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  • Profile photo of Hopeful1Hopeful1
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    @hopeful1
    Join Date: 2009
    Post Count: 5
    My husband and I have built 2 Waterfront properties on a Marina in regional SA. We live in 1 property and holiday rent the other.
    Both properties are worth 650k each (valued 2 weeks ago) and we owe 507k on each also.
    The holiday rental is doing really well, better than we expected, and income earnt in 7 months, since it started, to 30/6/09 was $23390.
    Our problem is that since we moved here, we haven't been able to find jobs. And living on $750 per fortnight, with 2 mortages of $2000 each per month has been difficult. The income from the holiday rental will cover itself but we have had to use that money on bills etc. So for May June July we couldn't pay the mortgage but we found a very understanding mortgage collector at the anz and she arranged for the payments to be capitalized.
    However, as at today, we are now 2 payments ($8000) behind again and the hardship team have deferred those payments and will also defer the October payment.
    This has all happened because we relied on a broker to have revaluations done and access equity as a buffer to see us through. He has let us down and no longer even returns calls.
    We have given up hope of obtaining jobs in the time necessary. The chance of getting a 'permanent' job that the banks will consider in the time we have is pretty remote.
    We decided, when we first started going backwards, that we would also holiday rent the house we live in and move out and rent ourselves. We have calculated that each house would earn approx. $54000 per year based on past and future bookings. So thats $108000 a year. My husband has just obtained a casual job earning $800 a week and I get $10140 a year FA.
    We have applied to the ANZ for $100000 – $30000 to furnish the house to holiday rental standards and the remainder to payout existing debts and the approx $20000 left to act as a buffer.
    It was not approved. They say the income is 'projected' not proven and also because we have the missed payments.
    Does anyone think they can help us get out of this NOW? Could we get a low doc to get us 82% of the value ie $52000 or even just $30000 to furnish the holiday rental so we can start earning money over the peak christmas season? We are forecast to make $12000 just for Dec and Jan for the current holiday rental.
    Should we use private funds from somewhere?
    My husband and I are just totally convinced that we can get out of this and even make money through rental income and capital gains, that we just so do not want to let the houses go, and lose what we have worked so hard for. Because thats what will happen. The ANZ will only wait for so long.
    Or should we just try to get any kind of work just to keep the payments up?
    I'm sorry this is so long, but this is almost the last thing I can think of – to get advice from people who know what they are talking about :)
    Please feel free to post any comments and opinions that might help our situation and  if any of the brokers on here can help, please let us know.
    Profile photo of pullypully
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    @pully
    Join Date: 2009
    Post Count: 44

    hopeful i read your post on another forum. your plan to borrow $30000 to set up your home as the second rental sounds feasible, but how do you expect to service the loan, plus the arreas, plus the exsisting mortgages?

    i dear say $30000 could be sourced but the interest rate might be unacceptable given your situation. i suppose you have considered friends/family?

    how long have ANZ given before they will expect a resolution to this situation?

    can you get another income stream like employment, to service the debt and not be so rent reliant?

    difficult to predict holiday rental net return in the best of times.
    sounds as if you have not had the property for long? what was the arrangement when you first bought, you mentioned a mortgage broker?

    i suppose in the beginning you had employment so it was a different situation?
    regards.

    Profile photo of crjcrj
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    @crj
    Join Date: 2004
    Post Count: 618

    i'm sorry you're in this situation.  You need to be realistic on values.  Look at what else is on the market and what places are selling for.  Can you rent yours as permanent.  Can you move back to where you came from and get employment there again?  Potentially you have $300K of equity, unless you are able to come up with a realistic proposal to the bank, that is at risk.

    You need to talk to your accountant or someone and get some objective advice.

    If I were in your position I would put both properties on the market as if you can get one sold you can then keep the other and build back up from that.

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

    Sorry to say it will be hard, or impossible to get a loan if you have already missed a few repayments. Have you considered selling one of the properties? This may be the best option before it snowballs.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of maree_bradrossmaree_bradross
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    @maree_bradross
    Join Date: 2007
    Post Count: 401

    maybe speak to your super fund you may be able to access funds under the hardship clause.

