All Topics / Finance / Finance advice for first IP

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  • Profile photo of 250k250k
    Participant
    @250k
    Join Date: 2010
    Post Count: 2

    Hi guys, 

    I am looking to purchase my first investment property using equity from my PPOR. I wanted to run the most likely scenario past other seasoned investors (and mortgage brokers) to see if there are any blind spots I may have missed. 

    My situation is:

    Current Mortgage on PPOR $330k with st.george (fixed for 2 more years at 5.89%.. jumped the gun a bit with locking in but not unhappy)

    Approx Value of $550k (not yet valued)

    I am looking to purchase a house in western sydney for sub $400k with scope to build a granny flat in the future.

    I have seen one mortgage broker and his advice is:

    Total loan on $416k (with costs included)

    Split between 2 loans of $96k and $320k (do these have to be with the same lender?)

    Also have about $50k in cash but would prefer to keep that in the bank for a bit of a safety net.

    My thoughts are to fix the $320k in for either a 3 or 5 year period and keep the $96k variable. Both on interest only. ING seem to have a decent reputation and rates are pretty good, however im not set on any lender. Are there advantages to keeping all of this with St.George?

    Medium term I would like to get a second IP under my belt within the next one to two years.

    Any advice/feedback would be appreciated.

    Cheers

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You would want to set it up so your existing property will not be used as security for the new one. Avoid cross collateralising the loans.

    You should probably set up a LOC type loan on the existing one up to 80% LVR.

    $550,000 x 80% = $440,000. Less your exisitng loan of $330k = $110k

    Use this as deposit for the investment and for all costs, except interest. Don't use your cash for the investment or you will be throwing money away in paying extra tax.

    The investment loan could be 80% = $400,000 x 80% = $320,000. 89k plus costs coming from the St G LOC.

    This way you will have 3 loans

    1. Main residence at $330k. St G

    2. LOC at 110k. St G

    3. IO loan at any bank for $320,000

    Interest should be deductible on 2 and 3 provide certain rules are followed.

    The cash money should be in an offset account – normally off 1, but you have fixed so cannot. Probably best connected to loan 3. Don't put any money into LOC whatsoever except for the payment of interest.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Best off to stick with St George for the equity release given the fixed loan you already hold.

    Like Terry said, it needs to be set up as a second loan so you can distinguish your non-deductible PPOR debt from your deductible IP deposit.

    You could get away with an IO loan over a LOC and save a little bit of interest.

    Think carefully as to whether fixing the IP loan for a long duration will fit into your overall investment strategy. Five years is quite a long time – it's hard to effectively plan this far into the future. 

    ING's five year fixed is pretty sharp at the moment. However, they're a pain to access equity with so I'd avoid using them if this is something that you'll need to do in the future.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    I agree i am not sure i would be jumping in boots and all with ING as whilst the surface rate looks ok you may need to access additional funds in the future.

    There are many more flexible lenders that would cater for your needs both now and in the future.

    As long as you have the repayment ability and depending on the property price you are targeting you could even look at a 100% standalone IP loan.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

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