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What to do next on the way to my first intentional property investment

Discussion in 'Property Finance' started by Paterson00, 19th Jun, 2015.

  1. Paterson00

    Paterson00 Well-Known Member

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    Hi all

    I am aiming at buying a $240 - $280k property at the end of the year. I currently have $15500 saved and am saving $1500 per month. I will be using a 5% deposit so I already have that. I was told to expect to spend another 5% in fees and stamp duty taking my target to $24k.

    Should I be doing anything at the moment to get myself ready to buy? I know a pre approval doesn't last forever so no sense in doing that just yet.

    I am doing research in to the area I am targeting etc but it's the financial side of things I am asking about here. Do I just wait until I have the $24k then get in touch with the broker. Do I get in touch now? I have a broker selected that I'm fairly happy with and I have asked her the question, I'm just waiting for a response.

    Although I do have an investment property, this will be the first time that I have deliberately bought one from scratch.

    I want to get this wrapped up and have it running by the end of the year if possible, for no other reason than staying in line with the goal I set myself. It wouldn't be an issue if I didn't buy because the deal wasn't right but I don't want things to drag out just because I'm not prepared.

    I would very much like to get your thoughts on this.

    Many thanks

    Paul
     
  2. Paterson00

    Paterson00 Well-Known Member

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    So I get notifications. ... forgot to press the button the first time. .
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You'll have an extremely low chance of getting an IP these days with only 5% deposit - sorry to be the bearer of bad news. In reality, you'll need a minimum of 7%, b/c the LMI on a 95% lend will take you over the 97% LVR cap. Even with 7% it will be tough as most lenders are now capping LVR at 95% inclusive of LMI, and many more @ 90% inclusive.

    Apparently Rams may cap to 98.5% I'm told, so that might be an option for you.
     
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  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Agree with Jess - the days of high LVR IP loans are slowing disappearing. 95% loans were always difficult - but now they're becoming very rare as most banks push to a cap of 90% on IP loans (some have gone to 80%)

    Cheers

    Jamie
     
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  5. Paterson00

    Paterson00 Well-Known Member

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    Thanks to you both for these replies and all the other advice you have both given me over at SS.

    So what would you expect I would need to have behind me to be able to buy a $230k property? Or.. what would my spending power be if I used my $24k lump to go to a lender/s

    Need to be as ready as possible for surprises Jess so no need to apologise for saying the facts... Maybe that's why my broker of choice has not got back to me yet. Didn't want to burst a bubble..
     
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Realistically - in the current lending environment I'd be aiming to borrow no more than 90%

    Anything higher is becoming increasingly difficult to get approved, the LMI costs are quite high (admittedly on a smallish loan amount it wouldn't be too crazy) and you won't be able to release equity any time soon (chances are you'll only be able to borrow back up to 90%)

    Cheers

    Jamie
     
  7. Paterson00

    Paterson00 Well-Known Member

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    Would I be wrong in my rough calculations below using the spreadsheet I knocked up and the online calcs. I think that to buy something of $230k I would need around $27729 plus transfer fees etc upload_2015-6-19_18-53-17.png

    upload_2015-6-19_18-53-17.png
     
  8. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    How long will it take you to save the additional funds? You may need to consider delayed settlement.
     
  9. Paterson00

    Paterson00 Well-Known Member

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    I am saving at $1500 per month at the moment as I thought that would get me to my goals of buying something by the end of the year and getting started. I could increase that but not a lot
     
  10. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Try for a delayed settlement - it doesn't hurt to ask and it could actually work well for the seller. That way you have unconditional on the purchase and finance but gives you a couple of months to gather the additional funds. You just need to ensure that the lender can accommodate the delayed settlement. A lender like NAB has a limit of 3 month whereas a lender like BW has a limit of as long as 8 months.
     
  11. Paterson00

    Paterson00 Well-Known Member

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    Great tip thank you. I bank with both of those already and my PPOR is with BW. Would I not nee to have all this in place before making the offer? This is one of stumbling blocks and the reason for the initial question. What is my next move, wait and save?, Offer and hope to get delayed settlement? Start the ball rolling on speaking with a broker?

    Being my first IP bought deliberately as an IP this is different to my other two purchases. (former PPOR turned Ip then my current PPOR)
     
  12. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Wait you have a property already? Have you considered doing an equity release against the existing property to help fund for the new purchase?

