Do we have to sell to buy another property

My partner and I currently own an apartment valued at around $440,000 with around $365,000 owing. We are looking at using the equity ($75,000) to purchase vacant land valued at around $300,000 - $350,000 within the next six months, and then build on the land for around another $300,000 - $350,000. We have enough funds to pay for the stamp duty, conveyancing, and mortgage fees outright.

In terms of our financials:
1. Income = $120,000 total including bonuses, overtime and anticipated tax returns;
2. Anticipated rental = $380.00 per week (this is already less any REA fees);
3. Current mortgage repayments = $1,370.00 per month on a 2 year fixed rate; and
4. Expenses = $2,200.00 per month but could realistically lower to around $2,000.00.

I have also done up a pretty comprehensive budget for what we would be paying if we were to buy the new property (e.g. two sets of rates, ongoing body corporate) and we would have around $780 per week to put towards the mortgage, however, I would be more comfortable with $650-$700 as a buffer.

We do not have any other debt apart from HECS and the mortgage. I also note that out income will increase by around $10,000 - $20,000 over the next two years.

Our aim is to sell the apartment at the end of the fixed rate period. I have tried to explain with the bank that we are with that the apartment will very nearly be positively geared during the fixed rate period and that at the end of this period we will be selling the property however the bank have suggested that in order to borrow the ~$700,000 we will need to either sell the apartment or pay a shortfall.

We have reached out to a few brokers this evening and will speak to them within the next few days but any advice for our situation would be greatly appreciated.

 

There might be some banks that worry about the value of apartments, so a sold one reduces the risk for them.

It seems as if your issue is that you don't have enough equity to underpin the loan of 700K. Question #1 is how much is the 'shortfall' that you have.

Bank of Mum and Dad are the big lenders in shortfalls and deposits (never happened in my day). Any prospects there?

Good luck with it all.

 

Unfortunately, your current loan is 91.25% of the value of the apartment ($365k / $440k), so you won't be able to access any equity.

 

There's a difference between equity and usable equity.

Unfortunately based on what youve noted, youre still in LMI territory.

Borrowing capacity may not be a problem, but your hurdle will be the deposit for your new place, plus stamp duty as well.

 

Order a few desktop valuations on your Apartment and hope it’s higher as step 1. But on face value there’s not enough capital/deposit/equity to purchase something.

If buying land with long registration, perhaps there’s scope to do it with a small deposit (e.g 10-15k) - raise funding (can be personal credit), and then save the deposit required for it during registration period. This is very aggressive, but has worked well for some with lower deposits enter the market.

 

This is your best bet, speak to a good Broker.
You might find a different lender values your apartment higher than your current bank valuation.