Investment property and construction loan | My Assignment Tutor

Complex Lending AssessmentAssessment V3.1 © AAMC Training Group A1CASE STUDY DETAILSThe below information will be used for both Case Study A (Investment property andconstruction loan) and Case Study B (Plant and equipment loan).Choose one of the case studies to present for assessment purposes. Please remember tofollow the structured process we have set out in the learner guide. You should note that theloan must suit the clients’ best interest.Personal details Mr Jason White and Mrs Rebecca WhiteDate:1st December 20XXApplicant 1:MrApplicant 2:MrsSurname:WhiteSurname:WhiteFirst NamesJasonFirst NamesRebeccaDate of Birth:21/10/1973Date of Birth:26/01/1975Drivers Licence1234ABDrivers Licence4567CDAddress:7 Park Lane, Suburb,State PostcodeAddress:7 Park Lane, Suburb, StatePostcodeTime at address6 yearsTime at address6 yearsPhone: Home:00 9385 0000Phone: Home:00 9385 0000Mobile:0417000000Mobile:0418000000Business:00 9835 0001Business:00 9835 0001Fax00 9835 0002Fax00 9835 0002Emailjason@painting.com.auEmailbec@interiordesign.com.auOccupation:Painting ContractorOccupation:Interior DecoratorTime self employed11 yearsTime self employed11 yearsDependents (ages)2 (Sara 10 and Mark 8)2 ½ Years Interior DesignAustraliaGross Income Y/E 06/XX$95,000Gross Income Y/E 06/XX$95,000 Assetvalues$Liabilitiesamountowing $Monthlypayments$LenderOwner occupied residence1,000,000360,0002,249St GeorgeCash resources125,000Credit cards:Limit $5,000 (swiped monthly) Jason1,000NilANZLimit $10,000 (swiped monthly) Rebecca3,000NilSt GeorgeFurniture & personal effects130,0002009 Holden Commodore Jason25,0002010 Ford Focus Rebecca15,00010,000300ANZVintage Motorbike Collection80,000White Superannuation Fund514,000Shares in All Painting Australia Pty Ltd20,000TOTALS1,909,000374,0002,549 Complex Lending AssessmentA2 © AAMC Training Group Assessment V3.1Commercial entitiesAll Painting Australia Pty Ltd Trading Company for PaintingOwns Registered Business Name “All Painting Australia” Directors:Shareholders:Employees:Jason and Rebecca WhiteJason and Rebecca White (equal)Jason and Rebecca White, Martin Kelly(apprentice)Interior Design Australia Pty Ltdas trustee forWhite Unit TrustTrading entity for Interior DesignOwns Registered Business Name “Interior Design Australia”Unit holders:Jason White50%Rebecca White50%White Pty LtdNon-trading “Special Purpose” company as trustee forWhite Superannuation Fund (SMSF)White Superannuation FundSMSFBeneficiariesJason and Rebecca White WHAT THEY TOLD YOUJason and Rebecca have been clients of yours since 2005. At that time, you assisted themwith a home loan from St George Bank to purchase their current owner occupied home. Homeloan balance is $360,000 and a recent real estate agent appraisal of their home, located at 7Park Lane in a good suburb in your State/Territory, estimates the market value to be $1m.They are open to a refinance or restructure of this loan with their own bank or with any otherlender if required.Jason and Rebecca also have $257K each in their Self Managed Super Fund in cash.All Painting Australia has been operating since 2000. A couple of years ago Rebecca completedher interior design qualifications and Jason is a qualified painter.The unit trust was set up by their accountant, who also provides a book-keeping service forthem so that all the BAS and other accounting needs are met professionally.They do not consult currently with a financial planner, but they did say to you that theiraccountant has also been on to them about using the funds more effectively in their selfmanaged superannuation fund. Their accountant is tied in with a Dealer Group and is alsoauthorised to give advice in this area, hence his insistence on them discussing the $514Kcash sitting in their SMSF. Rebecca mentions that referral for this type of service provided bya financial planner would be a good idea as a second opinion as well, plus they also need tosort out their insurances. She has asked for your recommendation of a suitable professional.Jason looks