Section 1: Complex lending and broking
Only complete Tasks 1–3 for one (1) of the case studies in Section 1
Case study A — Tom and Steve Broad
Background
Congratulations, you have just been appointed by George and Mildred as the new consultant to handle the extra work. Whilst your major focus is to build the strategic relationships you are also expected to build your own client base using your own connections and networks.
Two brothers, Tom and Steve Broad have approached you with their desire 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 80% permanent tenants in place and the remaining 20% are used for holiday rentals. The location is 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 units will be their only investment until they can identify another opportunity. The cash at bank is mostly from the sales of other investments.
The property
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
Tom Broad
Steve Broad
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
Tom is single, no dependents
Steve 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 Steve
$30,000 per annum for Marie
Cash at bank
$250,000
$150,000
Superannuation
$150,000
$150,000 (Steve), $20,000 (Marie)
Contents
$100,000
$130,000
Motor vehicle
$60,000
$30,000 (Steve), $15,000 (Marie)
Liabilities — home loan
$300,000 @ 7.2 % P & I, term 25 years
$100,000 @ 7.2 % P & I, term 25 years
Liabilities — credit cards
$5,000 limit cleared monthly 3% min payment
$15,000 limit, $5,000 debt 3% min payment
Assignment tasks (student to complete)
Task 1a — Identify the clients’ complex broking needs
Prepare a list of questions that you would need to ask Tom and Steve about their history and experience, and the unit purchase.
In preparing your list of questions you should ensure that you cover the following:
• The complex features of Tom’s and Steve’s situation and objectives.
• Potential risks and Tom’s and Steve’s tolerance of risk. In considering risk you should consider:
– how you would identify the risks and the criteria you used to evaluate these risks
– how you would assess their current exposure, the tools you would use in terms of probability, impact and the consequences.
(800 words)
Student response to Task 1a
Answer here
Assessor feedback:
Resubmission required?
No
Task 2a —Develop complex broking options
You are required to prepare a full report for Tom and Steve by outlining the process and the risks (potential and real) of which Tom and Steve should be aware.
In a suitable format, document the process that is required for them to purchase the two units as their investment properties, establishing a joint loan in the brother’s names. You should also include a selection of lenders that will consider this style of borrowing.
In developing your report you should cover the following:
1. The parties to the loan including any opportunities or constraints that could impact on their application
2. The different options available and your recommendation of the best loan structure with the lender — are they using their own property as cross security or the cash at bank as deposit?
3. What various forms of titles could an apartment be registered in
4. A list of the lenders that are able to lend
5. The procedure to commence a loan for a property like this
6. The steps that will need to be in place
7. The client responsibilities, so Tom and Steve fully understand the loan
8. An outline as to the process and what the client needs to arrange
9. The documentation needed to commence the borrowing
10. The name in which the client will sign the contract/purchase/offer and acceptance. If a Family trust is involved what name would the title of the property be registered in, and advise what state you are using to base your answer on
11. The state revenue requirements
12. Which lenders may also require a personal guarantee from Steve’s spouse
13. The maximum LVR to the consumer
14. A summary of all fees and charges — including those for setup and those of the lender.
(800 words)
Student response to Task 2a
Answer here
Assessor feedback:
Resubmission required?
No
Task 3a — Implement complex loan structures
Tom and Steve have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval. Your loan submission must include the following:
• serviceability calculations
• the proposed structure of the loan given there are two brothers and there is a variance in income
• the loan amount
• the property style, size, use
• any other information that is relevant to the lenders requirements.
In additional to these requirements you should also include:
• your obligations under the NCCP (if any)
• maximum loan amount
• maximum loan terms
• any ATO consideration to be made
• your state legislation and OSR requirements
• your general advice restrictions
• property purchase requirements.
(800 words)
Note: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
Student response to Task 3a
Answer here
Assessor feedback:
Resubmission required?
No
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