All Topics / Help Needed! / No deposit, no hope??

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  • Profile photo of Chickenhawk6451Chickenhawk6451
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    @chickenhawk6451
    Join Date: 2012
    Post Count: 7

    Hi all!

    New Year is a time people make resolutions, for things to change, I'm no different. My resolution this year is to buy my first true investment property, not too far out of the park one would think!! :-)

    A little about myself; I'm a 25yr old graduate Structural Engineer based in Perth and last August I bought my unit, a 2×1 7th floor apartment 5km from the CBD. My unit was originally bought as my first investment property, it ticks all the boxes that I wanted in one and when I move out, the rent will cover interest only payments. My current situation is mortgage of $313k, C/C debt of $2000 ("Interest free" but i'm working on it, had to buy a bedroom set!!), HECS debt $38k, income of $72k. My take-home pay is ~$1850 per fortnight and the mortgage is $1735/month, fixed for 3 years. Current savings are $2500. My partner is living with me but for various reasons her using income for finance is not an option although she is paying 1/2 the bills, her income is basically the same as mine but she has various other debts (~$90k total).

    I've been researching for quite a while, I read tonnes of books before purchasing my unit with an eye as using it as an investment property later on. As such, it's 500m from a train station, good physical condition, city views. Basically a good investment (I hope)

    My goal is to buy an investment property within the next 12 months but as it stands I have no deposit. To save the deposit for my current unit took just under a year although i have already started working towards the next one. I aim to buy a cash-flow neutral or positive cash flow property and potentially sell it using a lease option to build a little capital. If I choose not to sell it the rent in the specific area I am looking at will cover I/O payments. The area I am looking at has a lot of migrant renters who don't have the necessary bank-history to purchase their own home but they do have the income, I believe in this area a lease-to-buy option would work very well. The problem is of course that I don't have enough for a deposit. 

    If you were in my position, how would you approach the problem of not having a deposit? The days of 100% finance seem to be gone, I might have some equity in the unit (not likely??) I guess the other option is to just save up the deposit but I've done enough reading to know there has to be some sort of option out there, surely?

    So what do you think folks? Is there a company that still does 100% finance? Should I just save the money up? Any help greatly appreciated :-)

    Cheers

    Alex

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi CH,

     

    Quote:
    I've done enough reading to know there has to be some sort of option out there, surely?

      I think you have already tried one option by posting.  Good start – who knows who might have an answer for you.  Right off, I'd say "Don't be in a rush" but at the same time, if that is a goal that you think may be possible, then work back from 12 months out…..  Map out just how you might either bring in extra cash, and/or cut expenses. 

      Since you have started saving a Deposit, keep on going.  Is it in an Offset account?  (I hope so).   If not, that one little change could make a big difference within 12 months.

      I note that you are paying 6.65% – is that a rather high IO?  Or are you paying P&I?  If the latter, look at changing to IO and save the Principal component in your Offset account.

      Do you have any clues what the value of the unit is?  What was your purchase price?  

      Meantime as I said earlier, there may be others who might have "little time and lots of money" who may want to partner with one who has not much money, but has a plan to make it – so look out for JV deals on here.   Who knows just what might pop up.  

      Re the Offset account, look at plonking all of your wage in there, and live carefully on your credit card for a month.  Then, when the cc statement arrives, draw the amount out that squares the cc completely.  Rinse and repeat next month.  

      This will have you pay 0% on your credit card (some can have up to 55 days interest free) and, for most of the month, your whole wages are offsetting the Interest payable on your mortgage, thus saving 6.65% (interest free too) on those dollars over a year.   Little things like that can have you saving even more than you thought you could.  There was a book out about ten years back that spoke all about this (a little blue book – if anyone knows the name of, please post it… thanks).  It had some pretty radical ideas, all of them money making (or saving) ones – worth a read.

      Good luck – let's see what other thoughts might be around.   Oh, and at 25 you don't need to be striking out so hard – but of course if you WANT to, that's different !!  Good to just look long and hard at ways to improve your money situation anyway.  Go hard !!

