10624329_DIPMB2_AS_v2_Submission1

Instructions for completing and submitting this written assignment Saving your work Download this document to your desktop, type your answers in the spaces provided and save your work regularly. • Use the template provided, as other formats will not be accepted for this written assignment. • Name your file as follows: Studentnumber_SubjectCode_Assignment_versionnumber_Submissionnumber (e.g. 12345678_DIPMB2_AS_v2_Submission1). • Include your student ID on the first page of the written assignment. Before you submit your work, please do a spell check and proofread your work to ensure that everything is clear and unambiguous. The written assignment The information and data you need to complete this written assignment is presented in the case studies at the beginning of each task. This written assignment covers complex lending and broking and requires you to answer the questions for one (1) of the two (2) available case studies. Each case study focuses on a different lending scenario. Word count The word count shown with each question is indicative only. You will not be penalised for exceeding the suggested word count. Please do not include additional information which is outside the scope of the question. Additional research When completing this assignment, assumptions are permitted although they must not be in conflict with the information provided in the Case Studies. You may also be required to source additional information from other organisations in the finance industry to find the right products or services to meet your client’s requirements, or to calculate any service fees that may be applicable. Page 3 of 33

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Task 1a — Identify the clients’ complex broking needs Prepare a list of questions that you would need to ask Ray and Steve about their history, experience, business performance and the intended equipment purchase. In preparing your list of questions you should ensure that you cover the following: • the complex features in importing and purchasing this equipment and benefits that will come to the Company from such purchase • the identification of potential risks in such a transaction and Ray’s and Steve’s tolerance of risk • the financial aspects of the transaction and current financial position of the business. (800 words) Student response to Task 1a Response Assessor feedback for Task 1a: Resubmission required? Page 9 of 33

Assessor feedback: [insert feedback] Date assessed: Does the student need to resubmit? Questions that need to be resubmitted First submission Resubmission To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission. Page 12 of 33

Applicant information — John Jones Personal details Address 14 Mary Street, Yourtown, 1234 Date of birth 14 October 1970 Phone 0146 234 577 Financial details Gross income $70,640 Owner-occupied property valued at $750,000 Outstanding debt on owner-occupied property $300,000 repayable $2,159 per month P & I, 6.2% p.a. interest rate Credit card with limit $5,000 Outstanding debt — $1,000 cleared monthly Superannuation $200,000 Motor vehicle valued at $45,000 Outstanding debt on motor vehicle $15,000 repayable $623 per month, fixed interest rate Business details Cash in business account $400,000 Other information Applicants’ solicitor Moffat and Co (contact is Maree Moffat) 16 Tatlor Street, Yourtown, 1234 Phone 7890 5678 Applicants’ accountant and registered office Buckland Accountants (contact is Simon Williams) 28 Mary Street, Yourtown, 1234 Phone 2982 0987 Applicants’ banker Westcoal Building Society, Yourtown, 1234 Notes: • Assume for credit card debts, the minimum monthly commitment should be calculated at 3% of the credit limit. • Each of the working directors has appropriate death, income and disability insurance in place. • A sensitisation factor of 2% should be used when calculating financial commitments. Page 15 of 33

decide to move the business sooner due to higher growth in the business then they would need to either sell the property or rent it out. In case of renting if they do not find a tenant in future then the director’s will have to pay for their mortgage, insurance maintenance fees and more from the companies working capital. Even if they choose to sell it can take some time to realise the sale and that cost also needs to be borne by the business. Risk assessment model will be used furthermore to identify the risk in given case: (ANP Model) As per the given case, the assessment criteria for real estate risk in this section is based on an extensive relevant literature and experience inclusive of suggestions from experts. With regard to the case, the criteria has been developed based upon the requirements of STEEP factors which are required for real estate buyers to conduct an analysis for feasibility. The several risks that may happen in each stage of these two units are generally caused through STEEP factors. With this Page 18 of 33