    Whats the loan amount and the approximate value of the current PPOR?

    BW was an example - they wont be be an option for your circumstances because their max LVR is 80% in IP's.
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Speak to a broker and make a plan up front. There's no point having plans only to find is not going to work when the time comes.
     
  14. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    What Jess said. A chat with a great broker (plenty on here) will provide insights into your situation, plans and what's possible.

    With two properties already under your belt, you may be able to finance your next purchase predominantly with equity.

    Given the current state of the lending space, my rule of thumb for a purchase is that you'll need to tip in a minimum 17% either from equity, cash or a combo. 12% for the deposit (88% lend) and 5% for costs (stamp duty, solicitor fees etc).
     
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  15. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Did your broker put you with BW for your PPOR? If she did she sounds like a transactional broker who does not understand how that will limit you growing a portfolio of properties. BW are a pretty poor choice for anyone who wants to use equity to grow a portfolio.
     
  16. Paterson00

    Paterson00 Well-Known Member

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    I have considered that but was hoping to not have to go down that road just yet. Three reasons for doing this..1, I wanted to keep that in my pocket for later on. 2, that property is over in the UK so it is a bit of a ball ache to get the equity out. 3, the equity there is minimal. The house is worth about $340,000 and the current loan on it is $240,000. Because I am over here and the property is over there I know (at last check into it less than 6 months ago) at most I will only be able to have 75%LTV on that property. $340,000 * 0.75 = $255000 - the current loan of $240,000 leaves just $15,000 available before fees for the release and remortgage etc. Would you say this is worth the hassle? Are these normal figures?

    PPOR figures are $453k outstanding and expected value of the $465k I paid plus any growth since Dec. The figures above for the UK property are for my IP over there. 97.4% LTV on PPOR + the $15500 in the offset.

    She did but I think it may have been with he intention of utilising the offset so I can re-draw when I am ready. I also had only 5% deposit at the time last Dec / Jan. We closed on that on Feb 18th this year. Sale price $465k 95%LTV, agreed the price in Dec so maybe 6 months growth in that at 4% if I am lucky. Property investor magazine has the growth in my suburb at -1.1% in the last three months and a 1.5% growth over the last year. MYRP shows no growth in the last three months but 2.1% growth over the year.
     
  17. Paterson00

    Paterson00 Well-Known Member

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    I did have that chat with my current broker and I walked away expecting to be able to buy with 5% deposit and 5% costs so I did have a plan, sounds like it might have been flawed though. Well, you don't know what you don't know so at least I had a plan and worked on it. That was again back at the end of last year. Is it possible the lending landscape has changed hugely since then and that the plan back then would have been fine?
     
  18. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Ah it's the 5% deposit. BW have a niche there with their lmi.
     
  19. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Sort of.

    The problem with lending at super high lvrs is that it locks you into that lender for a very long time unless you're happy to pay lmi ask over again with a new lender. Buying an ip with 5% plus costs pretty much limits to BW and guarantees you'll never be able to access equity from them to buy your next, unless you're on a super high income due to their stingy servicing calc.

    BW really are crap for investors and the changes have only made it worse.

    But, if your in a position to save your deposits rather than using equity and want to buy a couple of IPs at very high lvrs, as long as you've been made aware of the disadvantages it can have a place. But they'll no longer do it for IPs so that's put a spanner in the works.
     
  20. Paterson00

    Paterson00 Well-Known Member

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    I didn't know that about being locked in. It's obvious now that you point it out but I guess that I am not used to that system of LMI since we do not have that in the UK where I have remortgaged before. Was not an issue, just find someone happy to lend to you with our LTV.

    [QUOTE unless you're on a super high income due to their stingy servicing calc./QUOTE]
    I am expecting to earn about $200k in the next financial year but I also expect my high income will not last long after that then I will be back around $85k so I would like to get this taken care of while I can with bit of time after to "learn" to be a landlord. I am bound to make mistakes along the way so I would like to make them while I can afford to.

    I can hear how green I am when I read my messages back before posting but every master was also once a student so I am not deterred.

    What would you advise in my shoes? Save longer? Release the equity in the UK and just get started? Buy cheaper? Not sure I could lower my spend any more without buying a caravan and I have not heard of them going up in value ever... lol.