First time financee...

I am a first time IP purchaser, and I am concerned about getting finance. I live at home and pay $38 a week rent in an inner Sydney suburb. As a part-time uni student, I have only a limited earning capacity. The properties I am looking to buy are all positively geared so the tenant will basically pay the mortgage off, and these properties had 95% occupancy last financial year. I have a $10 000 cash deposit plus the $7000 first home owners grant. I know how to get around the problem of the property not being my actual "home" to get the grant. My business partner may be prepared to go guarantor for my loan in light of my meagre income. Has anyone heard of guarantors on a property mortgage? I am hesitant to give the banks any of my details, as they instantly run off to Credit Reference Limited and screw up your credit rating if you so much as inquire about finance. I have been caught by this before! I don't want to apply for finance until I am pretty certain I will be approved.

Yes, I know fear is a dreadful thing - but there it is!

Thanking you,
The Goblin
 
Why dont you talk with a independant mortgage broker like Rolf,
he can look at your details and give you a very good analysis of your borrowing capacity and which bank/non-banker lender would be best to approach.
 
Hi Goblin,

Firstly, welcome to the Property Forum.

Some things that you may wish to consider are:

Living at home and paying $38 per week in board is great...take advantage of this (this is how I managed to buy my first and pay a lot of money off the principal in the first couple of years.

If the properties that you are looking to buy are positively geared and you live in inner Sydney, the properties are either short stay/student type accomodation or are on the urban fringe/rural nsw/some other state....do you have the experience to manage these properties or have someone you can trust to do this for you?

You have $10,000...this is fantastic. Can you show a financial institution that you saved this money rather than being given it as a gift...this is the type of question that a financial institution will ask you to help them grade the risk that you present them.

The $7,000 First Home Owner's Grant is a grant, not a deposit and you do not have any claim to this until the property has settled. To do this, you generally need to qualify for the property without the grant. To be eligible for the grant, you will need to advise your financial institution that you will be buying the property with a view to being an Owner Occupier, in which case they will not take possible rent in to account when detirmining your ability to service the loan. To service the loan, the bank will take into account 30% of your gross income..therefore if you make $300 per week they will not lend any more than $100 per week will pay off. There is nothing stopping you getting the grant and then renting the property 3 months later due to a change in circumstances.

Goblin, great to see that you are "fired-up" and looking to get ahead in life buuuuut, using the term "Business Partner" to refer to one of you family members willing to put their family home up as security for the loan will earn you no respect. Don't be afraid to fully explain your situation, it will result in better directed responses.

To work out whether they will lend you money, financial institutions require 2 things from you (not either, but both!) - equity (be it cash or equity in other assets) and the ability to repay the loan. With equity, to get a loan without Lenders' Mortgage Insurance you will generally require 20% equity. With serviceability (as stated before), 30% of your income and 70% of rents will count toward what you could afford to repay.

Good luck Goblin

Glenn
 
Hi Glenn

Thanks for your detailed reply. Firstly, my business partner is a REAL biz partner not related to me. He is a very good friend who invested some money in my (now failed) business last year, and we are now helping each other get into the property market. He has the huge income/cash deposit and I do the footwork, internet research & deal with the agents etc....that's how our partnership works. He is not really interested in doing the work, but I am.

As to the properties, you are right, they are student accomodation but all with 6 or 12 month leases. Sydney campus apartments manages the building at a fee of 8%

No, sadly I cannot show that I have saved the $10 000 as it was a recent inheritance from my great uncle. What I can show is that I have been living on less than $200 per week in Sydney for the past 12 months without applying for credit of any kind. I currently have no debt. I am NOT a consumer!

My partner David will be paying cash for his half of the unit so that puts the LVR at about 34%

To prove my DSR, I guess I just need to get a job...and be patient. There are 450 units in this complex so they are not going away in a hurry....

Thanks for your help,
Hobgoblin
 
Hi Goblin,

If you search the forum, you will find information on Unit Trusts which would be one way to structure such a deal.

Once you are comfortable with the details, it would be worth contacting an independant finance broker to discuss your goals. He/she will be able to assess where you are now and what, if anything is required for you to be in a position to comfortably make an offer on one of the apartments.

Before making an offer, speak to your accountant and discuss the same goals with him, explaining WHERE you want your property investments to take you. He/she will be able to discuss the best structures to own the property and the merits of creative thinking and tax planning.

Remember this in your quest....cashflow will allow you to maintain your asset, capital appreciation of the asset will make you rich.

Good luck
 
Hi

I am glad that you are looking to buy your first IP.

i am concerned that you seek to claim the FHOG, as this for owner occupied buyers.

The ATO is currently persuing people for claiming this when they are not entitled to. This is fraud.

I would also do some homework, what pcode are these, you may find that, these areas are not favourabled by lenders, ie may only lend a lower LVR, which means that you would have to find the difference.

Good luck


regards
 
Hiya

Small but relevant issue, the Office of State Revenue in each state administers the FHOG. Fortunately the ATO has nothing to do with it otherwise it would take months to get it.

Perfectly legit to claim the FHOG on the basis that you will occupy within 12 months. If you dont occupy within 12 months then pay the funds back - hopefully the IP will have grown to where you can now borrow against the equity and reapy it out of borrowings.

Ta

rolf
 
Yep, I fully intend to occupy the unit when the current tenant's lease expires in July, but that's a good fall-back measure if needed. Thanks Rolf!

I'm just worried that I won't want to leave..lol. I used to rent in this building which is what got me thinking about buying an IP in the first place. I thought "Why the heck am I paying $260 a week rent just for a place to live? The high rent and the fact that the management company is so mercenary (you get locked out of your unit if rent is 3 days late!) told me I was on the wrong side of the equation. I needed to stop being a tenant and start being a landlord. H:rolleyes:

Anyway, I am partly buying this unit because I do intend to live there permanently - as soon as my passive income will allow it!
 
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