Hi Im new to this board half way through steves book which has some interesting slants on IP’s my question is:
Im going to go into partnership with another person and buy rental properties we both work full time and have a combined income of approx 70-75 thou p/a I own my own house valued at 250,000 and my partner is debt free and would be willing to place $100,000 into a bank account in the business name ( he has this in cash on hand) while I would be willing to have my home involved as collateral in any purchases( I know its a bit scary) what I want to know is once we have bought our first property and if the investment is at a break even scenario and we wanted to purchase further properties in a short period of time eg every 2-3 months would ( we would like to have 15-20 IP’s
1:the bank allow the first IP and therfore subsequent IP’s to be held as collateral against the next IP purchase? therfore allowing me to release my home as collateral?
2:would any AUS bank/credit union ever lend 100% on IP properties or are they bound by laws to only LVR up to 95%?Sorry it was long winded but I would really appreciate your help and advise so to all that answer thank you
Harro,
This is what you need to consider.
Establish a facility against your home. Say $100K.
Draw 20% deposits from this and also costs.
Take seperate loans for each new property.
Result – all loans are deductible and your home isn’t used as security for anything but the $100K.
What do you think?
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
thanks for your quick reply couple of things
1:would the 100000 against my home be as well as my partners 100000 therfore $200000 all up
@: this would only give us enough money for approx 7 homes @ 80% LVR how would we then acheive the needed finance for the next IP? I understand the 80% LVR because of mortgage insurance but wouldnt it be better to borrow 95% LVR get more properties and just pay the mortgage insurance and claim it on taxHarro,
How much a you planning to spend on each of the 7 properties?
Jo
we live in sth aus and the IP’ we are looking @ are between 170-200 thou I know steve recommends buying in rural areas but as I have just found out by buying an acre of land that the lenders dont like to lend against rural areas I had a couple of knockbacks due to it being rural..
Yes I understand the lenders concern with rural areas (I personally agree, although some in here would not, and that’s cool…each to his/her own).
7 x 170 = 1.190 million debt
7 x 200 = 1.4 million debtWow, that is quite a hefty sum to owe, straight off the bat, and in consolidation with another person. I am a bit uneasy with partnerships, have been burnt before (mildly ofcourse, nothing fatal), hence to owe such a huge amount (even if shared between 2 people) is a frightening thought.
What sort of rental return are you anticipating to achieve from each of these 7 properties?
(I am gathering the info bit by bit, as it slowly painting a picture which I can interpret easily).
Jo
Hi jo
yes its a scary thought but with tax benefits and the historical data that suggests that property increases approx 10% P/A and the fact your having tenants paying your homes off is a great temptation I guess expected rental would be in the range of 200-235 per week per property my partner and I understand we would have to pick up the shortfall but he and myself have cash on hand to cover things for approx 12 months we would actually like 15 IP’s so double that exposure to 2.5 mill!!couple of figure to look @
borrowing 1.4 mill @ 7.5% = $105000 P/A
7x 225 p/w = $81900
shortfall of $23100
thus each partner would have to cough up approx $12500 each per annum approx $220 each per week claimable on tax as is the interest so progected tax benefit @ approx 30% is
loss $23100
interst$ 81900
detuctibles eg deprectation etc on buildings etc etc maybe $25000 so tax benfits might be approx = $130000 @ taxable rate of 30% = return to us of $39000 not sure if this is all dodgey accounting can anyone help me outHarro,
My figures above were just an example to show you how you can use your home equity without using (and risking) it as security.
Just introducing a concept.
Subsitute what figures you wish.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Harrow,
Sorry about the delay, just to jump of PC last night otherwise would have replied earlier.
As I said that is a huge debt to start off with (not even taking into account the extra 5 properties, thus totalling 2.5 mill), however, if that is what you are comfortable with then who am I to judge?
I can’t help feeling that you overlooking something, and that maybe I am missing some crucial information. Have you spoken to anyone in the lending business? or some kind of financial advisor i.e. accountant?
Jo
harro,
I have recently bought some rural props. The biggest problem was Lenders Mortgage Insurance for lending more than 80%. (i borrowed 85%),I was informed an 80% or less lend was easier.
Have you considered second mortgages or other options to get the higher LVRs you want.
What professional advice have you been given so far? … trusts?
[cowboy2]
lifexperience
MortgageHunter,
great idea, i’ve been looking for a way to safely leverage the props i have in my own name to buy more IP’s (which are going in a trust).YAY!!!!!!<smiles>[thumbsupanim]
Would the interest on the LOC be deductible if it was a PPR?
lifexperienceTo add to Simons post,
I would also consider having an offset attached to the owner occupied loan,LifeX,
Interest on a LOC will be deductible if the funds are used for investment purpose.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VictoriaPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Thanks steve
[jester]To add to Simons post,
I would also consider having an offset attached to the owner occupied loan,What is an offset, explain please. I’m unfamiliar with this.[eh]
lifexperience
Hi LifeX,
An offset account is an account attached to another loan account,E.g., you have a loan of $100.000 at 7.00% and you may have $20.000 sitting in a 100% offset account
In this scenario You are now only paying 7.00% interest on $80.000,Hope this helps,
Regards
Steven[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VictoriaPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Just a quick one folks….
Not promising anything at this stage, but am looking at the setup of a finance company, based offshore… Idea is to provide 105% finance to qualified ( by us ) borrowers….
Will provide an update at a later stage on this…
Cheers
Scott
Pelican Investments
http://www.pelican-invest.comSteven,
thanks for explaining, am i right in thinking that this offset would be a handy place to keep the extra cash borrowed until needed for payments on props i put in trust?Or are you just suggesting to keep a few bucks tied to PPoR as extra security in case of loan default?
Am I missing anything?
[smart]lifexperience
HI there, sounds very interesting, and good on you for giving it a go.
I am not keen on partnerships, it would not be the way I would go.
The bottom line is make sure you purchase quality real estate. In other words properties you can sell if you need to and properties that will grow.
Good luckSteven,
thanks for explaining, am i right in thinking that this offset would be a handy place to keep the extra cash borrowed until needed for payments on props i put in trust?lifeX,
Well done, You got it in one.
An offset can hold any spare funds, Wages/rent etc,
And very useful when offsetting non deductible debt, as in a loan over your PPR,
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VictoriaPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
LifeX
An offset works in a similar way to a LOC – I don’t think you would want to have both. I guess an advantage of an offset account over a LOC is that it is generally a cheaper interest rate (0.1%).
Cheers
Mel
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