Can I break the 'rules' please - brains trust help!!

hi,

so I'd like to go against all good advice here to avoid cross-collateralization and doing deals with family members....

* IP1 is in desperate needs of major renovation. Estimated cost is greater that current equity. Eg value of IP is $275k, current loan balance $160k (no offset) but renovations estimated at $150k.

So I'm able to borrow approx $87k against the property with 90% LVR and LMI.

I would like to avoid a personal loan to complete the renovations, and they are urgent enough that I would rather not wait to pay down the initial loan by another $70k.

* My 'rule breaking' idea is this....
I can buy a piece of land worth $120k (no stamp duty because vacant), for $90k (from family member), I can put up a 10% deposit and thus borrow $80k for loan.

So if I offer this new title to the bank as cross-collaterisation...can I then call my assets as worth $395k, debt $240k and new 'equity release' at $115k (90% LVR with LMI)??

Yep, still short of my $150k target but then I only have to find $35k of my own money.

thanks!

 

Holy moly that's not a reno...that's a build! Just curious what you value the property to be worth after the 150k spend?

 

If you go ahead with the purchase, you can simply lend 80-90% against the land value (not purchase price) and then use the extra funds to go towards your Reno. It doesn't need to be crossed.

 

Speak to a lender, but I highly doubt that any lender out there is going to give you $108k for a piece of land that you just paid $90k for, irrespective of its actual value.

 

Hi Weaver,

This all sounds messy to me. What is wrong with your property to require renovations of this amount?

Would you be better selling the IP, paying back the loan and then replacing this with another IP?

Regards Jason

 

It's possible to do it on the purchase. Harder to come back later for an equity release.

 

Yep - almost... need to take 1950-60s back end off a gorgeous federation house and replace with new bathroom, kitchen, lounge. Hoping to do a high quality build so that this can become PPOR eventually. As we are not actually adding to the number of rooms/facilities I don't know that the final valuation is going to go up by much (unlikely to be the equal to the reno cost I'm guessing) - maybe to $350 ish.
I probably need to chat to a depreciator to estimate final val?

 

Sounds like you want to do a Reno rather than needing to do a Reno to keep the place rentable?

From the OP, I was imagining huge holes in the roof, collapsed floors, termites or worse...

 

Probably - but I'm a bit besotted with this place - great location, 1890s timber federation house at front with stained glass windows etc. Original part is fairly untouched, but has a lousy extension with kitchen/bathroom which is probably best suited to young nimble students. Not the current tenant who is family member with mobility issues. As noted in my OP, I've broken some of the 'best practise' ideas already.

 

Why now? Can it wait a few years? Whats so urgent?

 

So, if was to try this, I'd have a better chance asking the bank to lend me 90% of the vacant land value and keeping the change after I've paid the vendor?

 

Mobility issues for current long term tenant (family member). Current building requires steps up and down to access toilet, shower has 70cm wide base with high side etc.

would love to be able to build new small house on vacant land for this person, but also has serious emotional attachment to house.

 

OK sounds like it's not an IP in the traditional sense tbh. More like an emotional venture and eventually your ppor as you've said. Also your renting to a family member...so that seals the deal. All the investment principles one would normally apply are out the window on this one.

Only thing I would say is unless its a really close family member tenant I would hold off on the major renovations until you are ready to move in straight after otherwise some other family member will be enjoying the newiety of it.

 

Don't ask a bank. Speak to a broker. Get upfront vals done so you know what's what. Approach a lender with the right policy to suit.

 

Is the block a decent size?

With 150k you could build them a self contained GrannyFlat on the property, rent out the main house to other tenants, enjoy the increased cashflow and look to do the renovations to the house when you move in and make it your PPOR?

 

In Victoria, will need to remove the dependent person's unit (aka 'granny flat') once they are no longer living it.

 

That's woeful, hopefully the OP is in NSW.

 

Thanks Tobe, I'll definitely be doing that - don't want to trip over myself with a bank if I can get the guidance of a broker to smooth out the options for us

 

Site has enough land (it is in sunny Vic), but back of block has a serious slope and tricky access. Craning in a pre-fab would cost about 25k due to power lines etc. Might be able to complete a first stage of renovation and then have the property re-valued.

thanks all for your contributions!

 

I am confused - what is wrong with family members working together? How would he Packers, Murdoch or the Hiltons have succeeded with that view?

If BMW or Porsche was abandoned by their families do you think they would have survived? Or Coopers brewery?

Anyway. Now that is dealt with.

I bought a house from my Aunty once. I insisted she engage a real estate agent so their were no doubts as to value.

The agent made me pay an extra 20k. I still think I bought it below market value and my Aunty was happy because she did not have the pressure of home opens. And she received independent advice.

The bank valuation came in higher than my purchase price and the bank accepted that the transaction was lower than the market value of the property due to the associated relationship of the deal. I was able to use the bank valuation price for equity purpose.

You could say the real estate agent was an idiot and made a mistake - but I did not choose the agent. Aunty did.

And we told her to get three and she chose that one. Go figure. I told her that I didn't think he was much chop. She said she liked him and It was her choice.

So yes what you are proposing can work.

And anybody who says don't mix family with business has not had a good family business advisor supporting them (shameless plus but the family business association is awesome!).