Details of Andrew and Jane Bisset
Discuss about the Mortgage Broker for Real Estate Investment.
Andrew Bisset and Jane Bisset
Andrew has been in the Real Estate business for more than twenty years. Jointly with his wife Jane, the couple have a family trust – The Bisset Family Trust. This family trust owns six shops at 55 Park Road, Belmont, valued at $1,450,000 about two years ago. Currently, these shops are under pledge with ABZ Bank and the trust owes $625,000 to the bank. Five of these shops are rented out and the sixth one is occupied by Andrew from where he conducts his real estate business under the name Bisset’s Real Estate Pty. Ltd, say Baum & Baum, (2015). Andrew draws an annual salary of $78,000 from the company but Jane has stopped active participation in the business from this financial year. In the previous financial year, when Andrew and Hooper were partners, Jane worked as Property Manager drawing an annual salary of $43,000, whereas Andrew got $55,000 as his share from the partnership business, as per Baum & Baum, (2015).
Bisset’s Real Estate Pty. Ltd.
This company was floated by Andrew at the beginning of last financial year. Andrew and Jane are the two directors and this came into being after Andrew’s former partner Joseph Hooper retired out of the partnership business. Andrew has more than 22 years of experience in the real estate business and during this period he has been dealing in properties in the South East area of Brisbane, assert Erp & Akkermans (ed.), (2012). His speciality is in the Commercial and Industrial properties, both for rent as well as sale assistance, though the rent component is more than 75%. The existing six shops which the Bisset’s now own in the Shopping Centre situated at 55 Park Road, Belmont QLD 4171 have a combined area of 1850 m2 and the area has been zoned as “Commercial” by the authorities. Presently, these six shops are rented out, the details of the contract, the tenants and their terms are listed below. Although the terms of tenancy are, in all cases, above one year, Andrew has put a clause of reviewing the rents every year in accordance with CPI, as detailed by McFarlane, Hopkins & Nield, (2012).
|
Tenant |
Rent |
Term |
Review |
|
J & R Blend T/A Blend News |
$22,000 pa net |
3 + 3 years |
Annually by CPI |
|
Copelin Accounting Pty Ltd |
$18,000 pa net |
1 + 1 + 1 years |
Annually by CPI |
|
R Spragos T/A Roger’s Dell |
$28,000 pa net |
5 + 5 years |
Annually by CPI |
|
Vu Nguyen T/A Care Pharmacy |
$20,000 pa net |
3 + 3 years |
Annually by CPI |
|
M Goodson T/A Good Alterations |
$8,000 pa net |
3 + 3 years |
Annually by CPI |
|
Bisset’s Real Estate Pty Ltd |
$42,000 pa net |
3 + 3 years |
Annually by CPI |
The main purpose of availing this loan by the Bissets is to develop a shopping centre on a vacant piece of land admeasuring 3000 m2 which is close to the commercial centre where they already own six shops. Although the land is presently marked as “Special Purpose Zone”, the local council in its new development policy has agreed to mark it as “Commercial Purpose Zone” but it may take another two years for the policy to be notified. The Bissets have already have a commercial loan from their regular banker, the ABZ Bank but unfortunately ABZ Bank does not finance properties marked under the ”Special Purpose Zone”. Hence, Bissets approached me to make arrangements with a private investor for a loan of $625,000 to purchase this land which they have contracted for $600,000 and whose settlement is due in 60 days. Bissets also require $25,000 to cover the cost of stamp duty and will be buying the land in the name of The Bisset family Trust, as explained by McFarlane, Hopkins & Nield, (2012).
Background of Bisset’s Real Estate Pty Ltd
I have outlined below the process for arranging the finance for meeting the requirements of my clients. The timing of the whole process will depend on the flow and availability of information and provided the lender does not find any complexity in the contract documents, the process can be completed in about 7 working days to get approval of unconditional finance. A further time of one week is required for preparing the loan contract and settlement to be ready, asserts Hinkel, (2010).
Process
Provide the clients with the Proposal Documents, including my recommendations.
Complete the application and submit it to the lender.
After the Lender has conducted the credit check and assessed the application, it will confirm its approval and accordingly I will inform the client
The lender will ask for a valuation report from a valuer and will advise me or you directly, to expect a call from the valuer for verification of contract documents, asserts King, (2015).
As soon as the Valuer gives the report and it is found in order by the lender, the lender will advise to prepare documents for the disbursal of the loan amount.
Subsequently, I will meet you and we will go through the loan approval documents in order to ensure that there are no errors. We will prepare answers to queries, if any, posed by the lender and then will sign the contract document, with you as the borrowers and I acting as the witness, as per King, (2015).
