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Background

As the business owner of XYZ Brokers you have received a referral from a local solicitor to talk to two brothers, Tom and Steve Broad 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 80% permanent tenants in place and the remaining 20% 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 from the sales of other investments.

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

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

a joint loan using the equity in their existing homes and 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

internet banking

The property

Address:	Unit 1, 92 Seaside Lane, Coastville,	Unit 9, 92 Seaside Lane, Coastville,
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 dependants	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

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.

This oral presentation should focus on presenting your analysis of the brothers current financial position, the proposed loan structures and the perceived risks.

In developing the proposal, you should cover the following:

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

2. How (and why) do lenders treat properties that are subject to holiday lettings differently to those that are permanently let?

3. 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.

4. What is your recommended loan structure and why? (Note: You will be assessed on the way you propose your recommendation but not on the choice of loan structure.)

5. Which lenders you would suggest for this transaction and are there any conflicts of interest in suggesting any of these?

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

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

8. Identify the client responsibilities and any remaining documentation needed to continue the application process (you can make any reasonable assumptions here).

9. Who in your office has been instructed to follow up on receiving documentation to lodge the application and be the liaison point for your solicitor and the lender, to ensure timelines are met? (Note: You can simply make up a name here.)

10. Outline the next steps to get through to settlement and your ongoing services.

11. Ask for questions and obtain written agreement to proceed with selected structure (you should request volunteer to fake sign a piece of paper).

There are no rules regarding the format of your presentation, however it must be presented in a format that is succinct and easily understood by clients. Please use the format that best suits you this could include covering the detail you have prepared in a written proposal document or from notes you have prepared prior.

The role play requires the volunteer to ask at least three (3) questions with suggested questions provided in Volunteer Guide. However; the volunteer can ask other unrehearsed questions if they wish. Remember, you are not being judged on your acting ability. Your assessment is about how you communicate and interact with the customer. You may need to adjust your presentation of the proposal, depending on the time that questions are asked. However; to manage time, you may ask the volunteer to keep questions until you have finished presenting your recommendations.

The assessment criteria you will be assessed on includes the following:

identify complex broking needs of client

develop rapport with clients

present broking options to the clients

negotiate effectively

complete and maintain necessary documentation

obtain written agreement to proceed.

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