Hey guys, i have been reading these forums on and off for a while now this is my first post.
my situation at the moment is PPOR value of 450k current mortgage of 245k. I am looking to purchase my first IP for 290-300k spend 20-30k renovating it and then rent it out for around 400/pw.
so my question is what do you think the best loan structure would be to minimise cash outlay and maximise tax deductions?
my current thoughts are, get a LOC on existing PPOR to take LVR back up to 80% use this LOC to cover deposit, purchase costs and reno.
get a seperate IO loan for IP.I'm new at this so any ideas would be greatly appreciated.
Hi Ghorvath
Welcome to the forum.
The structure you've outlined seems about right.
Depending on the lender, a normal interest only loan may suffice (as opposed to a LOC). It will be a little cheaper also.
I wrote a blog article for API mag on loan structure this week – http://www.apimagazine.com.au/blog/2012/03/interest-only-or-principal-and-interest/
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Ghorvath
Firstle welcome to the forum and I hope you enjoy your time with us.
As Jamie has mentioned an interest equity loan would probably be preferable to an LOC as it will be cheaper for you (subject to who your current PPOR loan is with).
The way we structure most forum clients investment loans is to work backwards.
Assume you wish to purchase a new IP for say $300,000 you would look for a standalone investment loan secured against this property for 80% i.e $240K.
You know need to find the balance of purchase price being $60K plus acqusition costs say $15K and renovation costs say $25K.
Total amount required would be $100,000.
You would secure this by way of an equity loan against your PPOR.
Subject to which lender your current PPOR loan is with will determine whether your Broker can organise an upfront valuation for you to ascertain the available equity.
Based on these figures both loans would be less than 80% and not incur LMI.
If the PPOR value is less than expected we normally recommend you increase the loan secured on the IP as the LMI will be treated as a loan cost and deductible over 5 years or the term of the loan (whichever is the lesser).
Hope this makes sense.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Jamie & Richard thanks for the quick replys!
nice article, confirms the way i was thinking.
Thanks Richard thats the way i came to my figures, good to know i'm on the right track.
I'm not quite sure of the differences between IO loan and the LOC can you please explain?
with LOC i would only pay interest on $ as i spend them paying for renos etc and if i don't spend the total amount (hopefully i wont) i would have a bit left which i could use to pay for bills on the IP, council rates etc. does this make sense or could i do the same thing with a standard IO loan?existing loan on PPOR is with westpac.
Hi Ghorvath
Ok no unfortunately Westpac are not one of those lenders which allow you to order upfront valuations.
No real difference between an equity loan and an a LOC other than cost.
One is a revolving facility and the other is a Term loan.
You could get the same end result with an equity loan however some lenders are not too keen on offering an equity loan where they cant control the end result of the funds.
By using 2 separate lenders you avoid cross collateralising the loans.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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