How to Buy Second House?

Hi Mooki

There are a few ways to do it, but one of the best is to set up a LOC (Line of Credit) on your existing property and to use this as deposits and costs for the new one.

e.g say your house is worth $400,000
80% is $320,000
But you have a current loan of, say, $200,000
This would mean a LOC of $120,000 could be established (subject to serviceability etc).

You then buy a $200,000 property.
20% deposit is $40,000 and 5% costs $10,000 = $50,000. This would come from the LOC.

You would then go to a bank, maybe a different one to your current lender and borrow 80% of the purchase price, $160,000.

So for this new investment property you would have borrowed 105%, have 2 loans (both deductible) and would have both properties stand alone, not cross collateralised.

You would then have some spare equity in the LOC and will be able to borrow IP expenses from this account, saving your cash which can be used to pay down your home loan first, increasing your deductions. You will also have some left over for the next IP.

After a while you can increase your LOC, as values rise, and repeat the process. Furthermore, you may be able to set up LOCs on each investment property as they grow and buy even more properties even quicker.