Cash out from investment property for car purchase

Client Details

Single applicant. Client worked making $65,000 no overtime or allowances. Client is in the process of building his first investment property and owns the land outright. No credit open and living below HEMS.

Scenario

Client is both looking to build his first property and also purchase a car. He had already decided on a builder with a contract price of $360,000. The client already had a land for a number of years and had paid of the land over those years. We did a valuation of the land and expected build project which came up at a certified valuation of $670,000 and $550/week rental income. 

The client needed to finance both the build component and the purchase of a new car valued at $45,000.

Why Client Approached Us

Client approached us primarily as we were happy to refinance the client post construction to help him reduce interest regardless of the impact it made to our commission – something most brokers are not comfortable with

How we handled the deal

To complete this deal and reduce the cost and impact to the client we took the following steps.

1. Secured a construction loan with a lender who charged the lowest overall fees ($300 total) in application, construction, administration and progress payments. 

2. To increase serviceability we used expected rental income of $550/week and added back tax deductible interest. 

3. We secured a car loan with out asset finance lenders at a rate of 8.4% with options to pay-out early without penalty. We did this over a 7 year period to minimise repayments during the construction phase. Note that market leading rates require top quality applicants which is unrealistic for most. This was still a rate in the top band of the market but at the lower end of the scale.

4. Once construction was completed and the house was tenanted we re-valued the property and took out the car loan total ($45,000) in cash-out against the investment property. This gave an overall interest rate of 6.33% and we were able to take advantage of refinance cash back offers. This pocketed the client an additional $3,000.

On-going Care

We are working with the client to take reduce the mortgage against this property and further expand his portfolio.

Outcome

Cashing out against the completed investment property as well as utilising the refinance cashback towards the mortgage is expected to save the client $5,545 in interest and shortened the loan term by 1.08 Years compared to a traditional car loan term at 8.4% over 7 years.

Key take-home points of this deal

1. Cashing out against a property to purchase vehicles usually results in a lower rate and interest paid IF you treat the cash out amount over a typical car loan term. (i.e pay over 7 years instead of over 30 years)