Newbie: What is required to purchase an IP if you have no equity?

[Danners]

Hello all,

Just to introduce my self, I am 19 and I work in the Real Estate industry... Sorry if this post is a repeat by the way

A bit on my situation right now...
I have very little costs as I am currently paying board so I can most likely afford to negatively gear 1 unit (yes I know units don't have much land as part of the value, but that is not to say that they wont go up if they are in a good area and there is not many of them etc)

Being a registered agent with a Cert 4, one would think they would train you a little bit on how financing works etc... but nope!

So here is my very broad question... How do I begin to acquire my own IP?
I currently have no deposit and it is frustrating working in a Real Estate agency and seeing good deals getting snapped up in front of me! What do I do as far the banks are concerned? If I find a cashflow positive property, will they take that into consideration when applying for a loan? I have a credit card which I use all the time but I haven't spent a cent on interest so far so I think that might help my credit rating...

Thanks everyone in advance

 

[devo76]

Others may shed more light on the subject but i would say start with saving a deposit. Prior to this ensure you have a good credit and savings record. Credit has tightened and while it is still very easy to aquire if you have a good rating,savings or equity. It is a lot harder without. remember most of the poeple borrowing 100% or more have equity in other properties to keep the banks happy.

 

[silversands]

Welcome to SS.

Congrats on being pro active at such a young age. Nice to know there are a few involved in R.E. that want to walk the talk.

We saved our first deposit by selling our modest car and buying the most reliable old bomb we could find, setting a strict household budget, then we slashed it even lower than we thought possible. We lived in a caravan for several months and with my mum for a while. All difficult, all quite drastic, but the result was dramatic. How fast you can get it happening may depend how badly you want in on the action. - Time is on your side though!
All the best.

 

[firstmillion]

I have a credit card which I use all the time but I haven't spent a cent on interest so far so I think that might help my credit rating...

Thanks everyone in advance

That's a good start.

How long have you been employed for? I suggest talk with couple of mortgage brokers first. There are couple of them on SS very helpful and knowledgeable.

Look for a JV with your parents. I do know of someone who used his credit card to pay for the deposit on his first IP.

Cheers

 

[moyjos]

Hello all,

Just to introduce my self, I am 19 and I work in the Real Estate industry... Sorry if this post is a repeat by the way

A bit on my situation right now...
I have very little costs as I am currently paying board so I can most likely afford to negatively gear 1 unit (yes I know units don't have much land as part of the value, but that is not to say that they wont go up if they are in a good area and there is not many of them etc)

Being a registered agent with a Cert 4, one would think they would train you a little bit on how financing works etc... but nope!

So here is my very broad question... How do I begin to acquire my own IP?
I currently have no deposit and it is frustrating working in a Real Estate agency and seeing good deals getting snapped up in front of me! What do I do as far the banks are concerned? If I find a cashflow positive property, will they take that into consideration when applying for a loan? I have a credit card which I use all the time but I haven't spent a cent on interest so far so I think that might help my credit rating...

Thanks everyone in advance

Welcome Danners

Do you have a car/personal loan?? NO? great....
test your bankers (online)with the assumption that you have a loan...

That is how we got our first PPOR.....got a "car/personal loan" and used it as deposit...
I have LOADS of friends that did this... some even bought a bigger house than they needed and rented out a room (ie:took in a boarder) to pay the "personal loan" off. (discalimer: this was in the mid eighties, interest was 17%.......question to the brokers???? can this work now????)

 

[Aaron Sice]

get all the FHOG you can and move in straight away. no, it's not an IP but there's no law saying it can't be after the PPOR (principle place of residence) time condition expires.

at least it's 1 under your belt, then look to improve it, get a non x-col loan against it and go get another.

do your due diligence, be smart with what deductible debt and non-deductible debt and repeat ad-naseum until you make yourself sick.

welcome to SS!

 

[want2bewealthy]

Save as much as you can, get a personal loan if you can afford it combined with a property loan, take your FHOG and stamp duty concession (should be about 25k(ish) which should make your repayments for a full year while you save as much as you can or add value,

Ive got some good advice on a situation like yours if you want to PM me, cheers.

 

[buzzlightyear]

Being a registered agent with a Cert 4, one would think they would train you a little bit on how financing works etc... but nope!

Don't worry, there are many of your more senior and experienced colleagues who don't know either. At least you have identified this at 19

So here is my very broad question... How do I begin to acquire my own IP?
I currently have no deposit and it is frustrating working in a Real Estate agency and seeing good deals getting snapped up in front of me! What do I do as far the banks are concerned? If I find a cashflow positive property, will they take that into consideration when applying for a loan? I have a credit card which I use all the time but I haven't spent a cent on interest so far so I think that might help my credit rating...

