How to set up loans for multiple properties ?

As I have a mortgage over my PPOR, my strategy is to reduce that personal debt. I have 2 account withing my mortgage over my PPOR. 1 personal, 2 Investment.

All my IP’s have seperate loans with a different institution to that of my PPOR. All but 1 IP loan is Interest Only, (The 1 P&I will be changing soon to IO, after a revaluation) . I try and keep the LVR at 80% in all my IP’s, until I have paid off the PPOR.

PPOR Investment account is used to: Buy Investments, for the deposits on IP, IP Expenses.
All rental income goes into my PPOR account 1.
Each month I redraw or sweep across from the PPOR, the interest for the PPOR Inv Account, and the IP loans.
When an IP increases in value, I have it revalued and upstamp the mortgage over that particular property. The funds are paid into the PPOR Investment Account, thus simply shifting the debt from my PPOR to the IP’s mortgage, and freeing up more funds in the PPOR Investment account for another Investment and IP expenses.

Goods –
For me it’s a good strategy that help pay my PPOR faster.
All IP expenses are also borrowed, leaving more money in my PPOR mortgage.

Bads –
The finance structure should have been set up differently from the start so that the PPOR Investment account was a Line of Credit, it would have been easier to manage.
Why ? it’s a pain in the butt to manage it as in Interest Only account. And at the end of an IO period it reverts to P&I, meaning that I have to channel more money into the investments.

I plan to change this structure in the very near future to be more flexible.

Note: I manage the PPOR Investment loan so that I know exactly what portion of that loan is associated with every property. When I refinance an IP, I am simply shifting the debt associated with that property only. Gotta keep the tax man happy. Plus much simpler if I decide to sell a property, to know what debt to pay off and what money can go into my account. Not that I have ever sold a property.

Mal

Getting out of your comfort zone, can help you become comfortable

I have written a few articles on this topic. You can download them:
1. http://www.prosolution.com.au/articles/structure.pdf
2. http://www.prosolution.com.au/articles/structure2.pdf
3. http://www.prosolution.com.au/articles/structure3.pdf

Cheers

Stu

Thanks for the feed back Alistair.
Just to clarify. All my IP loans are with the 1 lender. Only my PPOR is with a different lender (this is considered good practice by others), I chose not to use the same lender for my IP’s because, the facility I need is much more basic for the IP’s, and has considerably cheaper rate. I plan to move my PPOR loan in the future when exit fees will not be incurred.

As for the refinancing of IP’s, the funds do not go into my PPOR account, rather the Investment Loan account that forms part of it. If I use $20,000 for deposit and costs for purchasing an IP from the Investment Account , when I refinance the funds are used to effectivily move the debt to the actual security that it was originally borrowed for. This is really just moving your debt for the same purpose to another lender.

Mal

Getting out of your comfort zone, can help you become comfortable

Hi Mal,

That all makes a lot of sense. Personally I would use the one lender to maximise the IR discount, but having a different lender for your PPOR does give it a little more protection.

Regards
Alistair Perry

Thanks for the feedback. Glad they helped. I have written many more articles and newsletters…

See http://www.prosolution.com.au/free_articles/articles.php

Cheers

Stu