Investing in a mixed used property

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Simon_Baker
Posts: 37
Joined: Mon Jul 15, 2013 1:09 pm

Investing in a mixed used property

Post by Simon_Baker »

Home Loan Experts!

My husband and I are looking to invest in real estate and a friend has suggested that we buy a mixed use property (if you don’t know, this is one of those which has a shop in the front and a small unit at the back).

The one he suggested is located on a main road in a smaller town and is currently vacant since the previous owner sold it for cheap and left the country and the current owner wants to sell it off as a whole instead of renting it out separately.

We’ve done the math and we’ll need about $500,000 to cover the cost (we plan to use $100,000 from our savings. Do you think we will have trouble getting approved by the bank?

Thanks in advance

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Investing in a mixed used property

Post by Otto Dargan »

Hi and welcome to the forums Simon_Baker,

The problem of applying for a loan to buy a mixed use property is that these properties are not in high demand in the market and so not favoured by the lenders. Furthermore you may end up getting a commercial loan instead of a residential loan which will usually have a lower rate, lower fees and a longer loan term.

In case you decide to rent out the property you can borrow up to 80% of the total property value however if you plan to run your own business then this may be decreased to 75% – this will also depend on the strength of your business plan and business strategy.

If you are planning to borrow $500,000 and the property is worth $600,000 then this means that your LVR Is 83.33% which can be a problem for you.

If you can call us directly on 1300 889 743 or even send us an online enquiry then we may be able to help you further after knowing more about your situation.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Simon_Baker
Posts: 37
Joined: Mon Jul 15, 2013 1:09 pm

Re: Investing in a mixed used property

Post by Simon_Baker »

Oh that doesn’t sound too good… and what is LVR btw? Did you calculate that by dividing $500,000 by $600,000?

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Investing in a mixed used property

Post by Otto Dargan »

Hi Simon_Baker,

LVR or Loan to Value Ratio is basically the percentage of the property value that you wish to borrow. You can calculate this by dividing the loan amount by the total property value which in your case is $500,000/600,000 which is 83.33%.

LVR is important since it is one of the figures used to determine whether you get approved or not as well as for lenders to see how risky the loan is to them. Usually any loan over 80% LVR is considered risky and the lender will charge you a mortgage insurance fee known as LMI or Lenders Mortgage Insurance.

This is a one-time, non-refundable fee that protects the lender in the event that the borrower defaults or cannot afford to make the loan payments.

Each mortgage insurer has their own method of calculating the LMI fee for your loan usually by using their LMI Rate Chart or Premium Table. Basically they will take a percentage of the amount you are borrowing and a percentage of the property that you are buying.

For example, if you are borrowing $255,000 for a $300,000 property you would be borrowing 85% of the property value so your LVR would be 85%. If your loan size is small and the LVR is low, the LMI premium will also be small (about $1,500 to $2,200).

Alternatively, if you are borrowing $950,000 for a $1,000,000 property then you would be borrowing 95% of the property value so your LVR would be 95%. In this case, the loan amount is large and the LVR is high so the LMI premium would also be high (about $38,000 to $45,000).

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Simon_Baker
Posts: 37
Joined: Mon Jul 15, 2013 1:09 pm

Re: Investing in a mixed used property

Post by Simon_Baker »

Okay okay, I think I’ll just call you guys up and talk to you because I think we need more help. I also want to talk about our finances and I’d rather not be posting everything online.

Thanks anyway

Karenina56
Posts: 40
Joined: Thu Jun 27, 2013 4:57 pm

Re: Investing in a mixed used property

Post by Karenina56 »

Hey guys, thanks for the great examples but is there anyway to see how much my lmi would be?

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Otto Dargan
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Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Investing in a mixed used property

Post by Otto Dargan »

Hi Karenina56,

There is no way to determine your LMI without knowing about your loan, and your financial situation. If you like, you can call us and send us your financial details and we can help you.

Otherwise you can also try out our LMI Calculator to get an idea of your LMI. Our calculator will also display all the LMIs available to you from our lenders since the choice of lender can make a big difference in the fees that you will have to pay.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Karenina56
Posts: 40
Joined: Thu Jun 27, 2013 4:57 pm

Re: Investing in a mixed used property

Post by Karenina56 »

Oh wow, thanks for the info and the links! Ill get back to you later then

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