Funds Position
|
Andrew and Jane Bisset’s Joint Financial Information |
|
|
ASSETS |
|
|
Owned house – 12 Currumbin Close, Carindale QLD |
$560,000 |
|
Share Portfolio of Blue Chip Listed Cos. |
$345,000 |
|
Motor Vehicles |
$60,000 |
|
Furniture |
$85,000 |
|
Cash at Bank |
$45,000 |
|
Total Assets |
$1,095,000 |
|
LIABILITIES |
|
|
Home Loan with ABZ Bank |
$190,000 |
|
ABZ Bank Credit Card (with limit of $20,000) |
$10,000 |
|
Total Liabilities |
$200,000 |
|
NET SURPLUS |
$895,000 |
|
Income Statement of Bisset’s Real Estate (Partnership) |
|
|
Gross Revenue |
$422,000 |
|
Net Profit |
$84,000 |
|
Depreciation |
$16,000 |
|
Directors Super Contribution |
$11,000 |
|
Income Statement of Bisset’s Real Estate Pty Ltd |
|
|
Gross Revenue |
$346,000 |
|
Net Profit |
$72,000 |
|
Depreciation |
$14,000 |
|
Directors Super Contribution |
$11,000 |
|
Income Statement of Bisset’s Family Trust |
|
|
Gross Rental Income |
$138,000 |
|
Loan Interest |
$52,000 |
|
Management Fees (paid to Bisset’s Real Estate Pty Ltd |
$11,000 |
|
Net Profit |
$50,000 |
|
Depreciation |
$25,000 |
|
Financial Position of Bisset’s Real Estate Pty Ltd |
|
|
ASSETS |
|
|
Business Goodwill |
$250,000 |
|
Plant & Equipment |
$35,000 |
|
Debtors |
$30,000 |
|
Total Assets |
$315,000 |
|
LIBILITIES |
|
|
ABZ Bank Overdraft Limit |
$25,000 |
|
(Limit of $40,000 secured by residence) |
|
|
NET SURPLUS |
$290,000 |
The serviceability calculations have taken into consideration the Debt Servicing Ratio and the Net Cash Position of the companies and finds them strong enough for servicing the fresh loan. The Bissets are taking this loan to expand their property network. The conversion of this land will be possible in about 24 months and the Bissets are prepared to wait. Keeping the lending policies of the lenders in view, the serviceability assessment of Bissets has been done by taking into account the lower income options, as explained by Megarry et al, (2012).
Security
Bissets are offering their six shops as well as the new project which they will develop on the purchased land as collateral security for the borrowed amount. Calculating on the basis of 10% interest charged by the lender, the outgo of the Bissets will be $60,000 p.a. on the new loan. Taking into account their current rental income and also the proposed income from the new project, serviceability of the loan will not be difficult for the Bissets, as per Sexton & Bogusz, (2013).
The Bissets have a long and successful history of managing a property business and have established a solid base of clients who will offer them a steady flow of business, as detailed by Ashworth & Perera, (2015).
This recommendation is based on the Bissets having –
A reliable business practice
Retain sufficient cash surplus
The potential to increase business income
Maintained a stable growth
Details of the loan purpose
Attachments
Documents Attached
- Serviceability Assessment
- Copy of Contract Document for the land
- Evidence of Bissets income
- Details of Bissets cash and bank
- Detailed statements of Bissets loan and overdraft from ABZ Bank
Part – a: the client
MEMO
Date: 27/06/2016
From: John Stone, Mortgage Broker
To: Ray Henley and Steve Manning, Directors in Henman Holdings Pty. Ltd.
Subject: Commercial Equipment Finance: Information and Documents Required
Hi Ray & Steve,
I am pleased to accept my appointment as your agent for arranging finance to purchase commercial equipment for your business expansion. I’ve listed below my requirement of supporting documents and information to complete the loan application.
Asset & Liability Statements of the companies in which you are the directors.
Copy of your driver’s licence
Current residential address and period there
Previous residential address(if any) and period there
Name of spouses their age and number
Number of dependents
Details of other personal or investment income
Copies of your and the trading entities past two years tax returns
ACN & ABN details of both companies
Copy of Trust Deed and Trust ABN details
Accountant name and address
Solicitor name & address
Evidence of cash at bank and fund sources
Evidence of Superannuation funds
Copies of other existing leases
I am including my financing recommendations and the process to be followed for your kind perusal and consideration, as ascertained by King, (2015).
Initial Fact Find
The applicants are in the transport business for many years, each having served as Financial Controller of transport companies of repute. Ray hold a MBA degree and Steve has a Marketing degree. Ray is married to a school teacher and Steve is single. Both have no dependents. Steve is pursuing a degree in HR, which they think shall be useful in their expanding business, asserts Hinkel, (2010). They wish to purchase new Trucks and Dog Trailers for their planned expansion and have already taken a second depot on a monthly charge of $6,000.
