Be careful with this – many lenders are heavily restricting cashouts so you may draw the funds out and find then that you can only work with <10% of lenders as the others won’t allow you to draw the funds back out due to the latest round of restrictions.

Best to speak with an investment focused broker who can determine whether you might cause any issue with this – it will largely depend on the details of your situation – I’ve got some clients who actively use this strategy in particular with very distressed/damaged property and then renovate/revalue and equity release.

Aside from that – 5.5% for a LOC on your PPOR is extortionate, you could alternatively get that down to ~3.7x% odd with a restructure/refi which will be well ahead of what most investment loans. (you mention 3.5% for an investment loan, obviously an example but you’ll be stretched to get any reasonable product near that rate and most close will mean you’re making sacrifices which will limit your ability to borrow again in the future etc)

Benny wrote:

If the loan is structured as a owner occupied loan and that’s not your current and legal address they have something to argue in court.

Hmm – that is an interesting thought !! And things in contracts – would have to be quite new wouldn’t they, as it was only APRA swinging its bat that had the Banks charging more for IP loans. All something to do with getting total IP loans below some percentage of all loans (was it 30%?).
So now, if I am a Bank, and you buy a property to live in, then you are charged at Home Loan (lower) rate. Cool – but then you change your mind and make it an IP. I doubt the Bank would worry as your loan is “making up numbers” on the Homeowner side. That means the Bank may be able to make another IP loan to someone else without flopping over that 30% mark perhaps. Your loan is therefore in the “goodness” pile. You are helping the Bank !! :)
I’m also picking they wouldn’t be chasing you. But then, I havent seen any new contracts written since that change earlier this year – are there any clauses in there re this? Ones that could bite?
I dunno…..
Benny

Just a quick one Benny – you’ve got the general right idea why banks aren’t too worried about this. (besides the fact it would be an immense adminstrative burden to keep trying to get the right ownership type up to date for millions upon millions of loans) But the 30% cap is for amount of new interest only loans being written, not investment loans in general. There’s also the 10% year on year growth cap on investment lending which lenders have to abide to.

Generally not – valuers will generally disregard them on valuations too as there is no evidence to show they increase value. Pools are similar – they are highly subjective so they don’t necessarily increase the value of the property.

Renovating your bathroom on the other hand is generally a great way of increasing value in the property – just compare the costs vs what a property with a renovated bathroom is worth to make sure you don’t overcapitalise.

Not too many FP’s up in Darwin! Haven’t met any of the guys up North who usually come down to Adelaide for most training events – but there is a couple kicking around.

One of my advisers Steve from our office is the SMSF whiz – with years under his belt as a CFP and previous accounting background. Feel free to send an email through if you’d like to have a chat: http://www.precisionpw.com.au

fxdaemon wrote:

Corey Batt wrote:

Unless you have significant cash funds – start in residential and build your portfolio up there until your borrowing capacity is exhausted. From there you can expand into commercial which allows you to access alternative borrowing capacity calculations/products which will allow you to get yourself to the next level.
The general gist is to build your equity base in resi, then diversify into commercial whose deposits are leveraged from the residential IP’s.
If you’ve otherwise got a mil in cash and ready to invest – you might just want to jump straight into commercial.

Hi Corey,
Is it much more difficult to grow equity in or release equity from commercial or both?
I am very new to commercial, ie started tracking the market actively for 2+ years only but did
notice many deals have been transacted at very low yield and/or strong growth compared to the last
transacted price for the same properties.
Thanks,
FXD

I’d say it’s more the size of commercial property prices which is the issue. As per the previous post I wrote that it comes down to how much cash you have from day 1.

Many investors say that you generally don’t want to be going too much below $1mil for a reasonable commercial property otherwise you risk quality reduction in tenant/property – which at this level is needing 250-350k in deposit upfront which can be prohibitive for a lot of investors.

So in comparison an investor can work each year with their cash to building up a portfolio in residential lending – so the coupled growth and saving will get their portfolio and equity position up so they can leapfrog into commercial thereafter.

If you’ve otherwise got 500k from day 1 – it is a lot more viable to start getting into commercial.

I’m assuming by ‘which SMSF do you use’ you’re talking about some of the cheapy no frills SMSF setup/admin companies which make their money getting commissions/bonuses from the limited range of products they recommend.

Generally for ease of use and greatest flexibility for investing having a specific setup of a SMSF if the best pathway – an accountant/lawyer can organise this. You’ll generally need to get financial advice on the specifics regarding this – especially if you want to invest in property/commercial property as lenders will put it in their requirements for settlement.

Just remember the important saying – pay peanuts, get monkeys.

Good thinking – let us know how you go!

Hey Jayden,

Stepping back a bit – choosing the right loan is dependent on the property you’re looking to buy, the strategy for it and your greater long term plans.

You’ve said this is for an owner occupier loan – are you looking to invest in the future? Turn this property in the future as an investment property? Renovate, develop – anything out of the norm?

These variable highly influence what is the right pathway for getting the right finance structure. There’s no point just looking at the interest rate – as that’s only one factor of a loan. Otherwise its like picking a car purely based on the cost – you might end up with a Hyundai Getz when you need something to tow a boat!

Nice Marissa – what is the remaining lease term on the property? Is it a single tenancy or multi?

I’d assume bio-medical would have pretty extensive fitouts/planning permit requirements so should be a stickier than average tenant for lease renewals?

David Thiu wrote:

@terryw: Thanks for the clarification. I just didn’t understand how an entity could borrow money without proving any source of income.
@jaxon: My goal is to make +$500 positive cashflow per week, and I’m thinking maybe this could be achieved by finding 10 properties yield $50 positive cash flow per week. Maybe renovate and increase the rent? I’m not really sure, but I’m open to suggestions on how this could be achieved.
@corey Batt: Are there any lenders out there that don’t require you to disclose any loans you are Guaranteeing or is it mandatory by law now?

Everyone asks it. Not only because this loophole (it really wasnt one, specific lenders had very specific policies permitting it under certain circumstances) has closed and there’s a standardisation of input of data through a third party channel for most institutions – it’s being asked and to not note it is mortgage fraud.

Lenders are digging into credit hits on your file from 5 years ago now – they will certainly ask questions even if you don’t disclose them.

In reality with the right structuring using the right lenders at the right time you can still achieve quite a reasonable size portfolio – I’ve written about this previously here: http://www.precisionfunding.com.au/diversified-lending-structure/