    Profile photo of crjcrj
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    @crj
    Join Date: 2004
    Post Count: 618

    Unless either of you is over 55, you are unlikely to be able to access super for hardship.  If one of you is over 55 a transition to retiirement pension might assist

    Profile photo of Hopeful1Hopeful1
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    @hopeful1
    Join Date: 2009
    Post Count: 5

    Pully
    Yes everything was very different when we started. We were in a good financial position.
    Then the broker took forever to do things, didn't get what he said he was going to, made us trust him and now has disappeared. Told us he could do things that clearly he couldn't. And we believed him. We're not happy with ourselves about that.
    The property has been holiday rented since November 08 (after sitting empty for 6 months waiting for the broker to refinance so that we cold buy furniture). It made 23k in 7 months and should make approx. 40k over 12 months. Plus we have a contract for midweek non peak bookings which is worth 14k. So all up about 54k. And the mortgage is 25k. So we're making more than enough to cover the mortgage.
    Why don't others on here and SS think we should fight to hang onto that any way we can? And if we do the same with the house we'd live in we'll be sitting pretty in not too long at all, especially if house prices start to increase again.
    *********how do you expect to service the loan, plus the arreas, plus the exsisting mortgages?**********
    The above explains how we expect to service the loan, and the arrears will be capitalized so in effect we don't owe anything. As soon as we start to rent this house as well then they will both look after themselves.
    I'm looking forward to that day  the stress is getting too much.
    Previous comments have suggested that we can't get a low doc because of the arrears but if the arrears are capitalized and not owing aren't they gone and not viewed as arrears?
    My husband is working now, but its only casual. It will be enough to support us if we aren't paying 2k a month on a mortgage and just renting, but not good enough for the banks to even consider for a full doc loan.
    We are sure that we can manage all of the payments on everything – perfect for a low doc and my husband has an ABN. So I think we fit the criteria, don't we? Are there any low docs that are above 80% LVR around at the moment?
    Thanks for your constructive comments!

    Profile photo of crjcrj
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    @crj
    Join Date: 2004
    Post Count: 618

    Your problem is you are not able to meet your financial commitments, you have defaulted on your mortgages, and you need to have something to show your bank why they shouldn't take action.  Whatver the borrowing environment was six months, 1 yaer or 3 years ago, the world has changed.  Three years ago I was happy to go to my banks talk about finance and excvahnge contracts while I was waiting for a  formal loan offer.  Today no way.  Earlier this year I was refinancing, my broker told me approved subject to valuation.  The valuation was fine and then that bank kept wanting more details.  In the end I went with another bank.  Both banks had exactly the same information.

    If you think your business model is so sound get some furniture cheap or with no money down and try it as some posters suggested on Somersoft if you are determined to do this.

    But at the moment as your bank would see it you have chosen not to give priority to paying your mortgage, and if my reading is correct have not paid anything off for 5 months, soon to be 6.  Until you start making payments whatever equity you have is being eroded rapidly.

    If your plan is so good then get it endorsed by an accountant and present a proper business plan to your bank, but if you think the bank is going to lend you more you are dreaming.  What did you tell the bank three months ago, was it that things had turned around and you would meet the August and September payments?  If so, you have no credibility – why should they believe you that things will be different

    Profile photo of Hopeful1Hopeful1
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    @hopeful1
    Join Date: 2009
    Post Count: 5

    Thanks for your suggestions crj.

    There was a sale for 725k last month and there is one across the road on the market for 650k. Ours were valued 2 weeks ago at 650k each. Valuations usually seem to be a bit lower, so we might get a bit more than that if we sold.

    I have thought about permanent rental too, but we won't get as much as we would if we holiday rent it. But, then again, when you factor in the cost of furniture, it would take a long time for the holiday rental income to pay for the mortgage AND the furniture. So, maybe that is the way to go. We'd probably get enough to pay most of the mortgage, so it might be worth seriously considering.
    I realise things aren't the same as they have been, I believe lenders would lend up to 95% LVR on low docs previously. Thats what I need now!!!!

    ************But at the moment as your bank would see it you have chosen not to give priority to paying your mortgage, and if my reading is correct have not paid anything off for 5 months, soon to be 6.  Until you start making payments whatever equity you have is being eroded rapidly.  ************

    We haven't 'chosen' not to give priority to our mortgages. We just haven't had enough money to pay them both. You don't get far with $700 a fortnight income and a $2000 month mortgage.

    We are novices in this field and thought the bank would see things as we do because the existing rental has proven itself. But we didn't realize it would be so hard. And even harder than it had been before to get things through.