I have outlined below the process for arranging the finance for your fresh requirements. The timing of the whole process will depend on the flow and availability of information from your end. Provided the lender does not find any complexity in the contract documents, the process can be completed in about 7 working days for giving approval of the unconditional finance. A further time of one week is required for preparing the loan contract and settlement to be ready, as detailed by McFarlane, Hopkins & Nield, (2012).
Provide the clients with the Proposal Documents, including my recommendations.
Complete the application and submit it to the lender.
After the Lender has conducted the credit check, assessed the application, it will confirm its approval and accordingly I or my office will inform you.
The lender will ask a valuer for the valuation report and will advise me or you directly, to expect a call from the valuer for verification of documents.
As soon as the valuer gives the report and it is found in order by the lender, he will immediately advise me about the unconditional approval of the loan amount and I shall pass this advice immediately to you.
Subsequently, I will meet you and we jointly go through the unconditional loan approval contract documents in order to ensure that there are no errors. We will prepare answers to any queries, if posed by the lender and then will sign the contract document, with you as the borrowers and I acting as the witness, as per King, (2015).
Facility Details
Borrowers Details
Ray Henman and Steve Manning are directors of Henman Transport Pty. Ltd., a company engaged in the business of transportation. They have recently floated Henman Holdings Pty. Ltd ATF The Henman Discretionary Trust which will be the holding company of the transport business being run by Henman Transport Pty. Ltd. and will be the borrowing company for the new finance facility being asked for expansion, assert Megarry et al, (2012).
The company, floated two years ago, with seed capital loan of $500,000 from a private investor, already maintains a depot, employs 5 permanent employees and takes the services of sub-contractors for extra manpower requirements, as per Megarry et al, (2012).
Borrowers’ Financial Information
Year – 1
Sales $700,000
Net Profit $240,000
Year – 2
Sales $812,000
Net Profit $358,000
Current Year (10 month period)
Sales $1,125,000
Net Profit $506,000
Operating Costs
Annual salary to Ray $100,000 (fully franked)
Annual salary to Steve $100,000 (fully franked)
Depreciation $86,000
Interest $52,000
Sub-Contractors $71,000
Directors’ Super Contribution $60,000
Annual Fee to Private Investor $45,000
Existing Equipment Repayments $5,000 (Per Month)
Borrowers Finance Requirement
$500,000 for buying new Trucks and Dog Trailers. The loan will be repayable in 48 months with full refund of Input GST Credits as additional repayments specified in the contract, assert Sexton & Bogusz, (2013).
Borrowers will be offering the new equipment being bought as collateral security for the borrowed amount. In addition, the borrowers are agreeable to enter into a tripartite contract for sharing their receipts with the lender through an Escrow Account, as detailed by Erp & Akkermans (ed.), (2012).
Borrowers Serviceability
The borrowers are expanding their service network so that an impending risk in one market segment does not affect their business potential. The purchase of new equipment will be spread over a period of 12 months and is intended to take place on a need basis or where an existing equipment needs to be replaced. Keeping the lending policies of the lenders in view, the serviceability assessment has been based taking into account the lower income options. The serviceability calculations have taken into consideration the Debt Servicing Ratio and the Net Cash Position of the companies and finds them strong enough for servicing the fresh loan, explain Baum & Baum, (2015).
Risk Assessment
The borrowers have been in the transport for a long period and have established a solid base of clients offering them a steady flow of business. The promoters have also been cautious in averting financial risks by keeping their employee strength to the minimum and taking the services of sub-contractors on a need basis, say Ashworth & Perera, (2015).
This recommendation is based on the borrower’s having –
- impeccable credit history
- good past business experience
- retain sufficient cash surplus
- the potential to increase business income
- maintained a stable growth
- Serviceability Assessment
- Copy of Performa Invoices
- Evidence of the borrowers’ incomes
- Details of borrowers’ cash and bank
- Details of borrowers’ recent credit card statement
List of References
Ashworth, A. and Perera, S. 2015, Cost Studies of Buildings (6th ed.). Routledge, Oxon.
Baum, A. and Baum, Prof A. (2015) Real Estate Investment: A Strategic Approach (3rd ed.). Routledge, Oxon.
Erp, S. van and Akkermans, B. (ed.). 2012, Cases, Materials and Text on Property Law. Bloomsbury Publishing, London.
Hinkel, D. F. 2010, Practical Real Estate Law (6th ed.). Cengage Learning, Boca Raton, FL.
King, S. 2015, Beginning Land Law. Routledge, Oxon.
McFarlane, B., Hopkins, N. and Nield, S. 2012, Land Law: Text, Cases, and Materials. Oxford University Press, Oxford.
Megarry, R., Wade, W., Harpum, C., Bridge, S. and Dixon, M. J. 2012, The Law of Real Property (8th ed). Sweet & Maxwell, New York.
Sexton, R. and Bogusz, B. 2013, Complete Land Law: Text, Cases, and Materials. Oxford University Press, Oxford.
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