In our last Blog, we were looking at the example of Karen and her journey to RentVesting.
Karen was unable to buy in the area she wished to live, as she didn’t have quite enough deposit, and the loan would have been just too much from an affordability perspective. Her broker suggested she talk with a Financial Planner about purchasing to invest instead, and how that might work for her.
She discussed the pros and cons of investing with her planner and the tax implications, and new versus established etc. Ultimately, Karen felt more comfortable purchasing in an already established area with a history of solid rental yield – It would mean that there was less Depreciation claimable from a tax perspective (as opposed to a new property), but for Karen, the feeling of certainty was paramount.
She did some research online, with input from her broker and planner, and found that Brisbane’s outer north had consistently performed quite strongly in terms of rental yield and low vacancy rate. It was an area she felt comfortable with.
When narrowing the search range down, Karen decided that a Townhouse, which prove extremely popular with Tenants in those areas, was the way to go. The rental yield sat as high as 6% as opposed to houses at just over 4% and many complexes had on-site managers.
Here’s the property that Karen decided to take to her Broker, to see about arranging the finance:
Bracken Ridge – $320,000 list price | Currently rented at $370 per week | 2 storey townhouse
3 large carpeted bedrooms all with fans, 2 Bath, 1 Lockup and room for another in driveway.
Reverse cycled air-conditioned in Lounge and master bedroom
Modern kitchen with plenty of storage space
Stainless steel appliances including dishwasher
Master bedroom has ensuite and balcony with great breezes
Large family bathroom with bathtub
Built-in robes with shelving in all bedrooms
Single remote controlled lock-up garage with internal access
Security screens and doors fitted
3rd guest toilet off laundry
Low maintenance courtyards with private patio area.
Pool in complex
Gym in complex fitted with weights, electric treadmill and bike
Only 14km from city – easy access to Gateway Motorway / Gympie and major arterial roads
Right opposite Bracken Ridge Plaza
Shops, schools, child-care, TAFE all within walking distance of complex
Conveniently located to BCC bus routes and excellent train links.
Remember, Karen has $60,000 deposit, and her annual income is $120,000 gross. Karen has 1 dependant child (although she receives child support, many lenders wont accept that as ‘income’ for servicing of a loan, so her Broker didn’t include it. However, Karen can include $370 per week rental income from the proposed purchase in her application. In re-negotiating her own lease, Karen had secured a rent deduction of $5 per week, to $455 per week, to sign a lease for the next 2 years. Karen’s only other commitment, besides living expenses, is a credit card with a $5,000 limit.
To buy the property at $320,000, Karen’s Broker advised her that the Government fees would come to $10,500, and allowing for building and pest inspection, conveyancing costs, rates and body corporate adjustments at settlement, that allowing $15,000 towards the total costs would be reasonable. Total cost to purchase $335,000.
Karen opted to look at a loan of 90% including Mortgage Insurance – With her Broker’s help, it was determined that her maximum base loan would be $283,000 (with mortgage insurance calculated on top of this, that would take the loan to value ratio to 90%.)
So, if the purchase price and costs are $335,000, and Karen’s maximum base loan is $283,000, that means that her contribution is going to be a total of $52,000 – Which is within the $60,000 that Karen has available – and will even leave her a little money in the bank.
Karen’s Broker ran the numbers for servicing, across their panel of lenders, and presented Karen with a product comparison report based on the current products and offers available, and they selected a product that met Karen’s needs as an investor, and was at a great special offer rate.
The loan was Approved and Karen is now a very satisfied Rentvestor!