Case study 3 — Ravi and Alice Patel

Background
Ravi and Alice Patel have been thinking about their future and are ready to purchase their first investment
property.
They have lived in their current home for 10 years. They would like to utilise the equity they have built up
to purchase an investment property in Kingswood, a suburb in Sydney’s west. They believe that the suburb
has its good parts and is a growth area. It has a hospital, university and a new shopping precinct under
development.
Ravi is a self-employed carpenter specialising in renovations and extensions. Alice is an interior designer
and has been working part time since the children came along. With their combined skills they feel that
taking on an older property and doing it up themselves will set them up to make a profit and/or build up
equity in the short term, which will help them to scale up to their next investment property.
Ravi and Alice have been married for 20 years and have two teenage children. Their son Jay is age 16 and
their daughter Zara is age 15. The investment property is located near a university and they feel this may be
somewhere Jay and Zara could live while they attend university.
Alice contacted your office following a recommendation she found on a local Facebook group. After the
complications they experienced when they got their home loan 10 years ago (as Ravi is self-employed)
they decided to let a broker help them out this time round.
You have conducted an initial meeting with Ravi and Alice at their home. Following that meeting the clients
have provided the information and documents that you requested — pay slips, tax returns, profit and loss
and balance sheet for their company, bank statements, property details for review/verification.
They have been looking at properties for the past five months and have found an older established
property set on a large 800 sqm block. It is in need of a new kitchen and the laundry is on the back patio
and needs to be built in — to give it internal access, which will help to modernise the home. The back
outdoor decking area is also in need of repair. Ravi is able to undertake these renovations while Alice will
paint and decorate.
They have signed a contract of sale and paid a 10% deposit ($66,000). Settlement is due in 60 days. As they
are borrowing 100% for the purchase of the investment property for tax purposes, they want the funds
returned to the offset account on their home loan.
The following is a summary of the details of the property they wish to purchase, the couple’s financial and
employment details, and the loan features they require.

Document classification: Confidential

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The property
Address 3 Premier Street, Kingswood NSW 2747
Certificate of Title, Volume 789654, Folio 365,
Folio Identifier 8

Purchase price $660,000

Description 3-bedroom, 2-bathroom house — 800 sqm block

Agent details James Holmes – Star Partners

Agent’s landline (02) 9148 0025

Agent’s mobile 0419 147 874

The couple
Current address 12 Mascot Street, Lidcombe NSW 2141

Ravi and Alice have lived there for 10 years

Home phone (02) 9784 0454

Funds position
Purchase price $660,000

Clients’ estimate of statutory costs $25,000

Total required for the purchase $685,000

Renovations $30,000

Loan amount $715,000

Client’s contribution (the clients wish to borrow 100% of the purchase price $0
plus costs)

Use fees and charges applicable to the state of New South Wales. If a servicing calculator you are using
requires a postcode, input 2141.

Document classification: Confidential

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Assets
Penrith Mutual savings (joint) $35,000

Penrith Mutual transaction account (joint) $2,500

Penrith Mutual offset savings account (joint) $200,000

Residential property — 12 Mascot Street, Lidcombe $1,300,000

Toyota Prado 2015 (financed from home loan redraw) $48,000

Boat — Bar Crusher 2017 $65,000

Superannuation — Penrith Mutual (Ravi) $300,000

Superannuation — Penrith Mutual (Alice) $120,000

Household effects (insured value) $140,000

Liabilities
Penrith Mutual home loan (joint) Balance $450,000 (repayments $1800 p.m.)

North Bank Visa card (Alice) $800 (limit $5,000)

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

Living expenses
Annual expenditure for living expenses — $55,000.

Document classification: Confidential

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Employment and income

Ravi (age 44)

Position Company Director — Carpenter

Employer Self employed — Jayzar Carpentry Pty. Ltd.

A.C.N. 048 521 369

Phone 0419 456 123

Time in business 15 years

Driver’s licence 789456

email Ravi@jayzar.com.au

Alice (age 42)

Position Senior Designer (part time)

Employer Elite Style Pty Ltd

Phone (02) 9741 1254

Income (gross) $45,000 p.a., monthly gross income: $3,750

Employer contact Prudence Fairchild – CEO

Length of service 25 years

Driver’s licence 784125

Email alicep@elitestyle.com.au

Document classification: Confidential

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Company information
Company name Jayzar Carpentry Pty Ltd

A.C.N. 048 521 369

Sole director Ravi Patel

Phone 0419 456 123

Time in business 15 years

Email ravi@jayzar.com.au

Company assets

Cash at bank (working account) $25,000 credit

Accounts receivable $30,000

Ford Ranger Raptor $68,000

Trades Trailer $5,000

Tools $15,000

Liabilities

Penrith Mutual Business Visa facility Balance $500, limit $10,000 — balance cleared from
working account each month

Penrith Mutual Chattel Mortgage (vehicle) $30,000 owing — repayments $750 p.m.

Income

Year 20X1 Year 20X2

NPBT $100,000 NPBT $105,340

NPAT $75,000 NPAT $79,000

Depreciation $8,000 Depreciation $5,000

Director’s wages $50,000 Director’s wages $50,000

Interest $1,800 Interest $1,500

Document classification: Confidential

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Solicitor’s details
Eastern Conveyancing
18 Rocks Road, Sydney NSW 2000
Phone: (02) 9351 8796
Email: easternconveyancing.com.au
The conveyancer has quoted a fee of $1,500 for their services.

The loan requirements

• 25-year term if possible
• interest only variable interest rate (for this case use 4.70% p.a.)
• interest only term five years
• proposed settlement date — 60 days from exchange of contracts.

Other information
• The clients have advised that they do not want to pay ongoing monthly fees on their loan.
• They want to keep repayments as low as possible.
• They want to build equity as soon as possible, yet have asked for an interest only loan.
• They would like to purchase a property at Nelson Bay within the next 10 years to use as a holiday home
and plan to retire there.
• Borrowing 100% of the purchase price plus costs.
• The property will be vacant for 12 weeks pending renovations.
• They have expressed that they do not have a problem refinancing their current home loan if they need
to, as they understand they will need to use their current home as cross collateral security to support
the new loan.

Document classification: Confidential

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