    Benny

    Profile photo of Chickenhawk6451Chickenhawk6451
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    @chickenhawk6451
    Join Date: 2012
    Post Count: 7
    Benny wrote:
    Since you have started saving a Deposit, keep on going.  Is it in an Offset account?  (I hope so).   If not, that one little change could make a big difference within 12 months.

    I note that you are paying 6.65% – is that a rather high IO?  Or are you paying P&I?  If the latter, look at changing to IO and save the Principal component in your Offset account.

    Yes it's in an offset account. I'm paying P&I @ 5.19% (fixed for 3yrs) over 30yrs. I'll contact my mortgage manager about switching to I/O and see what I can do :-)

    Benny wrote:
    Do you have any clues what the value of the unit is?  What was your purchase price?  

    Good question. Asking was $345k, final sale $333k and final Mortgage $316,400. Units in a similar condition in the same block go from $310k to $350k, depending on the agent (generally). The one I bought from seems to sell them for $350k quite regularly, I intend on having his agency manage the property eventually as he has a long proven record in my area

    Benny wrote:
    Meantime as I said earlier, there may be others who might have "little time and lots of money" who may want to partner with one who has not much money, but has a plan to make it – so look out for JV deals on here.   Who knows just what might pop up.

      

    Well I'm more than keen, although I'd hate to be risking someone else's cash, guess we'll see what pops up ;-)

    Benny wrote:
      Re the Offset account, look at plonking all of your wage in there, and live carefully on your credit card for a month.  Then, when the cc statement arrives, draw the amount out that squares the cc completely.  Rinse and repeat next month.  

      This will have you pay 0% on your credit card (some can have up to 55 days interest free) and, for most of the month, your whole wages are offsetting the Interest payable on your mortgage, thus saving 6.65% (interest free too) on those dollars over a year.

    Definitely have to look into this and talk to my mortgage broker/manager. This was my original intention when I set up the home-loan last year but I guess with all the moving and everything else in-between, I completely forgot about that!! Thank you!! I'm pretty astute with my money so I should be able to make it work ok and it's definitely a good starting point :-)

    Benny wrote:
    Oh, and at 25 you don't need to be striking out so hard

    No way! I want to be a stay-at-home dad, property will let me do it while the kids are young-ish!! No kids yet, but soon :-) 

    Cheers

    Alex

    Profile photo of wilko1wilko1
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    @wilko1
    Join Date: 2010
    Post Count: 510

    – paint the unit. Tissy it up a bit. Renovate it on a budget, Try get a revaluation done in say 6 months time. Or less depending on the lender.  That will gain you some extra equity you could draw out as a 2nd loan for a deposit. (don't over spend, just spend like 3-5k to add 10-15k in your 300-350k max sale price range.

    – your partner paying half bills? Is that just rates and water power or a little bit for rent as well

    – rent out the second bedroom. (Extra cash means deposit saved quicker)

    Or make the some times better option and rent a "large room with ensuite" with your missus in a bigger house. And rent the whole unit out, which would bring up a host of deductions and depreciation (not sure how old your unit is). 

    – work harder, do overtime, save more, spend less. Put the hard yards in now, none of this yeah I have ages. No you don't, make the sacrifices now cause you don't have children and can set yourself up. 

    – upskill in your career as quick as possible, do further training, reinvest additional money into property shares or business. 

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

    Chicken i hate too say you won't be able to change it from P & I to IO whilst it is on a Fixed rate so might be stuck 

    No unfortunately there is no standard lender left offering 100% loans but depending on the property and subject too a few things 100% might be doable.

    Of course you will need to factor in acquisition costs etc.

    All of which your Mortgage broker can advise you.

    Cheers

    Yours in Finance

    Richard Taylor I Ph: 07 3720 1888 I [email protected] 

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    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
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    You have 2 options for 105% finance (5% is for the stamp duty and additional charges like legals).

    Option 1 – draw upon the equity from your current property and use this as a deposit for the new purchase. You purchase the unit in August and I think property prices have since increased so you may be able to draw upon some equity there.

    Option 2 – Go with the Adelaide Bank product where they give a $20,000 credit card with your mortgage which can be used to pay for the stamp duty and legals. You do need to have good servicing for this product though.

