For my first IP I’ll need to borrow $425k but was thinking if I borrowed $500k I’d then have a $75k buffer sitting in the offset just in case. Rough calculations estimate it to be just an extra $50 per week to get this buffer which I think is worth the peace of mind.
Is this fairly common practice among investors (borrowing extra for a buffer) and if I qualified for a $500k loan, is it something the banks would consider?
Also, if I told the bank I was going to use the $75k as a buffer but afterwards decided to use it as a deposit for my next IP, would there be any consequences?
Thanks :)
Only if your LVR will permit, they don’t just hand out money willy nilly.
IE if you’re only eligible for a 90% LVR and the purchase price was 500k, the maximum loan you could achieve is 450k.
What’s the purchase price, and your deposit?
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
I’m fairly new, but I immediately see tax implications if you mix the purpose of loans. Eg. You draw a single loan and use parts for income producing purposes (investment property) and parts in an offset against a ppor (?). You could draw multiple loans, the ip and the $75k in a separate account. The ip account interest is tax deductible, if you use the $75K for income producing it will also be deductible.
If you don’t draw down the $75K you don’t pay anything. I’ve had $50K sitting on an account for 18 months.
Someone correct me if I’m wrong.
Buying for $410k and deposit was 10% but as its Off the Plan due for completion in 3 years I plan to have at least another 15% saved. Is asking for more solely to act as a buffer not possible?
No PPoR so no mixing of the purpose of the loan. Tax deductible while simultaneously paying down the interest… Very nice!
Maximum loan to valuation on a standalone basis is going to be 90% so unless the property values at a lot higher price then you wont be able to borrow any buffer.
Just got a valuation back from a forum client on a OTP which came in at 125K more than the initial contract price so we are doing 100% lvr + cash buffer but that is rare.
Too often the valuation comes in < purchase price.
No issues using the offset account if the sole funds deposited are the cash buffer but leaving it in redraw would be cleaner and linking the offset account to the whole loan.
Cheers
Yours in Finance
0-40 Properties in a decade. Email me for a copy of my API interview.-
This reply was modified 9 years, 2 months ago by
Richard Taylor.
Richard Taylor | Australia's leading private lender
Yes there are a few tax issues – don’t do it without tax advice.
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 for the replies. Must have misunderstood what the speaker was saying as it did sound pretty good but at least it is possible as long as the valuation comes in higher than the contract price. I’ll keep the fingers crossed for the next three years :D
Where was that OTP Richard?
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This reply was modified 9 years, 2 months ago by
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