how to maximise available cash

Firstly I want to say I am not by any stretch of the imagination a ‘guru’ and am myself in a similar quandry in regards to buying my next IP – but with very different problems.

Unfortunately the first glaring problem you have is no income.

Essentially no matter how roaring to go you are, without an income base you are going to find doing anything from here difficult.

If you are relying on that money to survive most lending institutions wont even look at you to borrow money.

The fact is that from what you have posted you are all cashed up but present a very high lending risk.

1) What debts do you have?
2) Where do you live — Parents? Friends give free board? Or do you pay $500/week rent out of your current cash hoard.
3) What is your investment history like?
4) Do you intend on working soon?

You see without further lending you have ZERO leverage. No income means no lendining which means you can ONLY buy what your 250k allows you to.

Another big problem you have is finding CF+ properties. They do exist but with no income how will you maintain them?

Even when you buy a CF+ve property you need a fund in place for emergencies etc ($20,000 is my fund), and you may experience extended vacancy periods etc no matter how good the property looks.

To be blatantly honesty the ONLY option I see for you is to buy an ultra cheap property that will allow you to have some money left over for emergencies and use the income it provides to save a deposit for another property.

But I dont see how you are going to do this since you have no income you surely would need the money to live on?

You would open a vast array of options to yourself if you aquired an income. Even a small income would give you a massive boost in servicability credibility in the eyes of lenders. Otherwise you may have to go to private lenders and experience very expensive forms of lending.

What I would do:

1) Get a job

2) In quick sucession find 3 cheap fix-up properties around the $200,000. Go for future growth and medium rental return, neutral or very slightly negative geared. Much easier to find also. True +ve geared properties at the moment are in general in very risky areas.

3) Place a $40,000 deposit on each to avoid MLI, some investors like MLI – I dont.

4) Do 10k reno on each property to achieve at least a 25k boost in market value.

5) Put $80,000 in a REALLY good managed fund that achieves about 20% gains. Navra fund has been good. This diversifies your portfolio and gives you a much better servicability as you can claim any profits as income.

6) Put remaining $20,000 in an offset account or LOC. If you have a low income at this point put half into a direct offset and other half into a personal LOC account to make tax easier at EOY.

The above does not take fees etc into account but you can tweak it and use your imagination to take it into account.

What you are left with is:

1) $675,00 in property (195k in equity)
2) $80k in shares generating more $
3) $20k for emergencies and saving you interest
4) 3 sources of passive income from tennants

—

This is currently the plan I am working on myself, but with a slightly different mix of property types and values. But the principle is the same. Yuo dont need to stop at 3 properties. Once your income and equity grows you can start accumulating more valuable properties and the sky is the limit!

Keep your options open. Be dilligent, but dont procrastinate as that sometimes costs you more than jumping in head first.

<KS>

Is it about the money?

DAMN STRAIGHT IT IS!

You cannot apply for a standard loan without an income regardless if you had no property or millions in unencumbered property. You cannot even apply for a low doc loan unless you lie because you are required to state an income and the ATO is auditing these intermittently.

The only option is no doc but you will be restricted to about 65% LVR. No income figure is required to be stated or proven.

TMA

Nine

One possiblitiy is to lend your money to your trust and then to buy a property for cash. Buy only bargins and Stack the contract up higher with a rebate on settlement.

Then after settlement apply for a loan to release your funds. If you have purchased well, the valuation should come up higher and you may be able to get a loan close to 100% of what you paid for.

Repeat the process.

Terryw
Discover Home Loans
North Sydney
[email protected]

When you apply for a loan, you have to state your assets and liabilities as well as your income and expenditure. The interest on your money as presented by Magellan would only just cover your living expenses for a single person with no children and no other expenses at all. This is highly improbable for anyone.

The rental income will be used for serviceability but most lenders will only look at 70-80% of it. There are also many expenses involved with property as well as vacancies. In any case, you would need a very very positive cashflow property to cover your loan repayments, your living expenses and any other expenses you may have (eg: car, phone, electricity, rent, credit card, etc). Living expenses are only in relation to food, clothes and personal items.

TMA

Can you explain this further? What is the point of lying on the contract? Won’t you pay more stamp duty????

If this generates an income somehow, then there is tax on that income isn’t there?. I don’t see how giving away thousands to demonstrate a fake income benefits someone without any real income.

TMA

Not trying to argue — just trying to explore different scenarios— Could Ninie say that as she is married she does not have any of those living expenses as she does not work and her husband supports her entirely? So the income from her Capital is entirely “play money” I have not been in the clutches of the banks since about 1992. We in fact have been acting as a bank for our kids when we can. However Knowledge of Lenders requirements is useful and I appreciate all your posts.

Nope this is not possible I am afraid.

Marriage alone is not sufficient justification and would DEFINATELY require Ninie to then put forward her husbands income/assets as security against the loan.

Some instances will warrant flexibility – but when it comes to banks and risk with their money their caution is absolute.

They cant go to their insurance company claiming for losses if there was a default on the loan and say “but they said they were married” and then expect a big payout.

Not having a go Magellan – just being brutally honest [blink]

My parents have been the ‘bank’ for me also this year, got a loan for my 2 cars off them which will be paid back plus interest next year – enabled me to move fowards like I have in a much shorter space of time.

Good on you for helpin gyour kids out – I find it teaches a healthy respect for money also – but only if you enforce it like a bank would minus the red tape.

<KS>

Is it about the money?

DAMN STRAIGHT IT IS!

Thxs K S for clearing that up My queries just show that I have been married a Verrrryyy long time —-LOL–

Regarding your first question, YES.

TMA

Stacking equals lying equals fraud.

For example, you buy a property for 200k. You ask the vendor to put 300k on the contract and kick you back 100k (why they would do this I don’t know as they would have to pay CGT on the extra 100k as well). You pay the extra stamp duty. The contract is stacked!

You go for a loan later and request a valuation. The valuer asks you how much was paid for the property. You tell them 300k. There is the lie!

You submit the loan applicationand fill in the box that asks for purchase price of the property. You write 300k. There is the fraud!

Read the fine print in loan offer documents. This is illegal and can result in the lender taking possession or calling in the loan.

Now the next bit really confuses me…

Where does the income come in to obtain the loan? You will not be getting any more rental income by ‘stacking’ the contract!

This practice is pretty dodgy Terry. Please tell me you have never done it!

TMA