You are a broker at XYZ Brokers and have received a referral from a local solicitor to talk to two brothers, Calvin and John Young who wish to jointly purchase two apartments in the same building. They want to purchase them as rental properties. The building has 12 apartments. The units have 75% permanent tenants in place and the remaining 25% are used for holiday rentals. The location is in a highly sought-after area and all holiday periods are fully booked.

The brothers have invested together before and have experience in buying and selling property. They have sold all their other investment properties and the apartments will be their only investment until they can identify another opportunity. They have never had any formal agreement drawn up between them in the past. The cash at bank is mostly proceeds from the sales of other investments.

It is also important to note that these brothers have financed investment properties in the past but their level of financial literacy, in relation to the legislative obligations of a lender, is limited.

They would like you to put together two loan structure options:

• a joint investment loan with an 80% LVR with the balance of contribution to come from their savings

• a joint investment loan but also using the equity in their existing homes to permit borrowing 100% of purchase price plus costs.

Other loan requirements:

• 30-year term

• premium option home loan features

• variable interest rate (for this case use 4.5% p.a.)

• proposed settlement date — 6 weeks from exchange of contracts

• ability to make additional payments from time to time without penalty

• redraw facility.

When calculating the fees and charges use those applicable to your state. If a servicing calculator you are using requires a postcode, select one that would represent a reasonable holiday location in your city or state.

Payments on all past and current loans have been met on time and any prior loans repaid in terms of contracts. The minimum monthly commitment on each of the credit cards should be calculated at 3% of the credit limit.

When delivering the two recommendations, you should cover the following:

1. Who are the parties to the two types of loan structures?

2. Your proposal for structuring the two types of loan facilities – amount, term, repayments and the security that will be required for each type of loan structure.

3. What instruction to provide to clients in regard to the most appropriate structure to use?

4. Create a summary of the applicable fees and charges — including those for setup and those of the lender.

5. Identify the potential risks involved in these purchases for each loan structure, including ownership/title issues.

6. Explain what documents you will need to provide to clients to comply with consumer legislation; and how they will be able to assist the clients in making their decision.

7. Identify the client responsibilities and any remaining documentation needed to continue the application process. You can make any reasonable assumptions here.

8. Outline the next steps to get through to settlement, as well as your ongoing services.

9. Ask for questions and obtain written agreement to proceed with selected structure.

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Address: Unit 1, 92 Seaside Lane, Coastville, <Your State> Unit 9, 92 Seaside Lane, Coastville, <Your State> Purchase price: $350,000 $385,000 Description: 2 bedroom strata title unit on the ground floor 2 bedroom strata title unit on the ground floor Body corporate fee $2,500 per annum $2,500 per annum Proposed income Permanent rental at $450 per week Holiday rental at $45,000 per annum Agent details: Steven Allstone Steven Allstone Phone: 8282 1113 8282 1113 Mobile: 0412 880 088 0412 880 088 The clients Client Calvin Young John Young Current address: Unit 12, 22 Wentworth Lane, Highville, and has lived there for eight years 23 Dury Lane, Pennant Tops and has lived there with Marie for six years. Property owned in joint names. Value $650,000 $450,000 Home phone: 9001 2121 9002 1212 Status Calvin is single, no dependants John is married to Marie with no children Employment PAYG and has been with the same employer for 10 years Self-employed tradesman operating as a sole trader for 12 years Income $85,000 per annum $65,000 per annum for John $30,000 per annum for Marie Cash at bank $250,000 $150,000 Superannuation $150,000 $150,000 (John), $20,000 (Marie) Contents $100,000 $130,000 Motor vehicle $60,000 $30,000 (John), $15,000 (Marie) Liabilities – home loan $300,000 @ 4.2 % P & I, term 25 years $100,000 @ 4.2% P & I, term 25 years Liabilities - $5,000 limit, cleared monthly, 3% min payment $15,000 limit, $5,000 debt, 3% min payment credit cards Address: Unit 1, 92 Seaside Lane, Coastville, <Your State> Unit 9, 92 Seaside Lane, Coastville, <Your State> Purchase price: $350,000 $385,000 Description: 2 bedroom strata title unit on the ground floor 2 bedroom strata title unit on the ground floor Body corporate fee $2,500 per annum $2,500 per annum Proposed income Permanent rental at $450 per week Holiday rental at $45,000 per annum Agent details: Steven Allstone Steven Allstone Phone: 8282 1113 8282 1113 Mobile: 0412 880 088 0412 880 088 The clients Client Calvin Young John Young Current address: Unit 12, 22 Wentworth Lane, Highville, and has lived there for eight years 23 Dury Lane, Pennant Tops and has lived there with Marie for six years. Property owned in joint names. Value $650,000 $450,000 Home phone: 9001 2121 9002 1212 Status Calvin is single, no dependants John is married to Marie with no children Employment PAYG and has been with the same employer for 10 years Self-employed tradesman operating as a sole trader for 12 years Income $85,000 per annum $65,000 per annum for John $30,000 per annum for Marie Cash at bank $250,000 $150,000 Superannuation $150,000 $150,000 (John), $20,000 (Marie) Contents $100,000 $130,000 Motor vehicle $60,000 $30,000 (John), $15,000 (Marie) Liabilities – home loan $300,000 @ 4.2 % P & I, term 25 years $100,000 @ 4.2% P & I, term 25 years Liabilities - $5,000 limit, cleared monthly, 3% min payment $15,000 limit, $5,000 debt, 3% min payment credit cards

Answer rating: 100% (QA)

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