I'm after a little bit of advice (or maybe quite a bit!) on setting up a loan.
We recently went to a meeting with a company which has got us thinking.
Just a basic breakdown of our situation:
Currently live in home valued at $780k have a mortgage for $205k.
We are on single income as we have a new bub.
Curently our guaranteed income just covers our day to day expenses but I also am working casually for about $300 oer week but its casual so not guaranteed.
We have been advised basically that we should increase our loan by the deposit for the investment plus say $50k that would be available for emergency (no rent etc).
Then take out an Interest Only loan with a different lender for the investment property value less the deposit.
We would make the repayments on this amount by the rent and the tax offset amount (apparently we fill out a form and the tax we would get back at the end of financial year would instead not be taking out of husbands pay so monthly we would have the increased amount to pay the loan).
They recomended an investment property approx $360k. They were pushing units but we think we would prefer a house and land.
Please can you give me your thoughts on this??
I'd really appreciate any opions or advice!
Thank you!!Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Firstly welcome to the forum and i hope you enjoy your time with us.
To be honest i would be very suspicious over a Company that is marketing property to you an also arranging finance.
They will be less likely to be truelly independant ad certainly not be keen to tell you if the Bank valuation comes is less than your purchase price.
The suggested structure is about right however you want to make sure someone acts in your interest and not their's.
Yours in Finance
Thank you Qlds007.
I am so happy I found this place. Can't wait to look around more.
thank you for your advice. We have decided we don't want to go through them but think we want to take on board some of what they have explained. This is why I'd like any opinions at all before we look into it further.
Our house valuation was completed by 3 agents and all were about $800k so we are just estimating the bank valuation to be $770k. I see your point though with them not being in all pockets of the process.
As Richard stated, they are as sure as god made green apples a marketing company is telling you what is best for you.
Deal with a reputable finance company that knows how to protect you assets and therefore give you the best option to create some more wealth.
The more people you talk to the more confused you will get.
Talk to Richard!
Look at this site http://www.raspinvestment.com.au to answer your questions.
BluegrassxdrewParticipant@xdrewJoin Date: 2010Post Count: 479
The smartest investments are the ones you'll make based on your own good judgement and assesment of your situation. What you are currently doing is asking a marketeer who has nothing but his own interests at heart to do all that for you. And you can probably guess how thats going to end. Marketer and developer live happily ever after under assumed new identities, and you sit there with your half baked investment wondering how long it will take for you to recover your money. And wait … and wait.
Real Estate will always attract the undesirable types simply because there is a lot of money in each deal. So they'll always be out there, you just dont HAVE to deal with them. There are still a load of fabulous deals to be had and they are usually right under your nose in the real estate listings.
I can repeat the essentials. Learn your trading market, know your rental market, and enjoy your investing ! If you arent having fun owning a property .. making money from rentals and accruing the capital gains .. try golf ! Because if you arent enjoying the thrill of investing .. you might as well be hitting a small ball around a large green piece of acreage to keep yourself entertained.katchwMember@katchwJoin Date: 2005Post Count: 29
Hi Bonnie and welcome,
I’ll be very upfront and let you know that I work for a company that provides investment properties as per how the company you have spoken with does.
I will also state now that it NOT my intention to sell you anything. I am responding to you only as a fellow investor and a fellow new one at that.
I would firstly say that if you spend some time on this forum you will notice that Richard posts frequently and is always very helpful so you have nothing to lose following his advice
As Richard stated above, I would look very closely at how the finance is provided and by who. There is a very big difference between the company providing finance for you as opposed to an independent broker arranging the finance with you. In our case we put you in contact with a broker but they are totally independent from us, there are no fees and no commissions between our company and the broker. The broker receives his commission from the bank like any other broker.
Definitely, definitely do your research on how your finance is going to be organized.
Ask the question, “How is the finance broker getting paid?”
As an observation and only as my opinion given that I don’t know your individual circumstances, I would be very hesitant to borrow an extra $50, “for an emergency”. You will be paying interest on this amount from day one and could probably just arrange that finance if and when you need it.
Speak with your bank and accountant about how to best organize your finances for emergencies, NOT, the investment company.
I would also add that if this amount was recommended by the company you spoke with, I would then ask them the question, “Why do they think you need such a big buffer?” If this investment has the potential to cost you $50K in a year then I would ask yourself whether it’s worth the risk.
As Richard also stated, the suggested structuring is about right. It is the same strategy that we talk to our customers about but with one key difference in that we only offer investment properties with both a house and land component. We don’t build or therefore offer apartments. One of they key parts of an investment strategy of this nature, ie one driven by capital growth, is the land component. The land we package with our homes is sourced from the early stages of key developments where the land is sold at it’s cheapest. The subsequent stages are then released and sold for a higher price driving up the value of the blocks purchased in the earlier stages. In some cases blocks we packaged are now worth 40% more than what we originally sourced them at.
The question to ask here is.”Where are you expecting the growth?”.
Do your research on the areas they have talked to you about, don’t just take their word for it.
This is also a key point to note. We are a building company. We make our profit on building the house, not on the land. The land is passed to our customers at the price we sourced it at.
