$200K Cash + low income + wanting to buy multiple IPs

[Truly Exotic]

hey everyone,

was wondering if people could help out one of my relatives out here,

here is her situation,

IP: valued at $300k, 0% LVR, rent approx $280 per week
Cash: $250k
Income: $20k
Expenses: Nil
Aim: to buy between 2-10 cashflow neutral to positive properties per year @ $250k each
Issues so far: Banks won't lend very much or very little due to low income

Finance is not my strength, but I have suggested that if she MUST buy that many properties in a short period of time, she has 2 options

1) 10% deposit =$25k, so she can buy 10 at 90% LVR
2) buy next IP outright with cash, withdraw 10% from this IP and use that for 10% deposit for IP3 to IP8 with each, and for IP9 and IP10 withdraw from IP1

1) brings up serviceability issues, however (2) looks like a more safer and realistic plan, especially if IP3 onwards decide not to happen.

May I ask how does ( I dont know the correct term) withdrawing $$$ from equity actually work??? ie whats the highest % can you withdraw from equity and what are the conditions/pros/cons

appreciate the help re dumb question

 

[Aaron_C]

Problem is that after a few IPs the banks will say she is too 'rent reliant' and refuse to lend her more money.

 

[Rolf Latham]

Hi TE

There is a way to do this over time, , but will requite investment in things other than just resi property, so as to generate some cashflow that can be used to gear from

ta

rolf

 

[Truly Exotic]

Problem is that after a few IPs the banks will say she is too 'rent reliant' and refuse to lend her more money.

I would expect that to at some point quite early on, maybe around after IP3

Hi TE

There is a way to do this over time, , but will requite investment in things other than just resi property, so as to generate some cashflow that can be used to gear from

ta

rolf

I see, can you briefly explain/outline?

 

[Aaron_C]

I see, can you briefly explain/outline?

Things like investments from shares/business. This requires prior planning though because usually you need to demonstrate 2 years' worth of consistent returns.

 

[Rolf Latham]

I would expect that to at some point quite early on, maybe around after IP3




I see, can you briefly explain/outline?

Typically, if this were my client I would suggest they run all my tools past a planner and accountant : )

Id use a large chunk of that 250 k for a business or investment that will generate an income stream. Relying purely on cap gain and resi rental income stream may leav your friend very cash poor.

Some examples may include

1. Share portfolio geared to income vs growth
2. A mortgage loan book
3. An annuity ( though tread carefully)

A well researched and purchased mortgage book would rtn approx 30 % + of the investment in income and if properly managed the run off would be small

ta

rolf

 

[BigAJ]

What is a mortgage loan book??

 

[travelbug]

IP: valued at $300k, 0% LVR, rent approx $280 per week

So does she have 100% equity in this + the $250 cash? or is the equity in that the cash (via an offset?)

Cash: $250k
Income: $20k
Expenses: Nil
Aim: to buy between 2-10 cashflow neutral to positive properties per year @ $250k each

1) 10% deposit =$25k, so she can buy 10 at 90% LVR
2) buy next IP outright with cash, withdraw 10% from this IP and use that for 10% deposit for IP3 to IP8 with each, and for IP9 and IP10 withdraw from IP1

1) not really. There are costs involved in purchasing. So to buy a $250K property will cost $25k (at 90% borrow) + $8K (stamp duty) + $2K (solicitor) + ?? LMI = $40K?
So enough for 6 max.

2) NO! Then you are at the banks mercy as to if THEY decide to let you borrow against that property.

Has she got the means to find 10 cash flow properties? You don't normally just "find" nthese. Usually you make them (reno, GF etc). What is her strategy for achieving this?

I'm assuming she's been to a seminar. Which one? Has she signed up? Just curious.

 

[Rolf Latham]

What is a mortgage loan book??

Many mortgage brokers ( like insurance brokers and financial planners) have a recurring income stream from some of the work they have done.

Many brokers are leaving the industry because it has become a little tougher to make a dollar.

Some of those leaving the industry sell that recurring income stream ( and sometimes the business and the client base) to a purchaser.

Typical costs for a book range from 1 to 3 times annual earnings.

An investor can buy such a business and come to an arrangement with a n existing broker to help them maintain that loan book.

Bit hard to go into detail here .

ta

rolf

 

[Truly Exotic]

So does she have 100% equity in this + the $250 cash? or is the equity in that the cash (via an offset?)

yes, 100% equity, (forgive me if I get the terminology wrong), she owns the $300k IP outright without a loan

PLUS she has

$250k in cash, well in a term deposit apparently

 

[Truly Exotic]

yes, 100% equity, (forgive me if I get the terminology wrong), she owns the $300k IP outright without a loan

PLUS she has

$250k in cash, well in a term deposit apparently

1) not really. There are costs involved in purchasing. So to buy a $250K property will cost $25k (at 90% borrow) + $8K (stamp duty) + $2K (solicitor) + ?? LMI = $40K?
So enough for 6 max.

Fair enough, i think she'd be ecstatic with 6! 10 is probably a best case scenario

2) NO! Then you are at the banks mercy as to if THEY decide to let you borrow against that property.

