Category Archive for Banks

The process of buying something then selling it at a higher price before you have to pay for it is nothing new in most business models, but what about with houses?

Getting control of a property that needs a renovation, a few repairs or a refurbish is usually very easy to do as most investors and new home owners are not too keen on the hard work side of buying houses.

Flipping is a great way to get your portfolio going very quickly. You can make serious cash if you get into the right opportunities and can move fast when they arise. There are some pitfalls that I know to watch out for and I am sure there are more that I have not thought of.

You need to get networking with agents who are prepared to bring you deals where you think you can get a deposit down fast to secure the deal. You then need to get a buyer to ‘flip‘ the property to.

Here is how a Flip works

1. You get a call from an agent or you find a suitable property below the market value of similar properties in the immediate area.
2. You get a contract to sign from the agent or owner. Do not go unconditional just yet!
3. You advertise for a buyer to buy the house from you just below market value.
4. Get commitment from them and a deposit.
5. Get your new buyer to sign an unconditional contract to complete the purchase.
6. You buy the house at your price.
7. The new buyer buys at the price you negotiated.
8. You make the difference minus the tax implications.

Essentially you will find that there are some risks involved and they need to be attended to before going out and offering or buying anything. Property investing comes with risk and mitigating or understanding these risks enables the investor to get closer to the rewards.

Flipping houses for profit in some states creates stamp duty implications as capital gains tax is payable at the applicable rate for the investor. In the event you cannot find another buyer straight away you are obligated to buy the houses as you signed a contract for sale.Your position then would be to withdraw from the contract and therefore lose your deposit.

I suppose in the event you have to settle on something you cannot move for one reason or another you might be able to do a small reno, value add or repaint and then list it for sale using either traditional methods, vendor finance or a 20% carry back.

I have been involved with a Flip in the southern suburbs of Brisbane and did not sleep for the days around the settlement. Investors need to have nerves of steel and plenty of guts to make this work for them.

As always your accountant and solicitors will have you better prepared for the implications in your area and will have to direct you in the correct way to do Flips - with Success!

Picture This

1. A friend of yours wants a loan from you.
2. You ask them to insure your money against the risk of you not being able to return it or pay it back.
3. They don’t repay the loan.
4. You claim your insurance on the funds you lent them and the insurance company pays you the cash.

That is what mortgage lenders do everyday to ensure their money is lent ‘Fully Insured’. They get to make money, fully insured, sounds like a great business! Read the Rest.

Earlier this month the reserve bank increased official interest rates which caused many investors and homeowners to re-consider their mortgages. This poses two great questions.

1. What will the cost of changing loans be?
2. When will the costs of changing loans be paid off?

Read the Rest.

It seems everyone I speak with about property has trouble finding great deals, but after a few weeks or months in the market, people always seem to be able to find a bargain. The next problem people have is finding the money, both with the deposit and the finances to complete the purchase. With what’s happening in the marketplace in regards to loans and lending I suspect that the emphasis will be on bigger deposits to mitigate risk for the lenders.

I have always found the first $10,000 -15,000 of any deposit savings plan is the hardest goal to get past. Once you get past this point the interest really adds up per month and your money compounds really fast.

Below are some tips I have used in the past to save money, these can be used for a deposit or anything worth saving for:

• Write a budget and stick to it. There are some awesome ones for free online.
• You will surprised at the value of your unused items. Sporting gear, surfboards, skis, bikes and other stuff can be sold to a second hand shop or EBay.
• Cash in or sell your unproductive assets, shares, bonds, bank deposits.
• Move your savings online and get a massive 6.8% with online banks, e.g., Bankwest or ING Bank.
• Really simple things like eating at home more, buying a jar of coffee for the office rather than a caffe latte on the way to work each day.
• Make your lunch before work or the night before, instead of going to the sandwich bar each day. This one alone saves a minimum of $1500 if you are spending $7 per lunch on Sandwiches.
• If you can realistically work from home, ask your boss if you can do so , maybe only staying at home for a day per week. This will cut down transport costs and time involved with getting into the office each day.
• I know people who are confident at teaching something they are passionate about, being paid to do it as a form of pocket money. You may be able to do this too in your chosen field.
• Get a “Pay as you Go” mobile phone plan rather than a contracted plan over 48 months.
• Use shopper dockets when you go out, if you need to go out for birthdays and celebrations.