    TheFinanceShop | Elite Property Finance
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    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Option 3 Take out a 105% standalone loan with a 15% personal loan and 90% traditional loan.

    Cheers

    Yours in Finance

    Richard Taylor I Ph: 07 3720 1888 I [email protected] 

    Start your investment portfolio with our finance broking  / property service.

    Want to retire at 40 ? Email me for a copy of my API interview.

    Follow us on Facebook I Increase your monthly return with Vendor Finance.

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

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Chickenhawk6451Chickenhawk6451
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    @chickenhawk6451
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    Qlds007 wrote:
    Option 3 Take out a 105% standalone loan with a 15% personal loan and 90% traditional loan.

    Thanks for the help so far everyone, I'm keeping all options open. Wouldn't the above option not be possible because when you apply for a home loan you need to declare all debts? So if you can't use a loan to fund another loan? I thought that was illegal?

    Cheers

    Alex

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Hi Alex

    No hate to say that is not the case at all.

    Most IP loans are funded by 100% + borrowings.

    Nothing illegal in borrowing your deposit.

    Cheers

    Yours in Finance

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

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    Chickenhawk6451 wrote:
    Qlds007 wrote:
    Option 3 Take out a 105% standalone loan with a 15% personal loan and 90% traditional loan.

    Thanks for the help so far everyone, I'm keeping all options open. Wouldn't the above option not be possible because when you apply for a home loan you need to declare all debts? So if you can't use a loan to fund another loan? I thought that was illegal?

    Cheers

    Alex

    Nothing illegal about it. You just declare where the deposit/costs are coming from.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Profile photo of babyflynn81babyflynn81
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    @babyflynn81
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    Wow – learnt something new today! 

    Sounds like a few investors do the 90% +15% personal loan scenario. I'll consider that for the next one. 

    Thanks Richard.

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
    Join Date: 2008
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    Option 4… Investec Bank will lend you 100% LVR with NO LMI

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    babyflynn81 wrote:
    Wow – learnt something new today! 

    Sounds like a few investors do the 90% +15% personal loan scenario. I'll consider that for the next one. 

    Thanks Richard.

    Another option that works for some people is a gifted deposit – a gifted deposit that covers off 10% plus costs will usually get the deal done on a 90% lend with the right lender.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of tommytuckertommytucker
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    @tommytucker
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    Investec don't give 100% LVR although they say that they do. I went down that path and struggled big time trying to get the 100% situation but they pushed back. Perhaps in the right situation but I was pretty clean when I went for the loan – $2k credit card only, $100k + earnings although I am feeding 4 mouths which may have counted against me.

    Eventually I received 98% LVR with no LMI, however they only lend to Doctors and Accountants so I don't think Engineers fit the bill…

    Profile photo of red123nzred123nz
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    @red123nz
    Join Date: 2007
    Post Count: 73

    Hey Alex,

    Sounds like you have a few things on the go. For me I look at cash flow and that is key in my opinion.

    In any situation you can get millions of dollars in debt but if you cannot service the loan its game over. So at your age you don't want to do that.

    You need to ask your self why aren't you able to get a deposit. Given you earn a good income you are trying to do a lot of it by yourself. $2500 pm *12 = $30,000 deposit is very doable.

    Also what is your goal- Capital growth? Have you done the research in the area your looking to buy?

    Your issue will be the servicing capacity and given your partner is not able to help you with being on the loan. Given the loans/ etc.

    Banks normally now require you to have 5% at the very least and yes you can have strategies to get money via personal loans/ gifts etc at the end of the day when push comes to shove you do have to "repay" them.

    The other thing to remember when buying property is that other costs / things like insurances, maintenance, accounting fees and all these little things add up. You need to be comfortable that you are able to handle these aside from the deposit.

    Once you have sorted these items out and know how you are going to fund the deposit you will have some savings built up at the very least. Also remember that Stamp duty depending on the state needs to be paid for out your own money. Yes you can use a credit card to pay for it but again, you have to pay this back and it all affects your cashflow.

    True if property prices move very quickly and you make a huge capital gain fantastic but its all about cash flow. If you have the cash flow to do this your laughing.

    I hope this helps.

    Cheers

    Sean

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