Finance Strategy Help for next 2 purchases

Hi Guys,

I'm keen for peoples thoughts on how best to proceed with finance on my next 2 purchases.

FYI - I work for one of the big 4 (In IT, not finance or banking) and as such don't pay loan setup costs, receive a significant discount on interest rate and generally don't need to pay LMI costs.

- I currently have 1 loan with this bank on my first IP.
- I do NOT have a PPOR
- I have a Blacktown property due to settle in the next 6 weeks.
- I also have plans to buy a property in the next 3 months. This is a DHA property with about 3 years left on the lease from my parents in Rozelle. I believe I can pick this up for about 200k below market value at 900k.

I have pre-approval with CBA (my employer) for the Blacktown property and if I financed through them I would receive all the benefits mentioned above, allowing me to go to 90% LVR or possibly higher without paying LMI...this would be a handy way to have some extra cash to put towards the Rozelle purchase.

My Questions are:
- Should I consider using another lender for the Blacktown settlement to allow me to then take advantage of higher saving on LMI by using CBA for the Rozelle purchase. This also helps me spread my loans over 2 lenders.

OR

- Should I settle my existing pre-approved loan for Blacktown with CBA to get it done (nice and easy), save the expense of LMI which can go towards the Rozelle purchase instead and then look at using another lender for the Rozelle purchase.

I am leaning towards the latter, and once the Rozelle property is valued, if I am buying 200K below market, I shouldn't have too many dramas obtaining a loan through another lender.

Have I overlooked anything here?

Am concerned that some lenders may not value the Rozelle property at it's proper market value due to the higher risk of the 3 remaining years on the DHA lease. If so, this could potentially leave me in a position where I could come up short on purchase costs.

I hope the above makes sense...I realise there are a few moving parts to this equation. I'm happy to clarify on any points and provide more detailed numbers if required but would be very keen for people to call out any gotcha's or ideas\suggestions on best way to proceed.


Cheers
Andy
 
Hi Andy

I would make the most of the LMI waiver while you can.

You say you are getting Rozelle $200k under market value, yet think the valuation will come in short. Why not just give it a go with a CBA valuation?

Also carefully consider the consequences of buying under market value - asset protection, deductibility of interest etc. Stamp duty and CGT will be at market values so why not buy it market value? You parents can give you a nice present if they want.
 
Hey Andy

I could be wrong but when aggregate lending goes above $1m with CBA the deal is referred to genworth who can be a bit rigid (keep that in mind for the second purchase). I know you don't personally pay LMI but I think this would still be the case.

If you could get both done with CBA then it would make sense (IMO) to utilise the no LMI with CBA and finance both via them.

If there were going to be issues with getting both approved - then I'd get the more expensive property financed by CBA (the LMI savings would be higher).

Cheers

Jamie
 
Hi Andy

I would make the most of the LMI waiver while you can.

You say you are getting Rozelle $200k under market value, yet think the valuation will come in short. Why not just give it a go with a CBA valuation?

Also carefully consider the consequences of buying under market value - asset protection, deductibility of interest etc. Stamp duty and CGT will be at market values so why not buy it market value? You parents can give you a nice present if they want.

Thanks Terry...so you are suggesting buying at Market val and then have the parents funnel that 200k back to me afterwards? I can see extra stamp duty costs, potential lmi costs and I may not be able to stretch my lending beyond 950K so I could be pushing the boundaries with that approach. I do see your point that stamp duty etc is calculated on market value anyway so I'll be up for these costs regardless.

In terms of making use of the LMI waiver, are you suggesting I look at doing both purchases through CBA? I had considered this, and would then ensure any other properties are purchased through other lenders but I am concerned with having all 3 initial loans with one lender. Does this introduce unnecessary risk? They are all in the Sydney market so shouldnt hold me back when trying to unlock equity in the future.
 
What was the idea with the parents selling to you cheaply? A $200k gift of cash (a loan may be better, possibly interest free) would work well sitting in an offset until you go and buy a PPOR. This could result in savings of around $5000 per year for the next 30 years or so.

