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Tackling a daunting investment deal with multiple layers
THE SCENARIO
My clients, a young couple living in Queensland, were looking to purchase a sixth investment property for the female applicant to use as her business premises. They already owned five other properties – one owner-occupied residence and four investment properties – many of which were located in Tasmania. They also had an unsecured business loan that had been used to purchase the established business she’d taken over about a year previously. We found out later that this loan was actually secured by their owner-occupied property.
The clients found a property that perfectly suited their needs. It could be divided so that the upstairs could be used for her business and the downstairs for a rental unit. The valuation confirmed it was a dual occupancy property, so only a 70% LVR was acceptable to the bank. The complications were income (servicing) and the deposit/closing costs. There were increased requirements based on the 70% LVR.
The clients also had unconventional work situations. The female applicant was self-employed (family trust structure), and tax returns had not yet been prepared. They’d made an offer on the property prior to 30 June and needed tax returns for the finance application. The male applicant worked in the defence force and had complicated deductions and salary sacrifices.
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THE SOLUTION
In order to satisfy the LVR, we had to use equity from the existing properties. We valued their whole portfolio, and the other investment properties did not have any equity to spare. The owner-occupied property was revalued and came in lower than expected, and we also found out the remaining equity was also being tied up by the unsecured business loan.
To resolve this, we had to involve the ANZ small business team to restructure the existing business loan to be unsecured so that equity in the owner-occupied property was available to use. We also had to utilise redraw. which was available in the owneroccupied loan, and a small non-refundable gift from parents to cover stamp duty and closing costs. I liaised with the clients’ accountant to confirm the income being declared was suitable in order to service the new loan.
With five other properties (all of which were encumbered), there was a lot of paperwork, with rental statements, existing mortgages, self-employed tax returns, trust distributions and payslips for the male applicant, and multiple deductions, allowances and salary sacrifices.
THE TAKEAWAY
In my three years as a broker, this is probably the most complex deal I’ve worked on. At the start it didn’t look like it would be approved due to lots of outstanding information and tight servicing. I broke it down and spoke to all the different parties, and went through the details methodically and diligently.
I listed all the hurdles that we had to get past and provided reasonable and logical responses to the lender so we were on the same page. It was also important to manage the clients’ expectations. I wasn’t telling them this would be a guaranteed approval; I was upfront about the things we needed to work through. By working through the barriers and roadblocks we were able to get a great outcome for the clients.
The clients were thrilled with the approval and did end up becoming a large referral source for my business. There were many ups and downs with the transaction and lots of adversity, but I learned some valuable lessons on keeping communication open with lenders, clients, solicitors, the accountant and the real estate agent.
The female applicant’s business is now renting the property from them, which is a huge reduction in monthly rent based on their previous premises.
I am proud and excited that I was able to settle this complex and challenging deal, and have built a strong friendship and business relationship with these clients as a result. They are already speaking to me about their next purchase and telling friends and clients about my services.
Adam Bradley
Director
Emerge Finance