* You need as much cash as you can save, whether that is through normal boring saving, parent / relative gift, FHOG

* The return on your prospective purchase is taken into account, however, the banks generally assume in their serviceability calculations ~75% of your rental income & an interest rate of ~1.5 above the standard variable. These factors alone may then make the calcs negatively geared for the finance application. Of course some banks will add back in negative gearing.

* Paying off credit cards won't have any have any positive affect on your credit rating - in fact, by having one, it will actually reduce your serviceability. The same applies to personal loans etc.....

 

[The Y-man]

... it is frustrating working in a Real Estate agency and seeing good deals getting snapped up in front of me!

Are you allowed to buy your "own stock"?

Cheers,

The Y-man

 

[Peter_Tersteeg]

In the ACT the FHOG can often cover your deposit purchase costs as you won't have to pay stamp duty for your first home. As a rule of thumb you'd need a 5% deposit plus about $2,000 for other expenses, so with a $14,000 grant you'd be able to purchase a property worth up to $240,000 without additional savings.

There are also a few 100% loans still available if you need to stretch your price range further. In this case you'll need about 3% (for LMI or equivalent) + $2,000 so you'd be able to go to almost $400,000.

The catch is you have to live in the property and of course show you can afford it without relying on rental income. If you don't want to use the FHOG, then you're going to have to look at some of the other suggestions to find the money for stamp duty plus the costs I've outlined above.

In your situation I'd also be looking closely at your income. If you're on commission only, you'll need 2 years of consistent tax returns to prove your salary. If you have a base salary and commission, I'd start by determining if your base salary will be enough to service the loan by itself. I'd expect that this might be the difficult part of a loan application. Deposits often aren't as hard as you think if you're focused.

Buzz is correct in his comments about credit cards. Having credit cards or any form of debt does not improve your credit rating, it actually hurts your serviceability. The idea of a 'good credit rating' is a US concept and does not apply in Australia where there are only degrees of bad.

 

[twobobsworth]

Are you allowed to buy your "own stock"?

Cheers,

The Y-man

I think disclosure is only required if the agent is the vendor. But ethically.....

 

[Bradsdad]

In the ACT the FHOG can often cover your deposit purchase costs as you won't have to pay stamp duty for your first home. As a rule of thumb you'd need a 5% deposit plus about $2,000 for other expenses, so with a $14,000 grant you'd be able to purchase a property worth up to $240,000 without additional savings.

There are also a few 100% loans still available if you need to stretch your price range further. In this case you'll need about 3% (for LMI or equivalent) + $2,000 so you'd be able to go to almost $400,000.

The catch is you have to live in the property and of course show you can afford it without relying on rental income. If you don't want to use the FHOG, then you're going to have to look at some of the other suggestions to find the money for stamp duty plus the costs I've outlined above.

In your situation I'd also be looking closely at your income. If you're on commission only, you'll need 2 years of consistent tax returns to prove your salary. If you have a base salary and commission, I'd start by determining if your base salary will be enough to service the loan by itself. I'd expect that this might be the difficult part of a loan application. Deposits often aren't as hard as you think if you're focused.

Buzz is correct in his comments about credit cards. Having credit cards or any form of debt does not improve your credit rating, it actually hurts your serviceability. The idea of a 'good credit rating' is a US concept and does not apply in Australia where there are only degrees of bad.

The bear has summed it all up well. Income I see as your biggest hurdle as you mentioned you're 19. I assume you haven't been in the Re industry all that long. Hopefully you've been able to snag a generous base salary but as experience is lacking I'm assuming the commission portion makes up the higher % of your income. As you'll most likely be wishing to take advantage of the FHOG no rental income will be taken into account so your Base is the key.



Regards
Steve

 

[exstatic]

Hello all,

I have a credit card which I use all the time but I haven't spent a cent on interest so far so I think that might help my credit rating...

Thanks everyone in advance

As other have said, the CC is bad news for applications even if you don't use it.

If you have a credit card with a limit of 5k, and owe nothing on it, the bank still assumes that you owe 5k as you easily have the ability to draw 5k out on a whim.

 

[Bradsdad]

As other have said, the CC is bad news for applications even if you don't use it.

If you have a credit card with a limit of 5k, and owe nothing on it, the bank still assumes that you owe 5k as you easily have the ability to draw 5k out on a whim.

As long as it's paid in full each month and prrof can be provided, many lenders will overlook the limit. If not close it or reduce to $1k.....easy fixed.


Regards
Steve

 

[Danners]

Thanks every body!

Thanks for every ones imput.

You guys/girls have given me a better idea what to look for. I went down to the bank today and made an appointment some one to see what would be required to qualify for an investment loan...