The objective of the two director’s lies making the property their main business office for the next 10 years to meet with the growing business demands Assessor feedback for Task 1b: Resubmission required? Page 21 of 33

Task 2b — Prepare complex broking options You are required to prepare a full report for Bill and John by outlining the process and the risks (potential and real) of which Bill and John should be aware. In a suitable format, outline to the directors the options available to them and the process that will need to take place for them to complete the new property purchase and establish the loan. In developing your report you should cover the following: 1. the parties to the loan 2. what is the best loan structure for this transaction — provide Bill and John with options to use their own residential properties as cross security or use a cash contribution and use the property to be purchased as the security 3. your recommendation of the best option, including amount, security/collateral, term, repayments and potential interest rate 4. name three (3) lenders that would consider and potentially approve this transaction, and advise the client of the product type, loan term, interest rate, ongoing fees, balloon payment (if applicable) and monthly repayment they offer 5. the procedure to commence the loan, including documentation Bill and John need to provide 6. the client responsibilities, so Bill and John fully understand the facility being proposed 7. outline the risks (potential and real) of which Bill and John should be made aware 8. the name in which the client will sign the contract to purchase and, given Trust involvement, in what name will it be registered (this varies state to state so please advise which state you are from) 9. a summary of fees and charges — including those for setup and those of the lender 10. a request for client to inform you of any questions about the transaction and/or provide an instruction for you to proceed 11. advise which relevant disclosures need to be made (800 words) Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided. You are to write a report to clients demonstrating your professional writing skill, not simply commenting on each of the points detailed above. The use of tables in the report, to set out some of the numeric information, may be of benefit. Student response to Task 2b Abstract The requirement here lies in preparing a complete report for the company through process outlining and potential as well as real risks evaluation of which the directors of the company need to know of. This report will document the process that is needed for buying the two units as their properties of investment by establishing a joint loan. This will further be inclusive of lenders selection that consider borrowing styles generally. i. Parties to the loan True Blue Pty Ltd as trustees for the Smith Jones Unit Trust will be the party for loans, which in Page 22 of 33

turn will be guaranteed by the 3 directors of the business. Opportunities  Good credit report of the company as well as the directors. Their earning’s and savings are well established. This will offer a plus point when applying for loan.  Cash at bank for the trading business is $400,000.  Another opportunity is that the company is in a growth stage where the NPAT is growing year on year.  None of the parties have any children so any extra expenditure is not expected to rise.  Good Employment experience, 15 years each.  Superannuation is set at $ 250,000 and $200,000 dollars respectively. Constraints  Liabilities of both the parties show higher numbers in debt such as home loan and credit cards. ii. Different Options available and recommendation for best loan structure Introductory rates: product aimed at homebuyers purchasing for the first time. Also called as honey moon loans because of the honeymoon period they offer in which interest rates are discounted. However these loans are only offered to new borrowers implying that someone who has already loaned before does not stand eligible. Cross Security loans: Since all the directors have to give a personal guarantee to the loan they would also have the option to cross security their existing homes and use their equity to pay for the borrowers contribution, which could include stamp duty payable, funds to contribute and any other fees needed to be paid. We can see that as per the current situation John has got $300,000 available as equity and Bill has $ 230,000 available as equity. Professional packages: This is heavily marketed. Most of the lenders offer special packs to the borrowers who consider taking loans more than 250,000 dollars even though some form of discount is present over mortgage from $50,000. Originally professional package designed for high income earners with pro-packs inclusive of interest rate discounts on home loan of variable rate. Benefits include borrowing less than 250,000 dollars, 1 security only, no individual level borrowing, not using credit cards and no plans to prepare for. Credit line and Low Doc are some other options. Company loan will be suggested to the parties involved where company will be the beneficiary/primary borrower and will be in a better situation if they borrow 100% on loan as this Page 23 of 33