Has she got the means to find 10 cash flow properties? You don't normally just "find" nthese. Usually you make them (reno, GF etc). What is her strategy for achieving this?

I'm assuming she's been to a seminar. Which one? Has she signed up? Just curious.

No seminar, I think its a combination of new years resolution and deciding to do something for herself, she is currently single and has had a bit of a bad run with health, and luck recently. She recently forgot to renew her car insurance and her car was stolen and not recovered, car was a 2 yr old honda accord so she had to buy a new one.
Her house was hit by flooding about a year ago and she's been fighting with the insurnace companies since then as they are refusing to pay out due to some natural cause clause,


She might come on here shortly in search of some advice,

as for being at the banks mercy, if she did option (2) then she will have IP1 val $300k outright, IP2 val $250k outright, $50k cash

then would it be best/possible to go say 90% LVR for IP3 and IP4, and for IP5 withdraw $25k as a 10% deposit for IP5?

thanks everyone

 

[travelbug]

She might come on here shortly in search of some advice,

as for being at the banks mercy, if she did option (2) then she will have IP1 val $300k outright, IP2 val $250k outright, $50k cash

then would it be best/possible to go say 90% LVR for IP3 and IP4, and for IP5 withdraw $25k as a 10% deposit for IP5?

thanks everyone

No. With $50K cash she would have enough deposit for 1 (if they agree to lend 90%- otherwise nil). Remember the extra costs involved? $40K total. So if the banks won't lend 90% then she's got 2 -end of portfolio. The bank then controls ALL of her money. That severely restricts her options.
I wouldn't do that.

What's the big deal with wanting to own outright. With that thinking there's no way she'll get 10 (or even 4). You need to make your money work for you.

 

[Truly Exotic]

No. With $50K cash she would have enough deposit for 1 (if they agree to lend 90%- otherwise nil). Remember the extra costs involved? $40K total. So if the banks won't lend 90% then she's got 2 -end of portfolio. The bank then controls ALL of her money. That severely restricts her options.
I wouldn't do that.

What's the big deal with wanting to own outright. With that thinking there's no way she'll get 10 (or even 4). You need to make your money work for you.

I didnt mean to give the impression about wanting to have them outright, actually she is actually for leverage overall,

ok so if we consider $40k needed per $250K property, with $250k cash, she could get 6,

I guess its all boiling down to trying to be able to afford as many as possible, so she has $250k cash, and finds IP that she likes, obviously paying for it outright is far better interest wise then having it in the bank, but the question she has is, when IP2 or 3 comes along, how does she withdraw from the fully paid off ip that she has already has, if buying the original IP with cash is going to make it hard/impossible to withdraw up to 90% or any % out of it, then she may as well, put up 10% deposit, 90%LVR, and keep the remaining $210k cash in reserves,

Hope im making sense?

 

[Rolf Latham]

I guess its all boiling down to trying to be able to afford as many as possible, so she has $250k cash, and finds IP that she likes, obviously paying for it outright is far better interest wise then having it in the bank, but the question she has is, when IP2 or 3 comes along, how does she withdraw from the fully paid off ip that she has already has, if buying the original IP with cash is going to make it hard/impossible to withdraw up to 90% or any % out of it, then she may as well, put up 10% deposit, 90%LVR, and keep the remaining $210k cash in reserves,

Hope im making sense?

where possible use equity to buy, dont use cash.

Gtetting cash back out can be xtremely problematic.

Your friend really needs to have a sit down and work out a financing/mortgage plan.........the limited income resources means she likely will NOT be able to do this with one or 2 lenders, and will need to make sure she uses the right lender at the right time

The only person that can do that for her, is either a broker that is experienced in this work, or someone that has RECENTLY done it for themselves with similar resources.

Stay well away from a bank directly ...............using the wrong lender early may paint her into a corner, and the bankie wont know any better.

part if the problem you face in a forum like this is that u will get a large variety of advice, most of which is useful.

However, someone that has 50 or 100 k income doesnt face the the same issues as someone on 20 k

ta
rolf

 

[Property Meister]

where possible use equity to buy, dont use cash.

Gtetting cash back out can be xtremely problematic.

would you mind explaining what the rough procedure of getting cash out? Ive personally never done it before

I guess its not as easy as going to atm and withdrawing $$$

 

[BMan]

if the banks dont want you to take the equity out they dont have to let you
where as cash is yours you can do what you want with it

 

[Rolf Latham]

would you mind explaining what the rough procedure of getting cash out? Ive personally never done it before

I guess its not as easy as going to atm and withdrawing $$$

300 k property

go to lender and ask for a 240 k equity loan.

But.............tahst where the strategy wont work well with this OPs question

Even with clients with good incomes, cash out loans need to be carefully ut together.

ta
rolf


ta
rolf

 

[Aaron_C]

Banks seem to treat cash-outs like an investment in money-laundering. Some lenders like Macquarie are better at it than others, though.

 

[savoys]

does she have a PPOR ? You said her expenses were nil, so I presume she might be living with family? is there any chance she can increase her income ?

 

[Property Meister]

does she have a PPOR ? You said her expenses were nil, so I presume she might be living with family? is there any chance she can increase her income ?

no PPOR, yes, living with family,