Case Studies
First time property investors use creativity to achieve their goals
Challenge:
Tim and Kate Munk attended one of our finance workshops, looking to commence building a property portfolio. They had been to a few property-related seminars and knew exactly what they wanted to do – they wanted to buy run-down properties, renovate and then move onto the next property. This strategy works well in an active market, but it can be difficult to achieve when the market is slow, so location and appropriate property selection were paramount. Both Tim and Kate had solid employment and lots of energy, but insufficient deposit to implement this strategy.
However, where there’s a will, there is a way…
They had plenty of will, but the “way” was proving to be a challenge. The biggest challenge was that their savings were to be used for the renovations, so in effect they had no money for the deposit or the closing costs. They were upside down from a bank’s perspective.
Solution:
Kate’s parents were keen to help them get started, so they offered their house as joint security to cover the deposit and closing costs. This meant they could now borrow the whole amount to purchase it and then use their cash to do the renovations.
Now you’d be excused in thinking that Mum and Dad’s house is now on the line if Tim & Kate were to get into financial trouble. But to mitigate the risk to her parents, we made sure that the loan against Mum and Dad’s house was by limited guarantee. This means that the bank can only request the amount of the deposit and costs, no more. There were no second mortgages or high interest rates. It was all done on a professional package with a major bank, through what is called a “family equity program”.
Tim and Kate also did some mitigating themselves by taking out life insurance, updating their wills and putting in place a private agreement with Mum and Dad for when the guarantee would be lifted.
What did they buy?
Tim and Kate bought a 4 bedroom weatherboard house in Deception Bay, QLD. It was on an 800m block and in poor condition.
They tiled all the floors, renovated the bathroom, kitchen and painted the interior, changed light fittings and replaced the drapery and generally modernised the place.
It was purchased in Jan ’08 for $287,000
Renovations cost $15,000
Market value March 2009 ~ $320,000
Rented for $360 per week
The plan later in 2009 (depending on market conditions) is to revalue the property and remove the limited guarantee from Kate’s Mum & Dad’s place.
Since then, Tim and Kate have gone onto buying another property, this time as an owner-occupier. Creative finance was again required, but this time with the vendor and their solicitor.
Here’s what Tim has to say about dealing with Trilogy Funding:
We found Trilogy to be highly professional, friendly and enthusiastic, always willing to listen to our crazy ideas and explain how they could or couldn’t be done.
Kate’s parents were appreciative of the way you answered their concerns too.
You guys were always there to answer our questions and make sure we had done the right things by the right time.
As we move to the next phase of our lives we’ll definitely be using you guys again.
Tim and Kate Munk
Canberra
For more information about how Trilogy Funding can help you secure the right loans, with the right structuring to fast-track the growth of your property portfolio, contact us now for a FREE no-obligation consultation or call us on 1300 657 132 to speak with one of our expert brokers.