All Topics / The Treasure Chest / Question on Joint Ventures?

Viewing 12 posts - 1 through 12 (of 12 total)
  • Profile photo of vluu27vluu27
    Member
    @vluu27
    Join Date: 2003
    Post Count: 59

    Hi All,

    I’m a bit new to this so sorry for if this sounds stupid.

    A friend of mine owns 5 IP’s all under his and his wifes’ name. I asked him after 5+ properties, wouldn’t the bank stop lending you money due to your restrictions on serviceability of loans, risk of defaulting etc so he might have to start doing JVs or form partnerships with other people to settle more properties?

    He said that at his stage, once you own a ‘CERTAIN’ no of properties, the banks dont look at SERVICEABILITY any more, but just equity. So as long as you have 20% equity in any given property, and as long as you dont cross collaterise you can SETTLE as many properties under yours and your spouses name or company trust etc.

    Does that sound right to anyone here or is he talking through his bum? [:D]

    Your input is much appreciated [:)]

    Thanks in advance

    Regards

    Vinh Luu

    Profile photo of OttoDarganOttoDargan
    Member
    @ottodargan
    Join Date: 2003
    Post Count: 9

    Hmmmm. Its rare that a customer (even with 5+ IP) actually knows how the loan is being submitted. Often I have refinanced a loan that was submitted by a different lender that the customer thought was a car loan secured by their car but was infact “Misc investment purposes” secured by their house so that the bank would accept it.
    With this in mind he is probably using Low doc loans. If he signs a declaration stating his income then its definately a Low doc. This is where instead of providing tax returns to show servicability he just signs a declaration. This type of loan is designed for people who are self employed and so avoid as much tax as possible, so their tax returns are not an accurate measure of their income. If he is using these Low doc loans then he can pretty much service any loan on paper as he can claim his income to be whatever he wants.
    With low doc loans you need to have more equity 20% is the norm, but it can be 10% or 30%. Also you pay a higher rate or something along those lines. Remember the lender is taking a huge risk so its not unfair to get a higher interest rate.

    So maybe this is the case with your friend? By law a lender cannot give a loan to someone who cannot afford it (Kinda makes sense doesn’t it?). If they cannot show that your friend can afford it then they cannot give him a loan.

    Please tell me if this isn’t what hes doing.

    Otto Dargan
    Home Loan Manager
    Mortgage House Five Dock
    0297128988
    [email protected]

    Profile photo of vluu27vluu27
    Member
    @vluu27
    Join Date: 2003
    Post Count: 59

    Otto,

    Thanks for your reply. This is certainly possible. I dont have the entire facts but certainly will enquire more into it.

    Regards

    Vinh Luu

    Profile photo of truebluetrueblue
    Member
    @trueblue
    Join Date: 2003
    Post Count: 142

    Interesting question, Vinh. I spoke to my banker who advise borrowings are based on your salary plus rental income. Apparently they take about 70% of your rental income into consideration. That includes the new property that you may be buying as well.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Here are some thoughts

    Lenders all start to get a bit worried when the rental income starts to be more than your other income. They often then say you are too rental reliant at this stage and will lower the LVR and ask you to put more money into the deal.

    You will always have to prove serviceabilty. Even with low doc loans you must state an income and if it is too low, you will be knocked back. (You don’t get a second chance either).

    And the mortgage insurers have limits on what they will lend people. I beleive it is about $500,000 and there are only 2 LMI companys now. So that make it about $1 mil in lending if your loans are mortgage insured. Many of the low doc loans are mortgage insured-even when they are below 80% LVR.

    There are private lenders that will lend based soley on the valuation, but they will generally lend only 70% and the interest rates are around 8%. You can increase this to 80% by giving a second mortgage and paying about 16% on this extra portion.

    I think that after you are going for a while, you could argue that you are a property ‘business’, and as such there will be different lending requirements. I have heard of people with $60 mil in property loans.

    Terryw
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of ADAD
    Participant
    @ad
    Join Date: 2002
    Post Count: 636

    When you start hittng troubles with the lending ratios, etc. why not start borrowing in another entity and start all over. Multiple structures lead to massive possibilities.

    Enjoy
    AD [:0)]
    (Andrew)

    “”Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
    Albert Einstein

    Profile photo of MathewMathew
    Participant
    @matymathew
    Join Date: 2003
    Post Count: 41

    Absolutely AD, once you start to think different to everyone else and start asking how can I do this, anything is possible.

    Matt.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    The trouble with doing multiple structures is that as Director of a company, you must guarrantee the loan thru that company. So even if you set up another company, buy more property you will have to keep guarranteeing the loans. You would legally have to declare all loans you have guarranteed to the bank.

    Terryw
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of ADAD
    Participant
    @ad
    Join Date: 2002
    Post Count: 636

    I won’t argue Terry but I do know of some people who have got multiple structures and personal guarantees for them all.Nothing illegal just disclosing what the bank asks for. If there is a will there is a way.

    Enjoy
    AD [:0)]
    (Andrew)

    “”Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
    Albert Einstein

    Profile photo of wilsonkaywilsonkay
    Member
    @wilsonkay
    Join Date: 2002
    Post Count: 52

    Terry,

    Please somebody correct me if I am wrong, but I believe that legally there is no requirement to disclose loans that you have personally guarranteed. At least through a company/trust strucutre.
    i.e. if you were doing a statement of position (asset & liabilities = net worth), you do not include any loans that you have become a guarrantee for). Therefore they are not calculated in your personaly serviceability. But obviously it would be included in the company balance sheet.
    While there is a risk (legally and otherwise) involved in becoming a garrantor at the end of the day they make the world go round!
    It is really a matter of looking closly at your risk profile – if you can’t sleep at night, then you know something is wrong :-)

    Regards,

    Tim Wilson.

    “Poverty is not an option”

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi Tim

    I just checked a couple of loan application forms and neither asked for information on loans the application has guarranteed. (But I beleive some forms do ask). So I guess you would not have to supply that information if it is not asked.

    However when the lender does the credit check they will see inquiries done for all loans that you have guarranteed. They would then possibly ask questions. (As a broker I get this all the time from lenders. Sometimes clients have paid out loans recetly, or sometimes they have not told me. One person even got knocked back for non disclosure of a loan). So it could work for a while, but what would you say if they asked?

    I’d like to find a way around this tho. Anymore thoughts?

    Terryw
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of wilsonkaywilsonkay
    Member
    @wilsonkay
    Join Date: 2002
    Post Count: 52

    Hi Terry,

    Thanks for clearing that up.

    I guess at the end of the day, so long as you ensure you (or your company) is able to service the loans addequately then I guess there is no reason for alarm.
    Also we are finding that a vital aspect of this is to develop a close relationship with a financier – almost a “I’ll scratch your back if you scratch mine” approach. Reguliar communication is also important. We try and send all of our business to the one financier, and this seems to make it a whole lot easier with questions, bcause they alread know the answers.

    Regards,

    Tim Wilson.

    “Poverty is not an option”

Viewing 12 posts - 1 through 12 (of 12 total)

The topic ‘Question on Joint Ventures?’ is closed to new replies.