Starting out finance

[Venturer]

Wonder if I could get some info and options for getting into the property investment game. I don't own my own home however I have a reasonable income and would therefore love to secure a home, begin paying it off and steadily build equity through appreciation, etc.

How good are my chances of getting finance from a creative lender based on my financial situation below?

Gross income: $41000+ per annum
Assets: 98 model car worth $12,000
Liabilities: Personal loan of $19,000
Savings: $400 (over 2 months)

My wife is a sole trader and earns $250 p.w (gross) on average (we are getting her books done professionally so this income can be recognised). She also receives $200 p.w. parenting allowance/tax benefit each week (for a one dependant).

We are currently renting @ $195 p.w. and would dearly love to get into our own home. We are not eligible for first home grant (bought a home years ago, just months before grant was announced!)

I understand I will have legals/expenses/duties involved in buying a home but I was wondering:

- whether there were creative financing options available whereby I won't need a deposit??
- can I borrow 107% to cover my expenses also??
- can I somehow have a vendor write-in deposit??

Would appreciate people's thoughts or advice. I'm not looking for anything starry - just a modest townhouse or something that'll get my foot in the door...

Thanks.

Venturer

 

[geoffw]

venturer,

I'd suggest (without a good knowledge of your situation) that you need to do some work in the next while before a financial institution will look at you.

1. Assets. The car is declining in value. It probably would not be looked at.

2. Liabilities. Ouch. Half your annual income, with no asset to show for it.

3. Savings. Also ouch. Minimal, and no record of savings pas two months.

4. Income. Without knowing how the the figures stack up for the bank, probably irrelevant until the other figures get better.

Sorry, but I'd suspect that you would need HEAPS of work to get things in order before considering a home. Reduce that personal loan. Get a history of saving for an extended period of time. And save something relevant for at least 12 months.

 

[Aceyducey]

Venturer,

Start by reading Rich Dad Poor Dad.

You need to get a better grip on what is an asset & what isn't. Your car is NOT an asset - it costs you money.

Then you need to learn something about the property market before even considering purchasing property - is it the right asset class for you right now???? Many would probably say that right now it's akin to buying towards the peak of the tech boom.....OK if you're experienced, but dangerous for new entrants.

Why are you renting if you own a house...or did you sell it again?

Watch out for lends over 90% in this climate. Even if rates don't rise, property prices don't slow down or your personal situation improve you are digging a hole which will require even more work to get out of.

Experienced investors (such as Brains) can manage 100%+ lends, but I would NOT recommend someone new to it taking this out for a first IP!

 

[nads]

Chin Up

Hi
Im yet to buy a PPOR or IP, but I can offer some advice.


-Keep positive, even though your situation is a bit sticky. You can still get out of it, it all depends on your passion and dedication to what you want to achieve (buy a PPOR and start investing).

-Downsize your lifestyle a little. I don't know your life story, but do you really need a 98 model car? Do you go on expensive holidays? Buy lots of clothes? Limit your expenses. Hard to do once you are used to the luxuries....but if you want something badly, you have to make the sacrifices.

-Set some small goals that are relatively easy to achieve. Eg: Open an ING account and organise to have a certain amount of each pay directly transferred to your savings account.

-Set some long-term goals and when you want to achieve them by

-Read some motivational books (some good ones are mentioned throughout this forum).

-Find someone you know who has done what you want to do, even if it is just someone who has gotten out of debt in order to be able to buy a PPOR. Let them be your inspiration

-Learn not to keep up with the Joneses

P.S. What are you in debt for? Car loan, credit card....? Also, if it isn't too personal, why did you sell your PPOR?

 

[Venturer]

thanks

realise the picture isn't real pretty so I'm more looking for some plans / goals so I appreciate the advice...

sold PPOR for a modest gain some years ago (sadly had no savvy re: real estate potential, IPs, etc.). invested in shares and derivatives leading up to S11 and lost $$.

am interested in the idea of boom, crash. can I expect a correction in house prices say in the SE corner of Qld?? have heard a rise in interest rates will put the squeeze on some and may see a supply of quick sale properties on the market...

so for now I save hard and reduce loan

thanks for the helpful thoughts

 

[Kristine..]

