Since my last blog I have been browsing the online sales (as you do, even when not looking to buy) and the property next door to my recently renovated house came on the market. The listing prices on offer was below what it had cost just a few years earlier (to buy and build) to ensure a quick sale and I made an offer. The house sits on one of the two 252sqm blocks which had been subdivided away from the original block (original block now sits on 494sqm). I was interested in obtaining the property as there are benefits to me having the house next door. It would give me the opportunity to develop, or if I had wanted to increase the block size for a larger development in the future or to reduce any potential opposition from neighbours. Of course knowing the area, having done my research only a few months earlier, I knew it was a good deal for me and my offer was accepted pending finance. My new bank (who had previously advised they were on board for future purchases) decided that having appropriate equity and serviceability was not enough to approve the loan (taking into account the total value of loans with the three other properties with them which increases their risk). Unfortunately, because finance was not approved, the contract was terminated and the house put back on the market for a day. I really wanted the house, and didn’t want others to make offers, so I upped my price and the owners accepted and put a new contract in place. My broker then approached another bank, and by using funds in my Line Of Credit for the deposit (because this new bank didn’t work with second mortgages I couldn’t use my PPOR equity for the deposit), I received approval with another lender.
The house is a 3-bedroom-by-2-bathroom with 2 garages (3x2x2), stand-alone green title residence (not strata and no common walls). Potentially, if a 2nd storey was built on it, it could have ocean glimpses as the views run down to the beach in the back yards of side street homes leading to the beach. I do tend to buy as close to a beach as possible and my properties usually sit a street back or on a side street near the beach which makes them much more rentable for those wanting to be in walking distance to the beach, restaurants and café strip. Having a bus stop in walking distance which goes to the train station enables those working in the CBD good transportation links. This house has additional benefits such as a large walk in pantry with power (can be used as a mini scullery), gas point for outside bbq’s, extra height in the ceilings and garage, plus feature stone outside in the front and back alfresco area.
The new house settled last week and as an added bonus the depreciation schedule came back at almost triple that of my much older properties. Definitely a bonus, but not the sole reason for buying. The new tenants moved in three days after settlement and it is now ticking along nicely. Purchase price $419,500 rent return $410 per week. Taking into account ongoing expenses such as interest, counsel and water rates, insurance and property management fees against rent and depreciation benefits, the property is positively geared however vacancy and unforeseen maintenance costs would require funds, but for the moment a good sit and forget.
On settlement day, the owner advised that his daughter and son-in-law, who built the house next door to this one (the other 252sqm), were also thinking of selling and asked would I be interested. Knowing my chances of getting a new loan so soon after my other two (all in the past six months) were slim, my 20-year-old hairdresser daughter and I had a discussion on when would be the right time for her to start her property journey.
We had previously discussed the merits of purchasing an investment property prior to buying her first home to live in and the idea was sound in her situation. She had previously moved out of home into one of my units (see previous blogs) and moved back home again. She has little outlay, is not ready to move out again, and she is paying off a small car loan (a BMW no less, while mum drives around in an old 98 Calais), and for her, life is good.
When looking at ways in which to get onto the property ladder (with the least amount of funds out of my daughter's own pocket), an investment property suits her perfectly. I should note that I was more than happy to guarantee her deposit with equity from my own home (called a family guarantee) to help get her started and told her she will no longer have to pay board. This generosity is to help cover any shortfall in funds. As my only child, she will inherit my assets as well as my debts, so to me, the risks were acceptable and with houses prices the way they are saving for a deposit can take years. By the time a deposit could be raised, she could have been gaining in capital growth which in turn creates her own equity to release my deposit guarantee sooner. Please note I am not guaranteeing her loan, just the 20% required for the deposit.
I’m going to digress here to provide a bit of background. My daughter got her first job at the age of 13, waiting tables at the local Chinese restaurant. The deal was that if she banked half her pay, I would double it and the funds would go towards her first car. I did this each pay day rather than having to come up with a lump sum when needed (which I wouldn’t have had) and so for several years the princely sum of $50 per week would be banked. When she turned 16, along with funds from a yellow mini moke I had inherited from my father, we purchased a 3 year old yellow Suzuki swift (the same colour, yellow, I like to think it was a sign that my dad was looking down on us with approval) which was the envy of her friends and gave her a really good grounding and appreciation of the value of saving. It was this commitment to saving for the future which led us to again go into partnership (only for the guarantee) for this large purchase. I think this was a really good lesson to set her up for starting on the property ladder. If she could save half her pay for a car then half her pay could also be expected for a future property.
Long story short, we viewed the property, which is the same size house as the one I just purchased next door but built as a 2x1x2 to provide bigger living areas. The owner is a cabinet maker and it has granite and stylish built in cupboards everywhere as it was always going to be a family home and not built for the investment market like the one I bought. As an added bonus it had the required works completed when the home was built to make it a double storey in the future (with concrete strengthening and strut placement in the roof etc should my daughter want to go up a storey). She put an offer in which was accepted.
A good example of the differences in the finishes are the two pictures above of both laundries.
An appointment with our broker had us feeling confident that she would get finance approved. I was expecting for us to run around to find funds to ‘gift’ the balance of the car loan to assist in getting it over the line but this wasn’t necessary as she had been paying more than double the required payments, and cutting them back to the minimum was sufficient. A bank needed to be found who would take out a second mortgage on my property as I have a first mortgage utilizing the equity for deposits on my last three properties. The selected bank also needed to work with family guarantee’s - not many do. One of the big banks do, but only do it for first home owner’s, not investment properties so that further narrowed the field. At last we found a ‘big bank’ who seemed more than happy to take our business. The last hurdle was getting my bank which held my PPOR title to allow a second mortgage on it.
All in all a very busy few months, but definitely enlightening. Lessons learned are to accept that opportunities will present themselves and to weigh up the risks and if they work in your favour then just go for it. If it has the opportunity for improvement or future development and is in a good area and at a fair or under market value then I’m in.
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker
Single mum Lisa Curtin has conquered most investors’ biggest fears, going from struggling to pay her mortgages to seeing success in renovations and now claiming the ultimate prize: a portfolio that will enable her to retire at 50.