    *******What did you tell the bank three months ago, was it that things had turned around and you would meet the August and September payments?  If so, you have no credibility – why should they believe you that things will be different**********

    We told them our plans, they agreed it was a good idea, they capitalized the arrears, we applied for an increase to our loans based on our plans and 3 weeks later they didn't approve. The HFM also agreed that our plan is a good one but he had no 'power' to change the decision.

    Since then we've been trying to work out ways out of this – and we still are – thats why I'm here!

    Profile photo of ErikHErikH
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    @erikh
    Join Date: 2007
    Post Count: 118

    Hopeful1,

    First of all, I am no expert so you really need to urgently seek professional support.

    You have not paid 5 months on your mortgage and even though the bank has agreed to capitalize this for now, do you actually have any formal documentation showing that because of capitalizing these payments your mortgage is not in arrears? What happens if ANZ decides to "clean-up" delinquent mortgages. You will lose both properties in such a scenario, you have both loans with ANZ and I am assuming the loans are in your personal names so the bank will have cross collateralized.

    I don't see how you have enough income to obtain the funding you speak of through traditional channels, especially in the current climate.

    I would strongly suggest you do the following:

    1. Put one of the properties up for sale, so if all else fails you can sell one of the properties, get the capital gain and keep the other rather than risk losing both.

    2. Look at securing finance through other channels, like private loans for the $10k – $30k you were talking about and maybe something like an EFM (http://www.efm.info) for the loans. I have never used this nor deeply investigated it, so do your due diligence, but in essence this product will lend you up to 20% of your property's value in combintaion with a normal mortgage with no interest to pay, in return the financier gets 40% of the capital gain between when you took out the EFM and when you sell the property or after a fixed period. Might work for you or not. Whether they lend at the moment I don't know and being behind on your payments won't help. Maybe you can find a JV partner to buy into the properties if the cashflow is as good as you say. Prepare a good, professional looking project summary incl. financials and send it around. Post it here! Maybe you'll find someone willing to buy into you're project.

    3. Move to wherever you have to move to get the best paying job you can get, even if it's just temporary. Without good income you will struggle to secure a loan.

    4. Keep on fighting like you're doing – good on you! – and don't give up, BUT make sure you have a back-up plan and don't risk it all. I.e. make sure you sell yourself if you have to and don't wait until it's too late and the bank reposseses. Don't trust the bank's word, make sure you're on the right side of the written agreements.

    Erik

    Profile photo of YossarianYossarian
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    @yossarian
    Join Date: 2006
    Post Count: 136

    Your strategy appears to have been based on the assumption that you cold access equity (create further debt) to meet your commitments.

    Your bank is giving you temporary relief to allow time to prove your can service the loan from income.

    Using debt to service debt, in spite of the advice of the books and the spruikers, is not a sustainable model.

    You need to find work and generate income to service the debts. If this is not possible where you are and you aren't in a position to move, you shold give very serious consideration to selling a property before the bank does it for you which, if you can't showing a reasonable prospect of servicing, they surely will.

    Profile photo of Hopeful1Hopeful1
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    @hopeful1
    Join Date: 2009
    Post Count: 5

    Thankyou for that suggestion Erik and also for the encouraging comments about giving it a go. How easy is it to get a private loan and what sort of interest and payback time would we be looking at?

    Most people here seem to think that we just want to borrow money to pay debt. That isn't really what we want to do, we are in the situation where one property will be making a lot more than the mortgage on it and will definitely be paying for itself with money to spare. Isn't that what the majority of property investors is aiming for – positive gearing?

    We want to do the same thing with the house we live in at present, but our problem is that we don't have enough 'startup' money ie to furnish and establish the house as a holiday rental. Once that is done and its renting, in not too long, the money that we need at present would be paid back and we'd be making money. Spending money to make money. Isn't that the whole making money out of real estate theory? Aren't there people on here who, in the past have scrimped and borrowed and 'got into debt' to put down a deposit on that 'must have because its such a good buy' property? And in times past, I'm sure there would be people here who have borrowed 100% or even 110% to buy a property, when it was possible.

    Now why are most of the comments directed towards me negative? Get a job, earn some money, sell while you can, get out quick.