Dear Venturer & Mrs Venturer

While there is nothing like savings, sometimes we need to know there are options, even if we choose not to exercise those options.

Firstly, which State are you in? It's always helpful to know some basic information such as Where?, and you've been very frank with How? and How Much?

I have a lender - and this is a direct quote from their handbook:

"Up to 110% LVR for those applicants with an unblemished credit history, demonstrated employment stability and strong cashflow; Not for self-employed applicants (other products available for them)"

This particular product is for owner-occupied only, minimum loan amount $125,000, maximum $700,000, up to 30 years, PAYG only, can capitalise application fees.

On the other hand, as 'Genuine Savings' are more important to other lenders, my suggestion would be to pay the minimum allowable on your personal loan, but set a direct savings target of what your repayments would be on your hypothetical loan eg $1,000 per month, plus household expenses which you aren't now paying, eg insurance, council & water rates, and a maintenance & improvement allowance, say, $1,500 per month.

Open a 'Progress Saver' or similar account, and have this transferred automatically from you account each pay day.

This will (a) obviously save money [$18,000 per year or whatever target you set for yourself], and (b) demonstrate that you can live within your means and (c) demonstrate that you can live up to a commitment.

Once you have applied for a loan, you could arrange to capitalise the balance of the personal loan to increase your serviceability, but keep paying mortgage instalments as if the loan was still running. This means you don't swap eg three years left on the loan for a capitalised 30 year loan of the same amount (No, No, don't do it!!)

Remember, most lenders want to see 5% Genuine Savings, some will accept 3% Genuine Savings, a few will accept LVR as their prime consideration, and a few will accept Net Servicing Ratio as their yardstick.

With a bit of effort and perhaps some extra work (delivering morning newspapers, an evening shift or two at the local service station, even delivering leaflets) you can have a home of your own within twelve months.

With an income of $53,000 between you (ignoring the parenting allowance & current rent) you have more than an even chance.

Good luck

Kristine

********************

Have Laptop, Will Travel

********************

When I bought my first home, I was 25 and lived with a bare concrete floor and sheets on the windows for two years. I also worked two jobs and did some volunteer work. When times were tough, I took on leafleting and introduced boiled rice into my diet.

It was actually rather fun and I was very proud of myself. I would sit in the lounge room and look at the walls and remind myself that they were my walls, my concrete floor, my lacquered calender pages decorating the walls, even my rice paper lampshades (now, that's going a bit far). Whenever I bought something new, it was precious to me and I would be walking on air. Somehow, I think we miss out on a really important part of our growth if we've never decorated a house with 'Barbarella' posters, sat on wooden crates and created bookshelves out of bricks and planks of wood. Not to mention two or three rather sad beanbags slumped in the corner (and I'm not talking about the visitors).

My goodness me, I even got to play The Beach Boys LP on a turntable loaned to me by an absent friend. I was in vinyl paradise.

Keep at it, Venturer. In a year you, too, could be sitting on wooden crates looking at your own walls, making wild, fantastic, joyous decorator plans (I hear that burnt orange is making a comeback).

Cheers!

 

[Rolf Latham]

Hi Kristine

Good advice on the savings bit, many good funders like Bankwest will only want 3 % gen savings.

I dont think that Liberty would do this deal at the 105 level simply because the cashflow isnt there unless the loan is very small, because the accelerared repayments schedule required of that product is quire harsh. 105 down 85 % lvr in 5 years is one hell of a principal redn.


Ta

rolf

 

[mitchmakhan]

Great replies people,

I would like to make a suggestion as well. After finishing rich dad poor dad, read "Money secrets of the Rich" by John Burley.

We all have to work on our financial habits which means quite often working out the why we do things, even if we do not realise it conciously, I found the above books and others worked for me! and I am by no means finished yet!

Good luck!

Mitch

 

[pobrien3]

In regards to Kristine and Rolf's posts Liberty is actually withdrawing its Platinum loan from the market as of the start of October. They will still go to 100% LVR but will no longer do an 105% LVR. They are worried about a potential slow down in the growth of property values.