Yes there is a risk having all at CBA, but you have to weigh up the savings of LMI. How likely is it that you will not be able to afford the repayments in the future?

Another option is to go with CBA now and then refinance one in 6 months if it has grown to the point where the LVR is 80% or less.
 
Hey Andy

I could be wrong but when aggregate lending goes above $1m with CBA the deal is referred to genworth who can be a bit rigid (keep that in mind for the second purchase). I know you don't personally pay LMI but I think this would still be the case.

If you could get both done with CBA then it would make sense (IMO) to utilise the no LMI with CBA and finance both via them.

If there were going to be issues with getting both approved - then I'd get the more expensive property financed by CBA (the LMI savings would be higher).

Cheers

Jamie

Thanks Jamie - This is good clear info.

I actually don't think I would have any dramas getting both approved from a servicability perspective. My current property is at 85%, and I could settle blacktown at 90%, so if I was then to go ahead with Rozelle and could pick it up at 80 or 85% my overall LVR with CBA wouldnt look too bad.

What happens when Genworth get involved. I understand they are the LMI insurer...my understanding was that the bank would always take out LMI when above 80% but in my case, CBA would simply cover the costs of that LMI instead of myself...or have I missed the point with the Genworth comment...could they knock back either or both of the loans if they werent comfortable with my overall LVR with the one bank?

Thanks for the responses so far guys, really appreciate it!!!
 
What happens when Genworth get involved.

Added scrutiny of your application - and given the changes to IP lending at present, who knows what Genworth are capable of doing.

Usually CBA will approve LMI in house (they have authority to do so for most deals). But from memory - when aggregate borrowings for a client go over that magic $1m mark, they lose that authority and the application gets referred to Genworth for final sign off.

Cheers

Jamie
 
What was the idea with the parents selling to you cheaply? A $200k gift of cash (a loan may be better, possibly interest free) would work well sitting in an offset until you go and buy a PPOR. This could result in savings of around $5000 per year for the next 30 years or so.

Yes there is a risk having all at CBA, but you have to weigh up the savings of LMI. How likely is it that you will not be able to afford the repayments in the future?

Another option is to go with CBA now and then refinance one in 6 months if it has grown to the point where the LVR is 80% or less.

So...as it's still on a DHA lease for another 3 years the local agents have all quoted sale price around 850-900k as only an investor can purchase it and the yield etc isnt that great at 900k so there was very little interest. All agents that reviewed it came back saying if it was not currently under the DHA lease they could sell for about 1.1

The parents are keen to sell soon and are happy to sell to me for 900k but not to someone they don't know.

I have really good servicability and can afford to hold it for the 3 remaining years on the lease even with the yield at roughly 4-4.5%...at that point a reno would occur and I'd most likely sell it or if the yield at that time was still ok I would simply release the available equity at the time and go on a buying spree...using this strategy, the numbers stack up quite well.

Bit of a quirky scenario and it's definitely an opportunity purchase beneficial to both parties, in a solid area with little or no housing development that can occur due to in-fill etc.

Hope that makes sense!
 
Thanks Jamie,

That makes sense re Genworth. In this scenario, regardless of whether I settled both properties with CBA, or just the Rozelle property, I would then be over the 1M lend with CBA anyways. This is good to know though!

So:

Existing property with CBA = 470k lend @ 85%
Blacktown = 375k lend @ 90% (before releasing equity)
Rozelle = 900k lend (or thereabouts...depending on val)
 
nutso to even consider going > 1, mill with CBA and be chucked into the genworth scoring front loader................. but then if you are going retail, they can only tell you to go to another lender, or refer it to genworth, make of that potential conflict what you like

Unless your overall scenario and score is strong (which doesnt look like), youd be well served to spread the lends

ta

rolf
 
nutso to even consider going > 1, mill with CBA and be chucked into the genworth scoring front loader................. but then if you are going retail, they can only tell you to go to another lender, or refer it to genworth, make of that potential conflict what you like