Now to answer peoples questions:
- I do not owe anything on my card
- I pay a few hundred dollars a month to my parents to pay back money on my car
- Yes agents can buy properties in thier own agency how ever the vendor must sign a document saying they understand there may be a conflict of interest

A question to any brokers or any one else who may know...

With joint ventures, would I need a deposit then if my parents were using thier equity?

Thanks people!

 

[Propertunity]

I think disclosure is only required if the agent is the vendor. But ethically.....

Unfortunately incorrect 2BW,

Under the Property, Stock & Business Agents Act 2006, Div 4 Conflicts of Interest:

49 Restrictions on licensee obtaining beneficial interest in property

(1) A real estate agent who is retained by a person (the client) as an agent for the sale of property must not obtain or be in any way concerned in obtaining a beneficial interest in the property.

Maximum penalty: 200 penalty units or imprisonment for 2 years, or both.

(2) A real estate salesperson employed by the real estate agent must not obtain or be in any way concerned in obtaining a beneficial interest in the property.

Maximum penalty: 200 penalty units or imprisonment for 2 years, or both.

(3) A person does not contravene this section by obtaining a beneficial interest in property if:

(a) before the person obtains the interest, the client consents in writing in a form approved by the Director-General to the person obtaining the interest, and

(b) the person acts fairly and reasonably in relation to the obtaining of the interest, and

(c) no commission or other reward is payable to the person in relation to the transaction by which the interest is obtained, unless the client consents in writing in a form approved by the Director-General to the commission or other reward being paid.

(4) Without limiting this section, a person is considered to obtain a beneficial interest in property if:

(a) the person or a close relative of the person obtains a beneficial interest in the property, or

(b) a corporation having not less than 100 members and of which the person or a close relative of the person is a member, or a subsidiary of such a corporation, obtains a beneficial interest in the property, or

(c) a corporation of which the person or a close relative of the person is an executive officer obtains a beneficial interest in the property, or

(d) the trustee of a discretionary trust of which the person or a close relative of the person is a beneficiary obtains a beneficial interest in the property, or

(e) a member of a firm or partnership of which the person or a close relative of the person is also a member obtains a beneficial interest in the property, or

(f) the person or a close relative of the person has, directly or indirectly, a right to participate in the income or profits of a business carried on for profit or gain and another person carrying on that business obtains a beneficial interest in the property.

(5) Without limiting this section, each of the following is considered to constitute the obtaining of a beneficial interest in property:

(a) purchasing property,

(b) obtaining an option to purchase property,

(c) being granted a general power of appointment in respect of property.

(6) In this section:

close relative of a person means:

(a) a spouse of the person, or

(b) an existing or former de facto partner, or

(c) a child, grandchild, sibling, parent or grandparent of the person, whether derived through paragraph (a) or (b) or otherwise, or

(d) any other person who has a relationship with the person that is prescribed by the regulations as constituting the relationship of close relative for the purposes of this section.

property includes an interest in property.

Fortunately, Buyers Agents can happily buy for ourselves or our clients as it only applies to RE Selling Agents.

 

[Kristine..]

Hi Danners


Don't even think about joint ventures.


With regards to your Parents .... should you and they wish to be involved ... there are many ways that they can openly assist you without you losing the opportunity for the First Home Owners incentives, and without creating a situation of entaglement which nobody wants and which can be very expensive to get out of.


Cheers
Kristine

 

[Property Meister]

As long as it's paid in full each month and prrof can be provided, many lenders will overlook the limit. If not close it or reduce to $1k.....easy fixed.


Regards
Steve

just confirming that you are sure about this,

I have 3 credit cards, 2 of them I only have becuase they were Annual fee free and since I got them years ago, I thought Id keep them for emergencies,

1 was used a few times at the start 3-5 years ago,
1 was used up until about 2 years ago,

Both of these have been fully paid off, except about 5 years ago, when I missed about 3 months in a row when they were not fully paid off due to cash flow issues

now my main concern was that when I used to run a business I used my cc for everything, I liked those credit card points programs and I put everything on the card, and hence as time passed, the limits increased, I still have this card, and use it for personal expenses, this card, has been fully paid off since day one (7 years), only problem is that the limit is $40k+

will this effect my borrowing capacity???

 

[jroth]

.

I'd say it will if its in your personal name. If you aren't using it for the business anymore why don't you reduce the limit?

 

[Danners]

Hi Kristine,

Thanks for that I'll keep that in mind.

What other options could you recommend? Could they maybe lend me a deposit out of thier equity so it looks like a cash gift then later I get a personal loan to pay them back?

Cheers

Hi Danners


Don't even think about joint ventures.


With regards to your Parents .... should you and they wish to be involved ... there are many ways that they can openly assist you without you losing the opportunity for the First Home Owners incentives, and without creating a situation of entaglement which nobody wants and which can be very expensive to get out of.


Cheers
Kristine