 

[D.T.]

Hi Rolf,

"105 down 85 % lvr in 5 years is one hell of a principal redn."

Are they after an actual monetary reduction in principal, or does that include the natural appreciation of the asset as well?

-Cheers

Dave

 

[abcdiamond]

Venturer,
You said,

I expect a correction in house prices say in the SE corner of Qld?? have heard a rise in interest rates will put the squeeze on some and may see a supply of quick sale properties on the market...

I feel this may be one of the areas that would actually escape any price drop that may happen.

Thats my personal feeling, nothing to do with having just moved here .

But also a TV program recently mentioned two areas that should continue to rise, - SE QLD and Glenmore Park NSW.

Not that I normally believe TV shows, but this is such a great area, and prices are not really high here either (coming from Sydney ) I do feel that it should hold its prices reasonably well, especially at the lower end of the market.
The $1M+ properties, on 600sqm blocks, may be different of course!

 

[Glenn]

Hi Venturer,

Mate, do not dispair...your situation is much better than most peoples.

That rate that you pull yourself out of the poo and into a home is totally dependant on YOU....go back and read Kristine's post to get an idea of what is required to get started.

In my own case, in 1992 I had 90% loans for a new car and motorbike at interest rates of 30% and 27% respectively. It did not take long for these 2 loans to consume me and in the end both were sold, soon after which I gave up work (even though broke) and started to investigate the reasons behind my financial demise...how could things have gone so wrong when only a few years previous I had so much cash in the bank and no liabilities???

So...at this stage I had no job, no car, no assets and a $12000 debt to my parents who paid out the finance companies. I got a job picking up glasses at the casino, moved back with my parents, gave up the booze, handed mum my debit card and said "don't give this back to me until the debt is repaid!" She still took $50 per week for board (no free lunches) and I traded washing and ironing duties for lawn mowing and car washing, did not go out with mates, did not buy new clothes, explained to family members that I could not buy christmas or birthday pressies until further notice and took all the overtime I could get.... 11 months later the debt was repaid...dad bought a bottle of champagne and we had a "Glenn's worth zero" (as opposed to Glenn's worth -$12k) party for the 3 of us.

Mate, we live in a "I want it now" society that is full of shiny wrap and great advertising.......it will keep you broke until you realise what is going on. But you CAN get out of it and you CAN succeed...you just have to get enough fire in your belly to get started. Luckily, you have come to a good place to start getting some good investing and life experience...more than one of us has gone broke on the way up!

One thing you may wish to have a look at is the words you use.....in your first post you said that property investment was a "game". While it may be fun and exciting when things are going well for you, it is not a game but a business. Decisions should be made as such. You also suggested that you were "investing" in shares and derivatives... I would think that the Buffet style of share investing is the only type of share "investing"....anything not based on cashflows, sector performance and company performance vs sector performance is GAMBLING....how can someone be investing in derivatives yet not be able to buy a house for his wife???

Good luck

Glenn

 

[Kevmeister]

Originally posted by Rolf Latham
I dont think that Liberty would do this deal at the 105 level simply because the cashflow isnt there unless the loan is very small, because the accelerared repayments schedule required of that product is quire harsh. 105 down 85 % lvr in 5 years is one hell of a principal redn.

(Edit: Apologies, didn't see that Dave asked the same question).

Hiya Rolf,

I'm curious whether Liberty wants a formal reduction of the loan balance or whether property growth can help account for the "reduced" LVR. For example, $100K home lend $105K but must reduce to 85% LVR in 5 years. At 8% growth in five years house will be worth $147K, so even the original $105K loan is now just 71.5% of property value? Or do they unequivocably want the principal reduced to $85K?

 

[Rolf Latham]

Hiya

Moot question seeing the product has been pulled BUT, 85 % of purchase amount.
ta
rolf

 

[Les]

Glenn,

Thanks for the insight into your earlier days. It's a great story of achievement against the odds. And well done.

And, you are dead right - a fire in the belly makes a huge difference. Good luck to you, mate,

Regards,