Go non conforming or wait it out with a bigger deposit?

Hi Chris,

Interesting question you have there. Ultimately, the only person who can decide is yourself. Seems like your risk appetite is bigger than mine. I personally wouldn’t do it as my stress level threshold is quite low, I cannot bear the thought of a demand for payment letter coming through my door. I keep a close eye on my debts, making sure that after servicing them there is still enough money to live.

But, if I am in your situation, these are what I would be considering:
1. Legal requirements. Whilst I am in my discharge period, would the creditors be entitled to take all or part of my investment to pay off my existing debts.
2. The rent income of the IP must be at least break even or positively geared and tenancy is secured / easy to find. At this stage, cash flow is more important than capital gain because without good cash flow I may have to sell up before time and forfeit the capital gain. So I will only buy if it definitely can look after it self.
3. Good investment opportunity will always be there. It’s not like if I don’t buy now there is not going to be buyers market anymore or people stop selling properties.

Just my 2 cents.

All the best.
Cattleya

Hi Chris,

I understand your eagerness to start again. Everybody who has played snake & ladder board game knows how strong the desire to get on to a ladder when we are dealt a major snake. But by the same token, it is even more important to avoid another snake.

Putting my self in your position, these are the things I would consider:
1. There are factors beyond my controls that can make or brake an opportunities. Given my current financial position, financial help will be very difficult and expensive. Therefore a careful / conservative thinking is needed. For example, does that $150 weekly out of pocket include:
– strata fees,
– emergency maintenance (boiler break down, etc),
– council rates,
– insurance,
– Sydney Water,
– 1 month interest payment without rental income (this is because, if current tenant moves out it takes at least 3 weeks to find another one and the admin involved. Which means there is 75% possibility I need to pay mortgage instalment without the support of rental income).

2. Refinance does not solve the high interest rate and it comes with more fees. I can only get low interest rate if my finances get better. And in 1 years time my bankruptcy records will still be there, in fact it is still on my records years later. Refinancing is going to worsen my situation because of the fees involved.

3. It is also a good idea to hold my horses now, get better financially and wait for a better opportunity. The experts say that the economy is not doing well, and indeed the $ is depreciating against major currencies. If they are right, it might be better to sit this one out, wait for the tide to go as low as I think it would go, and then seize the opportunity.

4. I will use a reputable bank, and not just some small desperate bank somewhere. Reputable banks are legally required to have clear process and procedures to make sure they are doing the right thing by their customers. So if these banks won’t lend me, there is a good chance they are right, I cannot afford the loan. Meaning, I will use these banks as independent counsels on my finances until my finances are back in shape.

That’s me in your shoes. Obviously, only you can decide whether it is worth investing.

Chris, one more thing, the Banks are not allowed to give loans to people who they think cannot afford the loan. Exactly the same way pubs are supposed to turn away intoxicated customers. But then, there are rogue banks who are willing to take on risky loans and hence the high interest rate. Just for comparison, I know somebody whose mortgage is 4.28%… which shows how risky they think you are at 8.3%.

Hope this helps,
Cattleya