will be a business property. List of lenders Bank Amount to borrow Security Ter m Repayments Intrest Rate ANZ $910,000 New Property + Both properties of the directors 30 $5433/mth 4.34% fixed 3 yrs 5.96% variable NAB $677,760 New Property 30 $3977/mth 5.80% variable 4.39% fixed 3 yrs WestPac $677,760 New Property 30 $4033/mth 5.93% variable 4.49% fixed 3 yrs Procedure to commence company titled loan The steps are provided as follows:  To understand how much can be borrowed: This is the first step to be taken and having this data will help in setting the limit for purchase price and will provide knowledge on repayments.  Property search and inspecting the building: After determining the purchase limit, next step lies in looking at the surrounding areas of the properties selected  Deciding who will take the responsibility to make the payments as it is company ownership.  To decide how the loan will be repaid  Hiring a conveyancer who can help in throughout the process of purchase and starting the loan.  Furthermore, the parties will need to consider the amount of capital to be borrowed. Client Responsibility The responsibility of Bill and John will be equally present in this situation:  Income and maintaining commitment  Living and lifestyle expenses kept under check  Maintenance of credit history  Deposit of property maintained  Considering the assets  Considering the property value The documentation needed for starting the borrowing will be to take into consideration filling a company ownership loan application Page 24 of 33

 Tax returns for the trading company (last 2-3 years)  Financials for the trading company (P & L and Balance Sheet) (last 2-3 years)  Tax returns of the directors (last 2-3 years)  Appropriate living expenses  Fully signed contract if available  Identifications od all the directors  Trust Deed  Bank Trading accounts statements for 12 months  Building Insurance  Copy of Certificate of Incorporation of business registration  Director’s / Guarantor’s 100-point ID  A Schedule of current loans, Leases, and CHP commitments for for corporation and company directors/guarantors. The few risks that need to be outlined are  Change in cash flow of the business as the loan repayment is based on that and is for 30 years.  Living and lifestyle expenses kept under check  Maintenance of credit history through out the loan term  Fall in property prices thus impacting the security equity  Personal guarantees are also required by directors thus personal assets can be attached  Interest rate rise in the future The contract will be signed in the name of True Blue Pty Ltd over the property. As in Victoria the company owns the title and the trust will be the director of the company. Summary of all fees and charges: Address: 100 Smith St, Melbourne Purchase price: $950,000 Description: 3 bedroom single storey property Rates/Water $3,500 per annum Stamp duty and Govt Fees $55,000 Bank fees $600 Loan application Fee $5/ month Account Maintainence Fee $600 Valuation fee Solicitor fees $1000 Page 25 of 33

I would also inform the clients that in case they have any doubts or questions in regards to the process or the products or anything else to feel free to contact me via phone or email. Also I would need their instruction to proceed with the loan process and they are agreeable to everything discussed today. Few of the disclosures to be made are  How I will be remunerated Trail and upfront commission  Also advise about any fees that will be charged by me  There will be a credit check done on all parties of the loan  What products I am accredited to sell  Whos responsibility it is for maintaining the conduct  Any relationship I have with the lending organisation and their name and address.  Also advised them about the complaints handling process. Assumtions That customer has already paid $95,000 and will be paying $233,240 on top of that. ANZ has a better product that will suit the borrowers better. Property is single storey and 3 bedroom home. Assessor feedback for Task 2b: Resubmission required? Page 26 of 33

Task 3b — Implement complex loan structures Bill and John 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: • details of borrower, guarantors and their contact details • borrowers’ backgrounds • an overview of the proposal — what the finance is for: – the proposed structure of the facility being recommended — product type, deposit amount (if required), loan amount, term, interest rate and residual value (if any) – full details of the security/collateral that is to be provided – Sensitised serviceability calculations including Debt Service Cover Ratio (DSCR) calculation and all personal borrowing facilities of directors ( &ensitization rate is disclosed in case background ) – provide a funds- to-complete table, including statutory costs and any relevant fees – highlight the relevant risks, industry, business, transactional and how they are mitigated – any other information that is relevant to assist the lender provide an approval – your comments and recommendations – list attachments. (800 words) Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided. You are to write a formal submission to the lender, not simply commenting on each of the points detailed above. The use of tables in the report, to set out some of the numeric information, may be of benefit. Student response to Task 3b As per the above case the Borrower will be True Blue Pty Ltd and there would be a personal guarantee given by all the directors of the company. Bill and John have each been in real estate for approximately 15 years, focusing on residential sales and leasing. They have gained their work experience in the local area. A wealth of knowledge of the area, coupled with an ever-expanding client base, has resulted in sustained and solid growth for the business. Personal details – Bill Smith Address 26 Nowry Road, Yourtown, 1234 Date of birth 17 February 1958 Phone 7890 1234 Personal details – John Jones Address 14 Mary Street, Yourtown, 1234 Date of birth 14 October 1970 Phone 0146 234 577 Page 27 of 33