Use direct debits to take money directly from your salary each and every week or month. I have been doing this for years and after a while you don’t see it therefore you are less likely to spend it.

Make getting a house a priority and have faith that you will get there.

Don Christie

You will only be in this position once and it will take the wind out of your sails. You get the contracts together and run all over town to find someone who will give you money to buy that house. Only to find that its not the lenders who are not willing to write a new loan for you its the Mortgage Insurers or the LMI providers as they are known. In other words the banks do not like the risk that you are not putting enough money into the deal or they think you have too many loans for your salary or a combination of all three.

When buying houses you do not always have to run off down to the bank to get the money. If you are wealthy enough you just pay cash and its yours. Meanwhile if you do not have the cash available why not get aligned with a few private investors? These guys have cash sitting around all day long and will lend you whatever you want secured by real estate.

I have a few gents who were from mortgage or real estate agent backgrounds, who did well and know the rules and the game very well. They want to help sometimes and other times be very silent. These guys disappear to Europe and just check their statements from me on a quarterly basis. They are hesitant at first with lending, but after doing what you say your going to do. They are like gold in your pocket. Read the Rest.

The term honeymoon rate is ofter though of being a ‘time-out’ from repayments until you move into your new purchase. Thats nice of the banks to understand your situation and help make it easier for your stressful move and relocations.

Thats what they make you think! I was sitting down with an old colleague of mine in relation to his new property purchase. He got an absolute dump for next to nothing and has grand plans for renovations and extensions. The fact that the place is far from humane is not what worried me it was the ‘honeymoon rate’ offered by the banks. Which bank in particular? Yep ‘WHICH’ is correct. Read the Rest.

There is so much money available to investors and new home buyers that you could buy almost your entire town 10 times per month for years to come. So why are a majority of loan applications denied? Because people are not serious in applying for them. It’s all about the risk and the return for the banks and credit providers.

I can discuss with some authority on how to get your application to go straight through the bank’s system, as I did work as a broker for a period towards the end of the 2003-04 boom. I enjoyed the freedom of discussing with like minded property investors the issues and concerns they had at the time.

I used to write mostly in house loans that were usually Macquarie Bank funded and a few 2nd tier lenders, such as Adelaide Bank, Bluestone, RESI, to name a few.

It was really surprising to find some applicant’s loans would take so much work to get approved, while other applicants’ loans would just fly through with fairly little work. I understand that some people had heaps of equity or cash available and others did not, but this rarely affected this unusual scenario. The most important thing to any application is being able to show good control of your money.

If you earn $75,000 per year and buy fast cars, go on overseas holidays and have nothing more than a box or receipts to show for your year’s hard work, forget using the big banks. On the other hand if you earn $32,000 per year and are able to save just 15% of that over 12 months plus pay your rent on time, you cover your credit card every month and do not over extend yourself on interest free items. The bank officer will see that you care for and control your money. In fact, you have already shown that you are a suitable candidate for a loan as you control your money - not the other way around.

So what do you need to do now to help get loans approved easier in the future? Read the Rest.

I have noticed that there are more and more banks and financial institutions offering loans of 100% or more for the purchase of residential property. They even capitalize the fees, or add the fees on in other words, to the loan and you still get the First Home Owners Grant.

All very nice and fuzzy! Ideal if you have not saved any money, you get a house and you now have a loan for a house. The only trouble is what are you going to do with the $7000 from the government? Hopefully your answer is to pay the loan down and reduce the amount owing and the years remaining on the loan.

Now before you go running down to the banks and brokers you should exercise some caution before you get going with this style of lending. You need to know that 100% of the value one day may drop to 90% the next year, and then you have a shortfall. Share-traders who borrow money for investing know what a Margin Call is and that is very similar to what the banks may do in the event that their loan to you is now more than what the property is worth.