    What I'm really asking of anyone here, is how do we get between 10 and 30k to enable us to do what we want to do? Private money? Is the Westpac low doc 82% still possible? I think all the interest we owe will be capitalized and therefore would not be viewed as unpaid payments – is that right? Are there any lenders around who will lend between 82 and 85%LVR on a low doc? Should or could we get a visa or a personal loan? Or would the Private money be easiest and best?

    I am just trying really hard hot to let go without having given it my best shot. Do you all really think, we should give up the CG's that a house valued at 650k now, can give us in the future, and just sell it – all because we can't come up with, what is, in the big picture really, peanuts, to furnish and establish it as a holiday rental, that will make us money.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hopeful

    Sorry to read your story.

    Regretfully if you have missed a payment over the last 6 months no conventional lender will offer you a lodoc refinance.
    Westpac still look at 80% refinancing however as they are one of the few lenders left doing refi's insist on spotless credit and payment history.

    Dont now any private lender that would go to that lvr either irrespective of the rate of interest.

    Lodoc above 80% is still available just but the rates are horrendous and only availble to self employed clients with ABN > 2 years + Refinances also dont allow for any cash out.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of kaiseriqbalkaiseriqbal
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    @kaiseriqbal
    Join Date: 2009
    Post Count: 11

    If you want to keep both houses, wouldnt it be better to rent your current PPOR out and rent out yourself at a much cheaper rate.

    Rent your current PPOR as a permanent rental, which means you will not need the 30K for furniture and move to a smaller unit which will have significantly cheaper rent.

    However as others have said, I would probably sell the PPOR and from the proceeds pay off a large sum to the bank to show good faith and rent out in a cheaper area.

    Profile photo of YossarianYossarian
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    @yossarian
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    Hopeful1 wrote:
    Thankyou for that suggestion Erik and also for the encouraging comments about giving it a go. How easy is it to get a private loan and what sort of interest and payback time would we be looking at?

    Most people here seem to think that we just want to borrow money to pay debt. That isn't really what we want to do, we are in the situation where one property will be making a lot more than the mortgage on it and will definitely be paying for itself with money to spare. Isn't that what the majority of property investors is aiming for – positive gearing?

    We want to do the same thing with the house we live in at present, but our problem is that we don't have enough 'startup' money ie to furnish and establish the house as a holiday rental. Once that is done and its renting, in not too long, the money that we need at present would be paid back and we'd be making money. Spending money to make money. Isn't that the whole making money out of real estate theory? Aren't there people on here who, in the past have scrimped and borrowed and 'got into debt' to put down a deposit on that 'must have because its such a good buy' property? And in times past, I'm sure there would be people here who have borrowed 100% or even 110% to buy a property, when it was possible.

    Now why are most of the comments directed towards me negative? Get a job, earn some money, sell while you can, get out quick.

    What I'm really asking of anyone here, is how do we get between 10 and 30k to enable us to do what we want to do? Private money? Is the Westpac low doc 82% still possible? I think all the interest we owe will be capitalized and therefore would not be viewed as unpaid payments – is that right? Are there any lenders around who will lend between 82 and 85%LVR on a low doc? Should or could we get a visa or a personal loan? Or would the Private money be easiest and best?

    I am just trying really hard hot to let go without having given it my best shot. Do you all really think, we should give up the CG's that a house valued at 650k now, can give us in the future, and just sell it – all because we can't come up with, what is, in the big picture really, peanuts, to furnish and establish it as a holiday rental, that will make us money.

    You wanted advice and you've received some. You are obviously free to ignore it.

    If you were looking for people to make reassuring noises about (a) the desirabilty and (b) likelihood of obtaining further credit you cannot support on your current income you should have been more specific.

    Profile photo of sonyasalsonyasal
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    @sonyasal
    Join Date: 2008
    Post Count: 421

    It would seem to me that you have dug yourself a huge hole. How were you planning to finance these loans if both you and your husband were not working? Why go so 'big' to begin with? Smaller loans are obviously easier to service as well as being easier properties to rent.

    Did you pay anything towards the mortgage repayments in the six month period of missed payments, or did you just let the loan payments accrue? All of these factors are things that any lending institution will look at. Unfortunately, the way you have managed (or mismanaged) things means that you have made it very difficult for yourself and i don't think any financial institution will lend to you especially in the current financial climate.

    Profile photo of businessglobalbusinessglobal
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    @businessglobal
    Join Date: 2005
    Post Count: 118

    I am a professional property advisor and also a licensed principal and deal with mortgagees, default, bankruptcy, and banks continuously as we are asked to appraise property, prepare it for sale and sell it off to recoup back the banks money.