Proposed loan structure Purpose of financing, Funds justification and then a set proposed loan structure are three essential elements to get a loan application sanctioned. The loan structure components will include loan amount, term of loan and rate of interest. Loan amount Investment home loan $910,000 @ 5.96 % P & I, term 30 years Deposit of $95,000 has been paid. Which will cover for all shortfall. Summary of all security: Address: 100 Smith St, Melbourne 26 Nowry Road, Melbourne 14 Mary Street, Melbourne Purchase price: $950,000 - - Market Price: $950,000 $550,000 $750,000 Director Bill John Trading Company Home Loan $210,000 $300,000 - Repayments $1,571 $2,244 - Car Loan - $15,000 - Repayments - $635 - Credit Cards 15000 5000 - Repayments $450 $150 - Income $70,640 $70,640 - Cash - - $400,000 DSCR 2.69 Times Funds to Complete Address: 100 Smith St, Melbourne Purchase price: $950,000 Stamp duty $52,070 Registration of Land transfer $2,320 Search of Certificate $16.88 Registration Of mortgage $116.80 Page 28 of 33

ANZ Loan Approval fee $600 Building Insurance $1,000 Conveyancing cost $1,000 Total Funds $1,007,123.68 Deposit Paid $95,000 Required funds to complete $912,123.68 Industry risks Business Risk Page 29 of 33

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Mitigating the Risks In order for us to mitigate the risks we will be getting personal guarantees from the directors as well as the trading entity. Also there will be covenants and pledges loaded against all the securities taken as collateral. We will also be having a proper checklist to ensure all the compliance requirements are met with and the loan application is carried out in accordance to policies, procedures guidelines rules and reporting. Required documents by the lender  Tax returns for the trading company (last 2-3 years)  Financials for the trading company (P & L and Balance Sheet) (last 2-3 years)  Tax returns of the directors (last 2-3 years)  Appropriate living expenses Page 31 of 33

 Fully signed contract if available  Identifications od all the directors  Trust Deed  Bank Trading accounts statements for 12 months  Building Insurance  Copy of Certificate of Incorporation of business registration  Director’s / Guarantor’s 100-point ID  A Schedule of current loans, Leases, and CHP commitments for for corporation and company directors/guarantors. Recommendations The recommendation would be that we go with the home loan in the name of True Blue Pty Ltd. Also we would advise bill and john to go with ANZ for the $910,000 using their properties as collateral. Also there would be a contribution of $95,000 which has already been paid. Also with the loan there would be a full offset account with the loan so any extra cash can be used to offset the interest. Assumptions Car loan is over 2 years DSCR Calculation YEAR 1: $ 92,000 Net profit = $ 130,322 Gross profit + $47000 RENT ADD BACK YEAR 2: $ 140,000 Net profit = $ 213389 Gross profit + $49142 RENT ADD BACK AVERAGE: $ 219926/81732= 2.69 Times YEARLY LOAN REPAYMENTS @ 8.21% including sensitisation. Assessor feedback for Task 3b: Resubmission required? Page 32 of 33

Assessor feedback: [insert feedback] Date assessed: Does the student need to resubmit? Questions that need to be resubmitted First submission Resubmission To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission. Page 33 of 33