a little uncomfortable with this request. Your experience here tells you that youhad better address his issues without delay, to avoid losing the referral to another Broker.You also know, from your experience in your role, that many Australians are under insured,and many do not have wills in place. The clients are typical and express the opinion “Oh itComplex Lending AssessmentAssessment V3.1 © AAMC Training Group A3won’t happen to us”. They do not want to admit their shortcomings in these two vitallyimportant areas. Nor do they wish to admit the possibility of not earning an income, becomeill or even worse die.Please note: Courts in Australia deem Finance Brokers to be professional and as such underthe Duty of Care have a legal obligation to advise clients of the ramifications of financialhardship caused through illness, accident, or death.Rebecca is concerned about how they will meet interest costs until homes are completed andrented. She has asked you for options in this area.Complex Lending AssessmentA4 © AAMC Training Group Assessment V3.1Case study A – Can be structured as an Investment property andconstruction loanJason advises that they have located a derelict home on a large block of land in a nearbysuburb that they would like to purchase with the aim of constructing three freestandingdwellings. These homes will be rented out upon completion. They hope to retain them for atleast 20 years and then sell to help fund retirement or perhaps for the older kids to live indown the track. Their solicitor has advised that given block size it may be advisable tosubdivide and for each home to have separate title. Property is a corner block.A local real estate agent has stated that the rental returns would be slightly higher thansuburb average, as the area is made up of much older homes. Capital growth could also beabove average as the suburb is ideally placed for medium density development. Schools andshops are nearby. Transport infrastructure is a little lacking.Property contract purchase price is $500,000.The Builder’s tender is for a total of $600,000 and does not include demolition, site clearanceor subdivision costs. Builder is licensed and reputable and project will be funded via progresspayments. Separate quote provided for demolition and clearance of $50,000. Solicitor advisessubdivision costs of approximately $25,000. Clients wish to borrow all the project costsincluding lender, legal, government and any other charges and fees. Estimated completiondate is in 6 months. Estimation is based on the completion valuation of $400,000 perproperty and rentals should be around $450 PW per unit.Complex Lending AssessmentAssessment V3.1 © AAMC Training Group A5Case study B – Can be structured as a plant and equipment loanAll Painting Australia Pty Ltd recently won a contract to paint a large supermarket chain(inside and outside). The contract covers 30 stores throughout Victoria, NSW andQueensland. Internal work will need to be done of an evening when the stores are closed, andit is expected to take two weeks per store using four painters and two hydraulic scissor lifts.The contract is for $25,000 (excluding GST) per store and all work must be completed within24 months. Half of the income will be paid on commencement of the work for each store andthe balance on completion.Jason has estimated he will need to employ a further three painters at a salary of $65,000each and will also need to purchase two hydraulic scissor lifts with cage and trailer at a costof $21,000 (including GST) each.Clients have not yet spoken to Accountant however feel they would like to purchase theequipment in the Trust (White Unit Trust) and rent the machines out when not in use at theend of the contract.You are required to prepare a complex application, loan documents, provide all supportingdocuments (including invoices) and a cash flow showing repayments and all costs that can becovered from contract income.Complex Lending AssessmentA6 © AAMC Training Group Assessment V3.1All Painting Australia Pty Ltd Trading as All Painting