You are a broker at XYZ Brokers and have received a referral from a local solicitor to talk to two brothers, Calvin and John Young who wish to jointly purchase two apartments in the same building. Theywant to purchase them as rental properties. The building has 12apartments. The units have 75% permanent tenants in place and the remaining 25% 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.

It is also important to note that these brothers have financed investment properties in the past but their level of financial literacy, in relation to legislative obligations of a lender, is limited.

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

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

a joint investment loan but also using the equity in their existing homes to permit borrowing 100% of purchase price plus costs.

Note:It's important to remember that the borrowers speak English as a second language and have requested (as John is married) that the owner-occupied properties, not be part be cross collateralised.

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.

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

Calvin Young

John Young

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

Calvin is single, no dependants

John is married to Marie with no children

Employment

PAYG and has been with the same employer for 10years

Self-employed tradesman operating as a sole trader for 12 years

Income

$85,000 per annum

$65,000 per annum for John

$30,000 per annum for Marie

Cash at bank

$250,000

$150,000

Superannuation

$150,000

$150,000 (John), $20,000 (Marie)

Contents

$100,000

$130,000

Motor vehicle

$60,000

$30,000 (John), $15,000 (Marie)

Liabilities homeloan

$300,000 @ 4.2 % P & I, term 25 years

$100,000 @ 4.2 % P & I, term 25 years

Liabilities creditcards

$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.

Task Role Play 1

Role play duration 10 minutes.

Note: For the sake of this role play activity one volunteer can represent both applicants.When completing this role play, you will need to refer to the example legislative disclosure documents and code of practice found in the toolbox to ensure you interpret and comply with legislative requirements, industry regulations and the codes of practice.

Note:You do not need to identify which lender/s in your audio recording, you will only need to refer to them as lender (a) and lender (b).

To set the scene for this role play you are required to present two recommended loan options to clients based on their financial circumstances, financial literacy and special need, as detailed in the case study. You also need to outline to them any risks (potentialor real) of which they should be aware.

It is important to remember that, although the borrowers have purchased investment properties in the past, they are not financially literate. You will need to consider this when preparing your recommendations.

For this role play, you should develop detailed options and recommendations designed to maximise client outcomes and meet their needs. In the role play, you should also focus on presenting your analysis of the brothers' current financial position, the proposed loan structures and the perceived risks.

It is important that when you assess which loans will meet the clients' requirements and objectives you remember to ensure your own behaviour and performance contributes to the integrity and credibility of the organisation you own and run.

Note:You are not required to actually source a lender who will meet the requirements in this case study, this task is to demonstrate your skills to present various options.

When delivering the two recommendations, you should cover the following:

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

2.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.

3.What instruction to provide to clients in regard to the most appropriate structure to use?

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

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

6.Explain what documents you will need to provide to clients to comply with consumer legislation; and how they will be able to assist the clients in making their decision.

7.Identify the client responsibilities and any remaining documentation needed to continue the application process. You can make any reasonable assumptions here.

8.Outline the next steps to get through to settlement, as well as your ongoing services.

9.Ask for questions and obtain written agreement to proceed with selected structure. You should request the 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 based on their financial circumstances, financial literacy and special need

negotiate effectively

complete and maintain necessary documentation

obtain written agreement to proceed

interpret and comply with legislative requirements.