All Topics / Help Needed! / Need advice re: our 1st IP

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  • Profile photo of kirstehkirsteh
    Join Date: 2007
    Post Count: 4

    Advice please!

    We have recently purchased our 1st IP and I would like some advice re: finance.
    Our situation is as follows:

    1. We have $20K cash for deposit and stamp duty.

    2. Property purchase price $180K. It was originally placed on market for $260K , after 2 years no sale reduced to $215K and our low accepted offer even suprised the real estate agent who said $200K was a good deal (Deceased estate.)
    With a new paint job and modernising; update of old fashioned fittings, curtains etc will be worth approx $240K without spending anything.

    We are in process of financing loan and went to our lender of PPOR – NAB. They will only lend up to 80% purchase price not actual value.. on a $180K property need $36K deposit or need LMI costing $1800. Should we go ahead with this?

    Just wondering if you have any advice on how we can better utilise our money or structure loan etc. Should we see a mortgage broker… sorry if we seem naive but we are!

    Profile photo of virgininvestorvirgininvestor
    Join Date: 2007
    Post Count: 37

    Just pay the $1800 LMI, the capital growth and/or positive cash flow will easily out weight this small outlay if you hold the property for a few years.

    Seems funny how your bank will only give you 80%? Most banks if you already have a PPOR with them and some equity they will often lend you 100% of purchase price + all costs!!

    Have a word to your bank manager!

    Profile photo of propertypowerpropertypower
    Join Date: 2006
    Post Count: 312

    hi kirsteh,
    Congratulations on finding a great deal. I think you should progress with the purchase.
    Some options available to you are;
    1. Redraw equity from your PPOR. You need to withdraw approximately $25k equity because you already have $20k saved up.
    2. Use the savings and equity from your PPOR to put deposit and closing costs for your investment property. Have an independent loan arrangement for it. I don't think its a good idea to cross-collateralising properties.
    3. Complete the renovation on your investment property and get it independently revalued. Assuming the property is revalued at $240k, go back to the lenderr and try to increase your loan. Even at 80% LVR, the lender should give you $192k loan. However, for the property to be revalued, the renovation may need to be more than just painting, changing fittings, curtains, etc. I think updating the kitchen and bathroom may be required as well.
    4. If you are borrowing at 80% LVR, then there should be no LMI.
    Hope this helps.

    Profile photo of kirstehkirsteh
    Join Date: 2007
    Post Count: 4

    thanks for your advice..

    The bank will give us 90% loan just didnt know whether to procede with having to pay LMI.

    If I redrew equity in my PPOR, how do I go about doing that? Agree not to cross collateralise.

    Profile photo of Brisbane BrokerBrisbane Broker
    Join Date: 2003
    Post Count: 25

    Hi Kirsteh
    Banks will generally take the lower of purchase price or valuation on the basis that the purchase price represents the current market value.  The LMI is a small price for the gain you seem to have made. 
    Some lenders will take the valuation amount (which at this point is not known ) and unless a valuation came in significantly higher then you would still have mortgage insurance and deposit to pay.

    To gain equity from your PPR you will need to increase the loan amount so you can withdraw a cash amount. 

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