Forums / Property Investing / Help Needed! / What to do with 250K but with no borrowing capacity?

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  • Profile photo of JBSJBS
    Participant
    @schwaino
    Join Date: 2016
    Post Count: 4

    Hi all,

    As the title states what to do?

    My end goal in 10 years is a 200K p.a passive income?

    An accountant has advised me to do a couple of renos to “minimise” tax but as I dont have any borrowing capacity Im going to find it hard to fund anything over 215-220. Is this a good idea?

    Or should I do a joint venture on a larger deal where my partner/s have the borrowing capacity and I can fund the initial deposit and a few costs? Which will give me an income so I can then leverage myself in the future?

    Im currently undertaking an education in property investing and am gaining confidence every week.

    Thanks in advance

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    Options are limited. You could try flipping with regional properties, to just get some chunks of passive income until your borrowing power gets better than start buying, renovating and holding.

    Have you talked to a broker?

    I’d be wary of JV they normally don’t end well. People have different goals and circumstances. Plenty of horror stories out there about people doing well and than one has a baby on the way or a divorce and it unravels quickly.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
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    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of TomTom
    Participant
    @thebeardedbroker
    Join Date: 2016
    Post Count: 10

    Agreed about the Jv, it’s fraught with danger. A developer I know put it this way: you need to care more about the relationship than the money if you go into a jv, because if/when it hits the fan the money will probably evaporate and the relationship will be strained. Of course, if everything goes well then hallelujah, but you need to prepare for the worst and hope for the best. Not a good way to do business if you only have one chunk of cash.

    Why don’t you have any borrowing power?

    A piece of advice my folks always gave me was to lock any windfall cash such as you have into some sort of 3-12 month deposit so that a) I wouldn’t be tempted to spend it on frivolous things and b) I would have time to properly explore my options without the pressure of “what do I do with all this cash? It’s not earning anything so I’d better do something…anything…”

    Speak to a broker, speak to anyone in your life who is successful and speak to a financial adviser (of sorts). Just be wary that any advice you receive will be coming from someone likely with a vested interest in a particular asset class.

    This is general advice only, not financial advice. Speak to your specialist before taking action.

    Tom | Voyage Wealth
    http://thebeardedbrokerwa.com
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    The Bearded Broker for Voyage Wealth - all things finance

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Who said you don’t have any further borrowing capacity? A bank or a broker?

    Get a second opinion, I’d say a third of our business comes in with people who were told they couldn’t borrow any further, only to then be able to buy 2-3 more properties with ease. Different lenders have different policies on calculating how much you can borrow, which can vary by more than 100% in different scenarios.

    I would AVOID JV’s with non household (husband/wife/spouse) deals as this entanglement causes further negatives for borrowing capacity in the future due to joint and several liability issues (banks will treat any joint income as 100% your responsibility, but only entitled to 50% of the income). Then there’s a whole raft of issues with two different parties where life changes can mean you can be forced to sell a property before you feel the best time etc.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    You could do 3 things
    1. Nothing, but work on getting a borrowing capacity.
    2. Lend some of the money to someone who does have a borrowing capacity
    3. joint ownership with someone who does have a capacity – whether direct, via a company or trust structure

    But get legal advice before considering 2 or 3.

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

    Profile photo of JBSJBS
    Participant
    @schwaino
    Join Date: 2016
    Post Count: 4

    Hey Tony,
    Im looking at a regional property right now to do a reno that has a bit of fat in the deal. Getting a quote to restump it on Tuesday and then price that into my offer subject to building and pest. Obviously the building needs restumping and is in pretty bad condition but just want to make sure. Fingers crossed here.

    I have spoken to a broker and Im not in a position to borrow unfortunately. Everything my end is good except an income due to personal/family reasons.

    Thanks for the heads up with the JV. Alot of people say to be very careful!!!! Is there any good stories out there? I guess it’s human nature to be wary of the dangers!

    Hey Tom,

    Thanks for your advice, I always listen to people with more experience. Back to the JV, I read in Steve McKnight and his American business partners book that the thing with business partners is accountability! Great read if you havnt read it already, lots of great insights into successful investing.

    Hey Corey,

    Thanks mate. I spoke to two brokers both said the same thing. My hands are tied unfortunately.

    Hey Terry,

    Thanks for the advice but im going to do neither of those and do a reno with the cash I have. BUT this is where your advice will come in handy. Say I do two renos next year and settle the first project before June 30 should I pay tax on that to get borrowing capacity or pay no tax as it will fall under a PPOR? Then pay tax on the 2nd reno and third in the 17-18 tax year? What are your thoughts? TIA

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Banks generally won’t like to take income from property renovation into account for servicing. Property sales are considered one offs and even if they would take it into account you will need 2 full years tax returns with the majority of lenders.

    A way around this may be to set up a company to do the projects. If your intention is profit making then there would be no main residence CGT exemption anyway and the profit would be taxed as income and not capital gains so no 50% discount. The company can pay dividends which transforms the income so the lender will not necessarily know it is coming from property – just don’t use the word ‘development’ in the company name.

    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 JBSJBS
    Participant
    @schwaino
    Join Date: 2016
    Post Count: 4

    Thanks Terry,

    Looking at my long term goals setting up a company will happen somewhere along the journey, I see a benefit in setting it up from the first deal however will run this past the accountant hopefully this week if they havnt started Christmas Holidays yet!

    Would a company be more flexible in raising capital through JV’s as well? Im thinking if I can get a couple of deals under the belt people will be a little more willing to invest with me.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    With a company new investors can be introduced by transferring shares without triggering stamp duty in most cases, so it is more flexible in this regard.

    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 sawsaw
    Participant
    @sawm
    Join Date: 2017
    Post Count: 2

    Hi JBS,
    if you are interested in JV with someone who got borrowing power and can find the deal and manage project and you will get around 12% fixed p.a. return on your money, call me on 0451123343

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Or do the deal yourself with a Nodoc loan (No evidence of income required) and receive 100% of the profit.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    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 Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Or do the deal yourself with a Nodoc loan (No evidence of income required) and receive 100% of the profit.

    Who is doing those @qlds007 ?

    Is it via private funding?

    • This reply was modified 1 year, 9 months ago by Profile photo of Colin Rice Colin Rice.
    • This reply was modified 1 year, 9 months ago by Profile photo of Colin Rice Colin Rice.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
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    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Colin

    We do them thru my Mortgage Trust arm Australian Secure Capital Fund.

    Cheers

    Yours in Finance

    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 Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Or do the deal yourself with a Nodoc loan (No evidence of income required) and receive 100% of the profit.
    Cheers
    Yours in Finance

    Hi Richard,

    What’s the maximum LVR in such scenario?

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Depends on the deal itself but could be upto 80% on a residential property.

    Cheers

    Yours in Finance

    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.

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