AustraliaACN 12345678 / ABN 91 12345678Profit and Loss Statement for the year ended 30 June 20XX 20XX$20XW$IncomePainting Income522,665616,508Less Cost of Goods SoldPurchases51,18783,075Sub-Contractors175,292329,694Plant Hire598614Sub Total227,077413,383Trading Profit295,588203,125Interest Received1,139627Gross Profit296,727203,752ExpensesAccountancy4,3802,180Advertising1,9585,108Apprentice Wages15,000Bank fees and charges222201Computer expenses692275Depreciation – Plant and Equipment1,245937Motor vehicles8,0319,894Directors Salaries190,000150,000Entertainment expenses509Filing fees212212General expenses369Home office costs1,4731506Insurance (business)1,482911Insurance (workers comp)8,726Licence and permits20076Motor Vehicle expenses3,8016039Postages9345Printing & stationery1137Repairs & maintenance881Staff amenities390Staff training572Subscriptions192Superannuation – Directors19,00015,000Superannuation – Other1350Telephone3494Travelling expenses70Uniform Expenses30818Total expenses263,303194,409Net profit from ordinary activities before income tax33,4249,343 Complex Lending AssessmentAssessment V3.1 © AAMC Training Group A7All Painting Australia Pty Ltd Trading as All Painting AustraliaACN 12345678 / ABN 91 12345678Balance Sheet as at 30 June 20XX 20XX$20XW$20XV$CURRENT ASSETSCash assetsCash at bank8,2586,52411,965ABC Bank Business Online Account20,00015,00010,000Cash on hand202020Sub-total28,27821,54421,985Debtors6,19510,1238,956Stock4,3245,8747,546Sub-total38,79737,54138,487Fixed AssetsPlant and Equipment50,10958,43463,1912009 Toyota Hilux Van30,00035,00040,0002009 Toyota Hilux Ute22,87331,47740,000Sub-total102,982124,911143,191TOTAL ASSETS141,779162,452181,678CURRENT LIABILITIESHire Purchase liability13,60313,60313,603ATO liability5,0135,5833,254GST payable7,6433,3154,164Sub-total26,25922,50121,021NON CURRENT LIABILITIESHire purchase liability39,27052,87466,477Sub-total39,72052,87466,477TOTAL LIABILITIES65,97975,37587,498Share Capital20,00020,00020,000Retained Earnings55,80067,07774,180EQUITY75,80087,07794,180 Financial statement explanations (1% Variance Rule)Total Income (-93K)Took family to Egypt for holidays in 20XXSub-contractors (-154K)Reduced contractor work and replaced some with apprenticeWorkers Comp Ins (+$8K)Agreement made with subcontractors to cover premiumsTelephone (+$3.49K)Treated as personal expense for some reason in 20XWFixed assets P & E (-$8.3K)Progressive depreciationNon-current liabilities HP (-$13.6K)Natural reduction by way of monthly payments. PLEASE DO NOT COPY THESE EXPLANATIONS AS YOU ARE REQUIRED TO INTERPRETTHE EXPLANATIONS/COMMENTS IN YOUR OWN WORDSComplex Lending AssessmentA8 © AAMC Training Group Assessment V3.1Interior Design Australia Pty Ltd as Trustee for White Unit TrustTrading as Interior Design AustraliaACN 12345678 / ABN 91 87654321Profit and Loss Statement for the year ended 30 June 20XX 20XX$20XW$IncomeInterior Decorating Income52,16537,889Interest Received10556Gross Profit52,27037,945ExpensesAccountancy500500Advertising750600Bank fees and charges6060Computer expenses330330Filing fees212212General expenses369Home office costs625573Insurance (business)782658Licence and permits200200Motor Vehicle expenses37503265Postages2645Printing & stationery125138Subscriptions800192Telephone1200937Total expenses9,3608,079Net profit from ordinary activities before income tax42,91029,866Less Distributions to Unit HoldersJason White21,45514,933Rebecca White21,45514,933Sub-total42,91029,866Undistributed Income0.000.00 Complex Lending AssessmentAssessment V3.1 © AAMC Training Group A9Interior Design Australia Pty Ltd as Trustee for White Unit TrustTrading as Interior Design AustraliaACN 12345678 / ABN 91 87654321Balance Sheet for the year ended 30 June 20XX 20XX$20XW$CURRENT ASSETSCash assetsCash at bank2,1211,458Sub-total2,1211,458Fixed AssetsSample Books3,5002,800TOTAL ASSETS5,6214,258CURRENT LIABILITIESAMEX Charge Card1,0000.00Sub-total1,0000.00NON CURRENT LIABILITIESUnit Holder Distributions4,6214,258Sub-total4,6214,258TOTAL LIABILITIES5,6214,258Retained EarningsEQUITY0.000.00