100% Finance

[WebBoard]

From: Mike .


FINANCE
From: Jeff Lindhorst
Date: 2/16/00
Time: 8:31:40 AM

I read Jan's books and was inspired to get into investment property. My problem is getting the CBA to loan me 100% of the money for the properties as described in the Building Wealth Through Property Investment book.

I am investing on behalf of my son who currently has a share and managed fund portfolio worth about $900,000. He is 19, lives at home paying some rent, and is currently studying. His investments return him an income of about $40,000pa. He has no commitments beside a $1000 Visa card.

We have made an offer on two houses here in Perth after a couple of months of looking. The first house was purchased for $225K paying 10% down. The second is under offer at $200K, but the bank wants 20% down. My view is that they should be able to take some security against his equity portfolio, but they are not amenable to that. I believe instead of tying up the 20% ($40K) in the second house he can use this money on the market to generate medium term gains of 10-20%. The rental on the $225K property is $225pw and I expect to get $210pw on the $200K property.

Any suggestions how we can borrow the entire amount?? where has my logic failed me regarding getting the 100% loan? This has been a very frustrating experience for me having the bank wanting to tie up so much of his cash when he has such a large equity base.

Cheers Jeff

 

[WebBoard]

Ian

Reply: 1
From: Mike .


Re: FINANCE
From: Ian
Date: 2/17/00
Time: 8:31:03 AM

Hi Jeff. There are no banks I know of that are going to lend you 100% of the money based solely on the investment property as security. They will lend you 100%+ of the price of the property as long as you can give them sufficient collateral so that the total loan to value ratio is 80% or less. That's why they either want the 20% deposit or alternatively some other security.

Now bankers are by their very nature conservative beasts. Most (understandably) regard shares as high risk and while many will take them as collateral, they will either require a much smaller LVR or charge you much higher interest. There's nothing like the security of well located bricks and mortar when you want collateral for your next bricks and mortar investment.

 

[WebBoard]

Les

Reply: 1.1
From: Mike .


Re: FINANCE
From: Les
Date: 2/20/00
Time: 3:30:48 PM

G'day Jeff,

Your son is certainly off to an amazing start in life. I also have no answer to the "how do I borrow 100%" - Ian has told it like it is.

My reason for responding was to suggest that you (your son) "bite the bullet" and go ahead with at least one property. The share market can't compete with the available leverage in real estate and it seems you would be wise to diversify some of his funds into this area.

From your comments, it appears that he is getting less than 5% (after Tax) in his current investments. Real Estate will USUALLY return that in an average year. The main point is, though, that if you have purchased 20% down, plus (say) 5% for costs, then this annual growth of 5% gives a 4 to 1 return on your Investment. At 10% down, the figure is even better.

Of course real estate won't always grow at 5% - but you probably already know the typical growth of RE over time for your area. And if you've bought good, median-priced RE, it's hard to go wrong.

And there is also the extra Tax benefits of owning RE - certainly worth taking a hard look at buying a couple of properties - even at 20% down ....

Good luck, Les

 

[WebBoard]

Jeff

Reply: 1.1.1
From: Mike .


Re: FINANCE
From: Jeff
Date: 2/23/00
Time: 8:59:11 PM

Dear Les, Thanks for the encouragement. We have now purchased three properties. We managed to borrow 90% on one and 80% and 60% on the other two. So...now we have a portfolio of three houses valued at $600K. I guess it's time to settle in and let the market do its work.

Cheers Jeff