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  • Profile photo of sydneyinnsydneyinn
    Member
    @sydneyinn
    Join Date: 2013
    Post Count: 9

    Suppose you had some friends that were willing to let you borrow $350,000 for a couple of months without interest.

    Which method would be best for obtaining a property valued at around $280,000?

    a) Buy the property outright for $280,000 and then get a loan based on the value of the property.

    b) Buy the property with a 20% deposit, and ignore the rest of the cash.

    c) Any other ideas?

    Thanks in advance.

    Profile photo of mattstamattsta
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    @mattsta
    Join Date: 2011
    Post Count: 604

    For me personally, I would do: b) Buy the property with a 20% deposit, and ignore the rest of the cash. I would want to be in debt to my friends as little as possible, just in case anything stuffs up.

    Profile photo of streamlineinvestingstreamlineinvesting
    Participant
    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    Interesting situation, I would try and borrow as little as possible because a few dollars between friends can quickly turn friendship into enemies, that is the last thing you want. 

    Care to explain how this exactly works, like if they give you enough money for the deposit, are you going to be able to save up enough money in a couple of months to pay them back? Sorry it just sounds like a bizarre situation, if you were able to save enough money in the couple of months to pay them back, then I would just hold off buying a place and then only buy it once you can afford it properly.

    Profile photo of sydneyinnsydneyinn
    Member
    @sydneyinn
    Join Date: 2013
    Post Count: 9

    It's a hypothetical situation, whereby if you could obtain enough cash for a temporary period of time to purchase a property outright; would it be better to:

    a) Purchase the property outright – then get an equity based loan.

    b) Purchase the property via a standard home loan.

    Ie. Is it better to borrow against the value of an all paid up property – or is it better to just go via the normal home loan route?

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Depends on the buy in price of the property as money is made at purchase, in the short term. 

    You could potentially buy a property for cash under market value preferably  and do a reno, get the property revalued and repay all of the money.

    Not recommending you do this as I don't no your level of expertise and you would have to have all your ducks lined up and know what you are doing to pull it off but reckon its possible. 

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099

    Option D: If your overall financial strength works out and your eligible  …Buy property at 90% LVR or more. Keep rest of the cash in offset to offset the interest till it's repayable 

    – This will limit how much you borrow from your frd…esp given your frd will start to charge you interest later on

    – Loan is a 30 years loan at standard rate

    – Interest is deducible for tax reason if property is rented out.

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Same Banks. Better Rates. Served With a Passion.

    Profile photo of sydneyinnsydneyinn
    Member
    @sydneyinn
    Join Date: 2013
    Post Count: 9

    Thanks heaps Shape – I like your suggestion.

    Much appreciated.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,173

    Lots of issues with borrowing that much money – what if you or them died? The loan needs to be clearly documented. What if you became insolvent – they could lose their money.

    What if you couldn't give it back? What if you purchased for cash and then couldnt get  a loan

    etc

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of sydneyinnsydneyinn
    Member
    @sydneyinn
    Join Date: 2013
    Post Count: 9

    Thanks Terryw … I was hoping for more of a focus regarding investment strategies – i.e. would it be better to?:

    a) Purchase the property outright – then get an equity based loan.

    b) Purchase the property via a standard home loan.

    d) Buy property at 90% LVR or more – Keep rest of the cash in offset to offset the interest.

    Profile photo of tommytuckertommytucker
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    @tommytucker
    Join Date: 2010
    Post Count: 82

    I think terry understands your question, he's just putting up his 2 cents on the potential legal issues which could be bigger than the potential upside.

    Provided everyone is agreeable and it is well documented legally I would run with shape's suggestion personally, then add in the Reno and refinance Colin suggested.

    Profile photo of sydneyinnsydneyinn
    Member
    @sydneyinn
    Join Date: 2013
    Post Count: 9

    Thanks tommytucker (and Terryw).

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