I can only imagine sleepless nights and a few arguments from mums and dads regarding the fact that they now owe more than what their new purchase is worth.

The problems in this shortfall situation really lies with the banks for a few reasons:

1. What do they now do with their loan debt to you? Ask you to sell to recoup what they can get now?
2. Do they ask you to make extra repayments over and above what you already pay? They lent you this money and now it is so highly leveraged and falling backwards, that they must be making a loss keeping you paying their loans. They may not even know the property has lost value if there is no real need for them to look, but if you fall short, they may make an estimate and discuss your options with them.

I do understand that there is a business for this kind of lending, perhaps it should be for investors that know what they are doing and have proved themselves to be business like in their actions rather than emotional in their investing.

The current rates reflect an interest rate of 2% above what the standard variable rate might be. There are massive fees capitalised onto the loan, like the insurance the banks use to ‘insure’ their risk of this lending to you. There will also be stamp duty and other fees included to your new loan balance. Already, before you have even made any repayments, you are paying interest on the fees and charges and this has got to worry you.

Normal lending criteria applies to ensure you are a suitable lend in this scenario. They also like to see you earn enough, save enough, live within your means and that you do not owe anything. They like to know you are going to pay on time EVERY time and that you will be a good risk for them.

The fact remains that home ownership is not for everyone. I estimate that 30% of Australians will never know what its like to have or even be eligible for a house of their own. So why put people at risk of serious financial hardships just to make money? I love the banks, but find it hard to give any kudos to this hard line lending. Its almost like loan sharking.

The banks know that a certain part of their business is to recoup the losses made by people failing to repay their mortgage. They do not like to have to quietly sell the house you have defaulted on, but will do so to recoup losses they have.

I like investment loans of 100% or more, as it enables a high rate of leverage, but unfortunately there are very few banks willing to do these without other property security.

Don Christie

The reserve bank is set to meet and discuss the current credit spending next Wednesday, and in all likelihood there will be a serious interest rate rise in the region of 0.25%. This is due to reports that Australians still continue to spend even after recent rate rises within the last 12 months.

What does this mean to home owners and residential investors? I refer to the Australian Bureau of Statistics’ figures where it states that 35% of the houses in Australia have a mortgage and to the tune of 40% of the value is the mortgage. That means on a $300,000 property homeowners have to find $12 more per week to satisfy the banks.

You don’t have to be a mathematician to work out that the average homeowner has to earn $15.40 just to take care of the extra amount needed each month. This is almost another hour’s work at some people’s professions. This takes into account tax being already taken from the employee’s salary.

$12 per month sounds like another coffee shop morning tea for those that don’t invest, but what about investors who look for better than average returns from their real estate ventures. They will suffer a little bit, but as the rental market starts to heat up we may see investors flooding the market and therefore negating the rate rise.

What about if the return on your property portfolio went down by $15 each property by 5 houses. That’s where some creative measures need to come out.

It may be the time to do a few small renovations or upgrades in your rental property to justify raising the rent. I suggest going and seeing your tenants and finding out what they would like to see happen to justify the increase in their rent. During the winter may be a great time, to ensure you have ceramic towel rails or a heat lamp in the bathroom. These cost $85 at Bunnings, but the tenant feels better for having those benefits for an extra $15 per week.

The tenants may have a child or children and you could provide a sandpit in the backyard. Although this may cost more, mums and dads realize that and may be happy to pay $15 more per month to justify your expense.You may also find that they are happy to extend their rental agreement for another 12-24 months, because you have found a solution to their needs.

So the obvious reaction to a rate rise would be to fix the rate for a period of time. This can be effective in the event of further rate rises, but can sometimes incur break costs and fees from your current financial institution.

Investors need to work out what the comfort factors for their tenants are. I have found that solving problems and making money come from creative thinking and asking questions.

Lets hope rate rises create happier tenants.

Don Christie