Great news this week. Finance expert & property investor, Yza Canja has decided to come on board and answer some questions on finance and investing. If you have any queries you would like to get answered contact a member of our CMoney team on 02 9371 4799.
Q1. I have over $400K in equity and the banks are telling me that I cannot access this equity or that the amount that I can access is limited to about $20K, how can I get access my own equity and still maximize the amount the banks will give me?
A1. Recently banks have tightened their guidelines about “cash out” loans, these are loans where you take out the equity from your existing properties and you are able to use this for whatever you please and you may not need to use it till. Not too long ago we were able to tell the banks that the new cash out loan was for investment purposes, or a holiday, new car etc… But now they want evidence of what you will be using the funds for.
Depending on your personal circumstances, it is easier to get bank approval if you are able to get a letter from your accountant or financial planner stating that you are intending to use the funds in investments such as shares, property trusts etc if of course this is indeed what you want to do. If you are looking to access funds purely for domestic or personal purposes such as a holiday, new car etc, your approval from the lender is highly dependant on how much in $ you are looking to take out, if it is below $50K (and as long as you are able to demonstrate serviceability) it is likely to get approved. A tip to remember would be that the more specific you are about what you use the funds for the more likely your chances of approval are.
I always recommend that you should have as much funds made available to you as possible so you are able to invest straight away when the right opportunities come up.
Q2. I am looking to do my first development this year. I have recently enquired about finance for the development and apparently the accepted LVR for a development (capitalized) loan is 70%. I don’t have any equity to put into the project so I am a bit stuck, do you have any ideas? I could possibly use a property of my parents for equity?? Is that possible? Also, what type of income is expected to service a loan of this type?
A2. This is the hurdle that many first time developers incur, which is where do they get the deposit money from. At CCORP we teach several different creative ways to come up with these monies… but in a nutshell you can use your parent’s property to borrow against, however it will mean that they will need to be involved in the project. So instead what you could do is take a separate normal residential loan against your parents property to fund the deposit for the development. This means that the loan is secured against your parents property alone and is not linked with your development. It also means that you will need to make on going monthly repayments on this loan and your parents will guarantee the loan for you because the property is in their names. Your parents will be liable for the loan if you do not meet your repayments on this, so whilst there is a risk on their property, it is limited and kept separate from the development itself.
Other creative ways of financing the deposit is by getting investors in to fund the deposit through a Joint Venture agreement. Vendor financing the deposit is also an option.
Q.3 As I intend to buy a property in the USA, can you advise if I can finance my mortgage in Australia? Jack
A.3 With regards to financing a purchase in America, Aussie lenders will not allow you to use the property in the US as security, thus your option here is to use existing equity from a property based in Australia. You can draw out the equity from an existing home or investment property for the purpose of purchasing another investment property, which so happens to be in the US.
Some lenders will not find this purpose acceptable, they may consider this a pure “cash out“ circumstance which means that you are drawing on your equity and will use the funds for almost anything. If a lender feels that you are merely taking “cash out” they could be very hesitant to lend you the monies or they will limit the amounts that they give you access to. To get around this, you must be cautious and meticulous of how you present your loan purpose to your lender. The loan purpose must be presented in such a way that you provide evidence of what you will be using the funds for, and you must be able to display evidence of a financial benefit to you (i.e. evidence of rental returns etc). It is important that you carefully structure your loan to do this and you have clear communication with your lender before lodging your loan application.
Yza will be answering more of your questions in the coming weeks. To get your questions answered, email questions@cmoney.com.au.
Cheers
Carly