Unless your overall scenario and score is strong (which doesnt look like), youd be well served to spread the lends

ta

rolf

Thanks Rolf...If my total LVR is below 80%, but I am going above 1mill lend with CBA does Genworth even come into the equation or do they only get involved with overall LVR above 80%
 
In retrospect, in your case..............

it doesnt matter

u can have 3 mill in lending

the bank absorbs the risk and usually doesnt go for LMI cover so you should be ok from the front.

if you are going to go with employee bank, id generally suggest going the 90


ta

rolf
 
You would qualify under the banking professionals package (as long as you have worked for a major bank or their subsidiary for >2years) brokers won't know much about this package as the don't have authority to write these deals (last time I looked) (I looked brokers still don't they're excluded)

LMI waived up to 90% LVR no Genworth involvement, so don't be concerned with the $1M figure people throw around (that's CBAs DUA amount). I would be definitely going for the full 90% LVR each time.
 
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Another thing to consider is that because you don't have a PPOR you would probably be using cash to settle these investment properties. Therefore you would want to use as little as possible to preserve the cash for a future PPOR - so as to save non deductible interest and maximise deductions.
 
You would qualify under the banking professionals package (as long as you have worked for a major bank or their subsidiary for >2years) brokers won't know much about this package as the don't have authority to write these deals (last time I looked) (I looked brokers still don't they're excluded)

LMI waived up to 90% LVR no Genworth involvement, so don't be concerned with the $1M figure people throw around (that's CBAs DUA amount). I would be definitely going for the full 90% LVR each time.

Thanks Brady, so total lending above 1Mill and under 90% can be done through CBA banking professionals package without CBA involving Genworth? I'm pretty sure I can actually work the numbers to put myself in this position when settling the third property so this is good to know if I decide to head down that path.

Thanks for all the responses everyone...learnt lots from this thread alone! :)
 
Yes it's uncapped at the moment, hit it hard always borrow at 90% it could change :) let me know if you want some more info on it, I can email you the link.
 
Hey Guys,

Thought I would provide a quick update on this one. So, property number 2 is coming up for settlement in a few weeks and I've decided to go with CBA and aim for 90-95% LVR. I'll be having a convo with my broker later this week on what is the best strategy for the approval whilst also reaching for as high LVR as possible.

I will circulate his response when I have it.

When it comes time to look at property #3 (The DHA one), I figure if I can't buy it with at least over 100k of realised equity (by realised I mean the bank val supports this) then it isnt worth purchasing it. If I can, I'll be buying at 90% anyway with plenty of spare cash to finalise the settlement so can easily look to another lender on this loan to help spread my risk, but I will query my cba broker on his opinion on also putting this with CBA...will be interesting to see his response which I'll also circulate...Keen to see whether he may provide reasonable advice or simply try to steer me towards another CBA loan...any bets?
 
I'll be buying at 90% anyway with plenty of spare cash to finalise the settlement so can easily look to another lender on this loan to help spread my risk, but I will query my cba broker on his opinion on also putting this with CBA...will be interesting to see his response which I'll also circulate...Keen to see whether he may provide reasonable advice or simply try to steer me towards another CBA loan...any bets?

That may not be at all fair to your broker.

Your broker has all your vital signs and knows that you have a poor cholesterol panel and a fatty liver............... so the advice you may receive from him may be quite valid, vs our "google it" prognosis may be sorely lacking due to real data............

typically, im not good with more than 1 to 1.5 with any one lender, and less than that where LMI is involved.

the advance on rate or fees savings is simply not there balanced against the concentration risk, and as soon as the word "convenience" comes out we know we have lost the logic battle.

ta
rolf
 
Hey Rolf...fair comment and I don't intend in any way to catch out my existing broker...

I will however pose to him the same 'general' questions in terms of what impact the third purchase may have when using cba...as he is a cba broker it will be interesting to see whether he provides all the relevant info, or only the info relevant to steer me in the direction of CBA.

My comments weren't intended to hold him over the fire in terms of his response but seems like a good opportunity to gauge his general level of knowledge and whether he is truly working in my best interests or the banks.
 
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