Join Australia's most dynamic and respected property investment community

Guarantor

Discussion in 'General Property Chat' started by JZ93, 5th Sep, 2016.

  1. JZ93

    JZ93 Well-Known Member

    Joined:
    29th Jan, 2016
    Posts:
    64
    Location:
    Melbourne
    Feel free to shoot the idea down. But had a thought and not sure if possible but may aswell share the idea!

    Idea would be to buy an IP through a guarantor lend. Under market, renovate, then release the guarantor at a 90% lend and pay LMI a short time after...

    Can this work....
     
    House likes this.
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Yes. Parental security guarantee
     
    JZ93 likes this.
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,162
    Location:
    Canberra and Sydney
    Yeah it's possible. Just keep in mind that some lenders are better than others when it comes to security guarantees - ANZ and STG are two of the better options.

    ANZ are also ok with IP purchases - whilst STG can be a little more hesitant (they prefer the purchase property to be an owner occ).

    Cheers

    Jamie
     
    JZ93 likes this.
  4. Big Will

    Big Will Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,569
    Location:
    Melbourne, Australia
    How do you plan on getting under market price?

    Because it is extremely rare someone will buy something for under market price unless you know the vendor. Because technically what you pay is market price...

    E.g. I know someone who paid 600k under what the vendor paid for a unit on the gold coast 10 years earlier. Now did they buy it for under market value, don't think so. Did the vendor pay over market price at time of purchase? You could say maybe but it was before GFC which caused a crash. However if you took their original purchase price and doubled and say you bought it for about 60% below MV this is also incorrect as the market didn't double.

    Sorry if you have been watching Nathan Birch video and hearing how he can buy stuff for 60% under MV. It doesn't happen unless you are buying things not on the open market as who is going to seriously leave 100k on the table unless there is other issues (e.g. structural issues)?

    However yes if you were able to achieve the outcome listed you would be able to release the guarantor. Just remember banks valuation is typically less than market value.

    Best of luck.
     
    Terry_w likes this.
  5. JZ93

    JZ93 Well-Known Member

    Joined:
    29th Jan, 2016
    Posts:
    64
    Location:
    Melbourne
    Thanks for the replies!!

    @Big Will its a shame you have drawn those conclusions to getting a good deal at someone else's expense. Happens often
     
  6. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,083
    Location:
    Perth
    Make sure you have "futured planned" the scenario meaning you qualify for a 90% lend.

    ANZ will also do guarantor lending with friends where all others are limited to direct family members.
     
  7. Big Will

    Big Will Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,569
    Location:
    Melbourne, Australia
    You need to solve problems and if you seriously think someone is going to sell you something for 60% below MV you will soon learn that it was actually MV (again unless it is a transfer between family).

    Even mortgagee sales here in Australia sell for MV 99% of the time. Why because it is advertised goes to a public auction and people go there thinking they will get a steal. Thing is there is still a reserve and it does sell for what is MV.

    Market value is what the market is prepared to pay and vendor is prepared to sell... News flash you are part of the market.

    Lets say you believe you find a house and you work out it has a MV of 500k to get 60% less you are talking about buying it for 200k... No fire sale will get you 200k for a place work 500k unless it is actually worth 200k.

    So lets pretend you got it for 10% off... News flash this is actually MV.

    I bought a house that was passed in at auction, the bank valued it before auction at 530k and I bought after the auction when it had passed in there was no other bidders, everyone had left and we went back and forth with the vendors what would of been 5 or 6 times (no joke). In the end I paid 510k for it and guess what I paid MV even though this was ~4% less than BV prior to auction... Did I buy BMV? Not at all... If I went to the bank to get it revalued they would of valued it at 510k as this is what the market was willing to pay/accept (which is what they did when the loan was setup).

    I will use a real life example that has just happened with a renovation;

    Property before reno - Sold Price for 237 Lower Plenty Road Rosanna Vic 3084 - sold - 785k - July 2015

    This property sold for land value at the time, so you cant get much cheaper.

    Just sold in August 2016 for 880k - Sold Price for 237 Lower Plenty Road Rosanna Vic 3084 - with reno done.

    Now I don't have a bank valuation of it but home hero (desktop value) said it was worth 820k before auction but it cannot calculate renovations so lets pick a 1/2 number as a bank for equity release/release of guarantor will by conservative being 850k.

    We will have to pretend the renovation cost is 1/2 the two valuations being 50k - which doesn't seem to far off considering kitchen & bathroom were done including marble + painting outside & inside the house, sanding and polishing the floorboards and 12 months interest payments (750k @ 4% = 30k) and I haven't accounted for any issues that might of come up (e.g. asbestos, new wiring/plumbing etc).

    So you do a 100% guarantor loan and lets pick 750k as your BMV or 4.4% BMV your buying cost are going to typically 5% but lets call it 3% or 22k (stamp duty is more than this) and you then spend 50k doing it up total loan 822k and the bank values it at 850k. Your LVR is still 96.7%.

    To get it to be 90% LVR you would need to loan total of 765k - 50k reno - 22k buying or about 690k purchase price. Which comparing it to the actual purchase sale is about 100k or 12% BMV (which MV was land) as I said very rare before is rare to buy BMV.

    What is that saying if it is too good to be true?

    Again I work from a conservative stand point but don't let me stop you but it isn't like the renovation shows you see from the US of making 100k profit in a month renovation.
     
  8. MrFox

    MrFox Well-Known Member

    Joined:
    20th Aug, 2015
    Posts:
    139
    Location:
    Melbourne
    It looks like some one did their nuts on this one. :)