With any company, I would ask the question “Where are your profits are made?”.
Following on from this I would ask the question, “Who” are you dealing with? A building company or a marketing company?
With a building company you are buying off the plan and dealing directly with the builder. This keeps your costs “true” and if issues arise then you know who you are dealing with.
With a marketing company, there are possibly fees, commissions, 3rd party expenses that will be added to the cost of the investment and therefore add to it’s “true” cost.
Ask them the question, “If issues arise, who you will be dealing with at any given time?
While we’re on commissions. I get paid a flat fee from the company I work for, therefore there is no incentive for me to sell a customer a more expensive investment.
I would ask the question to the sales person you have dealt with, “How are you paid? Do you get a bigger commission if you sell me a more expensive investment?”
Where are his/her interests?
To wrap it up I would say this.
This is one particular type of investment strategy and one that works quiet well for a lot people. And it does work. But you still need to be proactive, you still need to do your research, you still need to know how you’re getting into the deal and just as importantly, how you’re exiting the deal. You must know the numbers in the deal and you must be able to afford it.
I sincerely wish you all the best in your investing future.
ChrisJamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
You wouldn’t have to pay interest on the $50k if it were in the form of a Line of Credit or if it was an interest only loan transferred to an offset account.
That said – I agree that a $50k buffer does sound like a rather large contingency.
Best way to ensure independence (and peace of mind) is to source your own broker.
Thanks Bluegrass: How do I find a reputable Finance Company? There are so many out there that it's hard to know who is and who isnt.
Thanks xdrew too. Great to hear your thoughts.
And Chris thanks much for that great reply! From what the company said the $50k was set up as Jamie had mentioned and you weren't charged interest on it.
Cheers Jamie. Again there are so many brokers out there who do you know is truly independent.
Thanks guys, I must sound totally clueless but you are all so friendly.Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
It is a very good question Bonnie.
Look for a broker who is experienced in working with investors and has an IP or two himself.
Personally i wouldn't be taking advice from a Broker who is out there promoting her / himself yet hasnt yet paid off his own PPOR.
Yours in FinancekatchwMember@katchwJoin Date: 2005Post Count: 29
Please understand that I ask these questions with all respect as, as I stated earlier, I believe you make a valuable contribution to this forum.
What if Broker X’s ppor was yet to be paid off but they were using some equity to finance an investment?
Would this not be smart and best use of the funds available to you?
Hello again Bonnie
Finding a reputable Finance Company is no different to finding the best baby sitter or motor mechanic!
They are everywhere, but as you may have seen there are some companies that are always on here.
They are still here after a few years and they do not get too many complaints (written here).
I do not know these companies, but they make the comment and appears to guide other in the right direction.
Send an email to them and make you judgement.
I build houses and guide my people through the problems of building.
Investing in property is 95% about the figures.
If the figures do not work and the company giving you advise on depreciation don’t, don’t go there!
BluegrassthecrestParticipant@thecrestJoin Date: 2004Post Count: 992
Avoid the one stop shop where you buy a property, finance, and whatever else all in the same place.
Talk to Richard who has the runs on the board in this Forum and has helped so many.
Lay out all the jig saw pieces until it makes sense, then run your decisions and ideas past more people before making a decision.
Thanks everyone for your help.
Now to start researching more into what we can afford. It's all quite scarey. I just want to do it right and the first property is so important.
All you really need to do is get and asset and liability (A&L) form completed and then you are not stabbing in the dark.
BluegrassJason700Member@jason700Join Date: 2011Post Count: 17
There is part of your question which hasn't been answered. Which is, what type of property should you get? And the answer is basically, it depends on you and what you want and what you are used to. I can understand why they were pushing apartments as there is generally less costs involved and in a few capital cities, such as Melbourne, to buy a property at that price usually means that you get more on your investment. But there are also other factors also which could prove a house and land package may be worth while (eg. the land may be subdivided). In the end it totally depends on you if you want to have a house and land on the city fringe (or in a country town) or a unit in the city. What certain property investment companies can do is guide you to the better investment properties in the right areas so that you don't have a dud property.
Enjoy buying your first investment property and if you need some more help don't be afraid to contact.
JasonHuMungusParticipant@humungusJoin Date: 2011Post Count: 20
You've had some great advice here from a number of contributors, but someting I have not seen mentioned which needs to be considered if you are entering the IP market for the first time is 'structures'. You mentioned you have a new bub and a single income which makes establishing the right investment structure even more important so you can protect your investment for the future.
Before you jump in boots and all, you need to look for advice on how to protect your impending investment, this could be by placing it into your super fund, it might be setting up a family or testamentary trust, there are a myriad of ways, but the bottom line is get this set up first as it can be costly transferring property to a pretective structure after the event. You may already have sometning set up which is great, but if not get some advice on how to keep your IP at "arms length".
We made this mistake ourselves in the early days and have property in personal names, so it is totally unprotected if some 'gold digger' decides to sue for what ever reason. Transferring to protect our property after purchase can be an expensive business.
I'm new here so have'nt had a chance to see what's around relating to protecting asets, there is bound to be something somewhere… I hope.
Hope your first IP goes well.