Hi all, I’m about to move out of my PPOR and want to build an IP portfolio quite aggressively, I just have some questions regarding equity, LVR and purchase costs of subsequent IPs.
I am aware of the risks involved with having a high LVR, however I have a high income and am confident that where I want to invest will have reasonably strong growth. Basically I just want to acquire as many properties as possible in the shortest amount of time.
My PPOR is worth 500K with 470K owing –> 94% LVR
My questions are as follows:
1) To use any equity for my next IP, do I need to wait until the LVR improves to 90%, and then however much it improves beyond that is what is available to me?
Eg. Property value rises to 600K, giving me a LVR of 78%, therefore I have access to (540K-470K), to bring the LVR to 90%?2) Considering I put down a 10% deposit for the next IP, would I only pay LMI on the new property loan, or on both (even though I already paid it for my PPOR)?
3) I’ve read that depending on the lender, LMI can be capitalised into the loan, are there any lenders that allow the stamp duty to be capitalised as well?
Thanks in advance,
ChrisHi Chris
To access the equity you will probably only be able to draw upto a 90% lend so certainly need a little more appreciation.
If you stay with the same lender LMI would be charged on the total loan and then a credit given for what you have already paid.
With a new lender you will merely pay in on the new loan.No there is no lender left who will capitalise the Stamp Duty to the loan.
Max lvr would be 95% + LMI.
Richard Taylor | Australia's leading private lender
Thanks Richard, your answer leads me to another question regarding cross-collateralisation.
From what I gather from your reply, if you get a second IP financed thru the same lender, the loan just gets bigger rather than having 2 seperate loans. Is cross-collateralisation when you access equity from that loan for a 3rd IP, regardless of who the 3rd loan lender is. (hope that made sense)
For some reason I thought cross-collateralisation was when you use equity from 2 seperate loans (they could be with 2 seperate lenders) to finance a 3rd, is that incorrect?
Cross collateralisation is just the use of two securities (collateral) for 1 loan. So you could by an investment property and use this and the PPOR as security.
The trouble with this is if you try to sell your PPOR and your IP had dropped in value, then the lender would probably not release the security unless you reduced the IP loan.
A way around this is to borrow some extra cash on the PPOR and then use this as deposit on the new IP. Both loans will be totally separate and can even be with different banks. The interest on the deposit borrowed against the PPOR should be deductible – and you should use a separate split loan to keep this separate from the non-deductible portion.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry, I’ve heard cc is a bad idea so I didn’t want to accidentally do it without knowing what I was doing.
On another note, I have a question regarding retirement strategy. Seeing as though it’s kind’ve off topic, I’ll start a new thread:
https://www.propertyinvesting.com/forums/property-investing/help-needed/4332743
You can use the same bank but make sure you insist on separate loans over each property. Trying to uncross loans is very expensive.
If your loans are cross col. and you want to refinance to draw out any equity, the bank will need to do a valuation on all of the properties securing the loan. They charge you for all of the valuations.
If you have separate loans you can choose which one you want to refinance, only paying for one valuation.It can be worse than that.
Imagine you own 2 properties cross collateralised and values drop. If you tried to sell one it is possible the bank would not release the security unless you paid the loan of the remaining one down to meet LVR requirements.
This happened to a guy I know who went thru a divorce and a heart attack. He couldn't meet repayments and tried to sell one of his properties. Bank said he had to pay $40,000 off the loan of the remaining one or they would not. But if could only get about $5,000 cash out of the sale and had no other money. He ended up going bankrupt.
Yet, if he had no crossed the two properties he would have been right.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
paper. Im 30 with my 3rd IP so young and in same position have high income. I started out like you little depost for first one bout 5 years ago. My take on it was to move out of my ppor and use it as an IP almost immediately. I rented myself and saved while renting once I had saved another deposit i purchased another house which became my PPOR . This was the hardest step to be paying a mortage, renting and saving without a decent income I couldn’t have done. However no 3 was pretty easy as by that time we had good equity.
My advise to would be to not think so agressively pay of your PPOR get it down to 80% before even thinking about the next one and save the deposit (at least 10% + fees). between 1-2 for me was about 3 years.
having a highly geared IP can be costly. You repayments will be high and remember you need to allow 4 weeks where the place will be empty most years + rates agents fees etc etc. Plus you will be the extra for LMI and also will prolly get charged higher lending charges for being highly geared.
Honestly prices will prolly take a small hit in the next 2 years from the looks. While property is a long term investment. Your entry point is critical if you have low deposit. you don’t want to end up own 110% of what your IP is worth. Have equity allows you to bail at any time.
I think high income is critical to getting started so do that overtime and bust your nackers for a few years. 55 hour weeks became my norm
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