Hi guys,
I am in a bit of a pickle, and I was wondering if you could please express your opinions because they would be greatly appreciated.
My parents own their 2 bedroom apartment in Lane Cove which is worth about $500,000. It is 100% fully paid off. Dad is 64 and semi-retired (working part-time) and Mum is 57 and still working full-time. They have never purchased and investment property and are scared to borrow, but have thought about it if they could find a cashflow neutral property (or positive of course) for around $200,000 – $250,000.
If they were to use the equity in their home to do so, if for example they wanted to buy a place for $200,000, would they have to pay any cash or could they just use the equity in their home, and what would be the minimum that they would have to release to make the deposit?
Finally, if they are that age, would they be able to qualify for a loan? Would it help if I was a guarantor?
Any help and views would be greatly appreciated.
Cheers
What they could do is, either,
1) Set up a LOC against their current property and use this for deposits and costs with the remainder coming from 80% LVR loans secured on the new property.
or)
2) Use the existing house as security and borrow 105% of the value of the new one.
I prefer 1 as it keeps the properties separate, ie not cross collateralised. And they will have access to funds sooner to pay the deposits and other costs that need to be paid upfront.
I guess there is another option too
3) Get the LOC against the home and then use this to pay cash for the new property.
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
Hi rich richie,
I would go with Terry's 3rd option because with a cash settlement they might have a better negotiation power and may be able to buy a property at a discount. The Sydney market is still struggling and there are plenty of discount opportunities. Assuming they are able to buy something at around 15% below valuation (which is achievable), they can then refinance the new property after settlement at 90% LVR (against the valuation, not purchase price). This should make their purchase (almost) no money down.
Hope this helps…good luckBeing scared to borrow is normal; especially if they are worried by not being able to make the repayments.
If you have some knowledge about the numbers involved, and can explain to them what the bottom line to their hip pocket would be in the event of a vacancy, what the management fees are, etc, then this will alleviate their fears to a degree.
Even after you have crossed ever T and dotted every I there is fear, but you still need to act.
I know from our private message that you know about "cashflow positive after tax" properties, so this is probably a good place to start with your Mum and Dad in the explanations.
Terry's advice is great; this is how we've always done it, it's quite easy.
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