Hi Rick

Without knowing too much of your details – I'd start with your current lender.

See if they carry out upfront valuations so you know how much your property is worth before submitting an application.

Ask them about the max LVRs they allow for equity releases.

Cheers

Jamie

Hi Andy

You're not in Sydney are you? If so, give Terry a buzz for some legal advice.

Cheers

Jamie

It sucks to see – to go through all of this again so soon after the destruction in 2011. Hopefully all the forumites in this part of the country are doing ok.

Cheers

Jamie

If you're doing an equity release against your current IP to fund another IP – you might not need to set up a second loan split for the equity because it's all IP related.

However, if you're using the IP equity to purchase a PPOR or think that you may treat either property as a PPOR in the future, then you'll need to set up the equity release as a separate loan split.

Cheers

Jamie

OK – have a chat with your broker/banker about the cost/benefits of using a larger/smaller deposit on each purchase.

Personally, I'm a fan of using smaller deposits for IPs and leveraging more of the banks money. But everyone's circumstances are different. Here's an article I wrote on leveraging LMI to get ahead.

Cheers

Jamie

Technically you're supposed to advise the lender of any known significant changes to your employment history when applying for finance. Some will (but not often) conduct employment checks after formal approval has been issued.

Cheers

Jamie

Hi emirates

Welcome aboard.

It's always good to see a fellow Canberran on the forum.

What's the plan with the Melbourne property? Do you ever think you'll move back into it?

Either way, given that you're planning on purchasing another owner occupied property somewhere else, I would avoid paying down the principle on your current IP debt in Melbourne.

Why?

Because when it comes to claiming an investment loan as a deduction – only the interest portion of the loan is tax deductible. The principle portion is not. Therefore, if you have an investment loan, and you decide to pay off some of the principle each repayment, you’re effectively reducing this tax deductible debt – meaning there is less tax you can claim back.

This can be a costly mistake for those who also have non-deductible debt (which most of us do). This includes a home loan on your Principle Place of Residency (PPOR), car loans, personal loans, credit cards, etc.

If you want to pay down any debt – it is this non-deductible debt that you should try and knock on the head first. It simply doesn’t make financial sense to pay down your deductible investment debt when you also have non-deductible debt.

So what’s the ideal structure?

Generally speaking, it’s ideal to have all of your investment loans set up as interest only.

With your PPOR debt, there are two choices to consider. If you are a disciplined saver and feel that your PPOR will one day be turned into an investment property, then it's best to also set this loan up as interest only. However, it's important that an offset account is set up against this loan so you can continue to make the equivalent principle repayments regularly into the offset account. The offset account is also a very handy place for parking any spare savings.

Why is it best to have my PPOR loan as interest only if I think it’s going to become an investment property? Because this debt will become deductible in the future – so you shouldn’t reduce it now.

Instead, you can place your money into the offset account which will reduce your PPOR interest repayments whilst the funds are sitting in the account. When this property becomes an investment property in the future, you can move the funds from your offset account on to your next PPOR. This way, you've increased your tax deductible debt and reduced your non tax deductible debt.

The interest only with an offset account doesn’t work very well for someone who isn't a disciplined saver and will be tempted to simply make the minimum interest repayments.

If you're not a disciplined saver and have no desire to convert your PPOR into an investment property at some point, then it's best to have a principle and interest loan on your PPOR. Once you've paid off your PPOR loan and any other non-deductible debt, you may wish to start paying down your investment loans.

So in a nutshell, interest only for all loans with an offset account set-up against your PPOR loan can be a great overall structure – particularly if you think you might turn your PPOR into an investment property at some point. On the flipside, if you have no desire to turn your PPOR into an investment property down the track and you are not disciplined with money- then it’s best to have interest only against all investment loans and principle and interest against your PPOR.

With the deposit for your new PPOR, you have a bit of equity up your sleeve in the Melbourne property that could possibly be used. It just needs to be set up properly so you can identify your non-deductible debt from your deductible debt.

What's the primary motivator for renting the new PPOR out for two years before moving into it? Is it purely an opportunity to reduce some of the debt whilst renting elsewhere? If so, you'll need to crunch the numbers on how negatively geared the property will be during the period it's rented (that is – subtract all of the costs associated with holding the property from the rent it receives) and then add the rent you pay. You might find that there's not a big difference in terms of costs when it comes to renting somewhere else and making up for the shortfall in the negatively geared property as opposed to living in it yourself.

Based on your incomes and some careful planning – there's no reason why you can't achieve your goal.

Cheers

Jamie

Hi Weetbix

Welcome aboard.

Are we reading it right that you're looking to use cash to fund two purchases outright?

If so, there are better ways to leverage your money so it wouldn't hurt getting in touch with a decent finance person.

Richard who's already responded to your post is only a phone call/email away.

Cheers

Jamie

Lender selection is soooo important when looking to grow a large portfolio – particularly if you're investing alone (rather than with a partner) because you risk hitting a borrowing capacity wall early in the game.

Other ways to improve your overall borrowing capacity include taking out interest only loans, minimising consumer debt, not having large limits on credit cards, staying on top of rent increases for your IPs – the list goes on.

Cheers

Jamie

I take the same approach as catalyst. I'm a bit of a weekend warrior when it comes to DIY but I'm fully aware of my capabilities so have no issue with getting the pros in for reno work that I'm not capable of doing.

There's also an opportunity cost I need to consider when carrying out renos – I enjoy doing some stuff myself but outside of business and family commitments, it's difficult to find time so paying others can be a good option.

As for accountancy, legal services, ect – I leave that to my trusted professionals. 

Cheers

Jamie