize and 2 properties is at risk.
Given your property will be a IP, should you get sued by the tenant for what ever reason ( rare, but does happen ) ie maybe your smoke alarm didn;t work and the tenant got injured in a fire etc…you will need to sell up both properties potentially.
2. Mother or close friend with same goals to co-applicant (split deposit) – Now the risk of “argument” can come up and future expectation. It’s not easy finding the same “investing” partner that as the same mind set and future goal…you may be the best of friends but the worst investing partner
– What happens if one wants to sell and the another dont?
– One gets married and wants to exit now…or one wants to down size etc…Back in my uni days when i shared rent with my best friend of 8 years, all was good till we moved in….not only did i lose a “renting” partner i also lost a good mate. Same theory applies too joint property investing.
3. Wait 6-8 months and save the remaining $35k for deposit and go solo – Why wait if you found the right property?
Option 4: Sounds like you have 10% ready to go now? or even 5%? — go invest and take up the 90-95% loan if your ok with the repayments…yes you will need to pay LMI;
– LMI is tax dedutiable for IP
– Your property should go up more than the LMI cost
– No risk of using the wrong investing partner or risking your mum’s house
– Get in to the market now rather than 6 month later…6 month time the property may have gone up more than the lMI cost you would have paid today.Option 5: Can your mum “lend” or gift you the money?? 10% cash.
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Agree with Mick on the investing with others issue. If you can avoid it – I would.
I’m also not a huge fan of mixing up property investing with other family members property (but that can be a personal decision).
The gifted deposit (which could be via equity) could be a good option. It means your mums house isn’t tied up with your IP.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Yes, it would be safer for mum to lend you the other 10% then to put her home on the line.
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
Having tried the ‘friends’ arrangement before with a loan transaction .. I’m always of the mind to keep friends (and relatives) and monetary situations separate unless absolutely necessary.
I would swing with Terry’s suggestion of getting a ‘family’ loan of the remainder rather than allowing the banks to take a mortgage over her property on your behalf.
Long term .. its much more sociable.
The proportionate level of risk element placed on your family is really un-necessary, and the banks get too much security for what they will be lending you.
As I say about my earnings .. I only let the taxation commissioner in on precisely what he needs to know and no more. In other words if its down on paper and I’m stating it .. thats all he needs to be concerned about.
Same with banks. If you give them a bite of something .. they’ll want the whole cake in the long run.
And all you have to do is default a couple of times on a repayment.Its the same reason why if you have clear title on a property previously held by a bank, mortgage paid off .. go in and ask them for your title. In a defaulting situation later on .. they will sell ALL TITLES HELD to redeem their monies. That includes any that may have been actually cleared.
Minimise the level of exposure to the banks .. and minimise the level of attainable risk.
Thanks everyone for the helpful responses. You have all shown me that getting family property tied up in investments is defiantly not the way to go.
Like I mentioned initially I don’t know anyone who could gift or loan me the extra deposit. I have $35k at the moment and because of my casual employment I will need 10% plus costs, plus some emergency fund, so about $70k.
Jamie mentioned a gifted deposit could be via equity. How would this work? Mum owns her PPOR fully paid. Could she use that to get $35k, lend it to me, I pay deposit and then pay interest on the $35k from mum (while paying it back to her) and the bank loan? We haven’t found a property yet and will work with Alan to do this, so is this worth it or should I just keep Saving.
I’m trying to get in the market but maybe I’m just not financially ready yet.
Cheers.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
