Hi All,
I have a colleague at work who has bought a IP off the plan in Sydney. Basically she is living at home with her sister in her mothers house ($130K left on the mortgage which they are paying off). They have come up with the security deposit ($2500) and are a fair bit away from saving up the rest of the 10% deposit. After speaking with a couple of the larger banks they have been encouraged to cross collateralise their mothers home into the bargain. Currently they live in Ashfield in Sydney and similar properties in the same area are going for $650k to $700K. As their combined income is only $76K pa, their ability to service debt is not too great considerable especially as they have a small dependant. I have suggested that they use the equity in their mothers house for their deposit (which they can service quite comfortably) and then take another loan out for the remainder and rent out the IP. So, my first question is, is my advice sound and secondly, does anyone know a good solicitor and mortgage broker that would give my friends sound intelligent advice.
Thx Guys, sorry if it a bit long.[
][][]G’day Azrael…
There are a number mistakes, and as I see them…
(1) Don’t buy “off the plan”…. Anywhere!!!!!
(2) Don’t buy a unit in Sydney today.
(3) Tell her to leave her Mothers House alone
(4) Look for a bank with Integrity.
I am sure you mean well…. but the Sydney IP Market is looking a bit sick at the moment and it sounds to me as if they should forget the Investment until they can do it without Mum’s House on the line.
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]Azrael,
You said your colleague “has bought” the IP, but that she’s a fair way from saving up the rest of the 10% deposit. What does “bought” mean in this case? If she backed out of the deal now, what would she be up for? How does that compare with what she’d be up for if she can’t tenant the unit when the time comes?
I realise that you didn’t say where the unit is, but if it’s around the same part of town as her mother’s house then I’d be *extremely* cautious about buying now. That’s on top of Bill’s general “Don’t”s. I live near there and I’ve just sold a property near there. I sure as heck wouldn’t be buying in the area at the moment. Especially not if there was any possibility of another small dependant in the next 5 years.
Sorry to be a downer, but on the information you’ve given us at the moment the down side of this purchase looks a lot more likely than the up. So better face it now than later, IMO.
Ghoti
Hi Azrael,
If there is any doubt at all about being able to finance the situation or repay the loan DON’T cross collateralise. Also you need to put some figures here so it is easier to work out the numbers. If they’re only going to do a 10% deposit then just take out MI and leave the mothers house out of the situation completely. A combined income of 76K is quite good especially if they’re living in their mothers house. If they go ahead with the deal and it is difficult to rent the unit, then rent the mothers house out and move into the unit if it is feasible.
Finally, DON’T DON’T DON’T cross collateralise.
C2
“Is it true the more you owe the more you grow until the banks steps in?”
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