    Where I see the quick summary of all of this is- you have bitten off more than you can chew and cope with, and banks dont really view holiday rentals as a solid guaranteed stream, although yes you do average out more income. We own 3 holiday rental homes and presented recently our homes and income for reval, it was only that we had been doing it for 3 years had all booking evidence, sheets, bank statements, rent receipts that they took it as serious.

    Where I see the sad thing is that you are totally stressing over property and walls and other people will be enjoying and loving your homes and furniture why your sitting at home worrying about how to pay for all of this. Where the main concern also is what if the values go down? or the bank calls in your loans and they can then sell it for whatever they wish in question as they have mortgage insurance to protect them, and sometimes will instruct agents, get me a sale in 7 days and clear the debt- so they could just sell for the debt price, not necessarily the market valuation.

    It is a very risky path to use equity to pay expenses, capitalise interest and keep building up the debt- banks do not feel secure either in this situation. It is also possibility to service the debt.

    Probably I would –
    Sell 1 asap and sort out your finances/ jobs and when all gets back in order start again but on a smaller scale to build up your $$$
    Rent asap unfurnished and try to get more work
    Document all as talk means nothing to banks
    Dont believe anyhing until you see it in writing
    Banks have even got stricter today especially with low doc- AFG announced and Westpac no low doc lending unless 12 months of solid BAS history and absolutely impeccible credit history.

    I would go for a long walk and it is just really a quick decision and clean up exercise otherwise this starts to effect your health
    and relationship and no amt of property/ assets worth this.

    Good luck
    Kylie x

    Profile photo of LinarLinar
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    @linar
    Join Date: 2004
    Post Count: 567

    I'm with Yossarian

    You asked for advice and you got it.  The fact that none of the responses have been "positive" including some responses from very experienced property investors, suggests that you aren't likely to get the answers you were hoping to get.  Maybe you should take on board some of the advice you have received.

    K

    Profile photo of crjcrj
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    @crj
    Join Date: 2004
    Post Count: 618

    Hi Hopeful1 – as part of the usefulness of these forums is sharing experiences, are you willing to share on where you're up to so far

    Profile photo of Hopeful1Hopeful1
    Member
    @hopeful1
    Join Date: 2009
    Post Count: 5

    Hi crj

    Before I answer, thanks to Kylie for your advice and suggestions.

    Of course Yossarian I have taken the advice on board. That is why I started this in the first place. I wanted advice not criticism.

    Does anybody get themselves into this position by choice?
     
    We have found ourselves at this point, because we trusted a broker who promised everything and ended up doing nothing and still to this day has not said that it couldn't be done. He just stopped answering my calls. So, because we are naive, we let it go almost to the point of no return by trusting him, and now we want to finish what we started and not let him ruin it all for us. We were never supposed to be in this situation, but our loans have blown out because he didn't get what we asked for and there were so many delays and extra costs involved that has brought us to now.

    Probably what I was hoping for from this forum, was that one of the brokers on here would have said that they knew of a loan, at not too high interest, that would enable us to get higher than 80% low or no doc that would give us a buffer for the time that we would move out of our house and then establish it to holiday rent – and finally we would earn some income over the coming holiday period. That problem solved. Then we could move ahead without all this pressure.

    But now I know its not that easy.

    Our current situation is that
    1. My husband is working casually. It is helping us to catch up on bills but is not recognized by banks for 12 months
    2. We are in the process of applying for a low interest credit card 
    3. We will apply for a business loan – which is very involved as there is so much information needed to prepare financial plans etc which I have no knowledge of at this stage
    3. We want to move out and rent – but can't yet because we have no money for a bond. So we have to wait.

    We have thought about renting this unfurnished too. But that won't cover the mortgage etc. Holiday rental is the way to go in our situation.

    At the end of the day though, any way that we can keep this house is a good way!

    There is one thing I have thought of after reading other posts – can we start an SMSF and sell half of our house to it? I have read that you must be arms length and we wouldn't be living in it others would be renting it, and if we get the business loan (hubby has had ABN more than 2 years) it would be business premises? I'm not sure about that so is anyone can tell me more, that would be great.

    So at this point we are still hangin' in there, but only just!

    Still Hopeful1

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