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  • Profile photo of djonesdjones
    Member
    @djones
    Join Date: 2003
    Post Count: 20
    May 27, 2003 - 2:40 am

    Hi All:
    I have purchased an IP recently for 270K and would like to know how to structure my finance for it. Here are some details which might help to find some possibilities:
    I have 2 blocks of land valued at 110K each. It is with Commonwealth bank and are on the same loan. Total liability on them left : 85K. I would be using one block of land for building a house for renting purposes and other one to consruct as a PPOR (iam curently renting) in 2-3years time.

    New IP purchased (house 25 yrs old): Total purchase price 266K. Loan to be taken 110% = 282K approx. Rent expected 250pw

    I am unsure as to how this entire thing can be structured (or restructed). Commonwealth Bank has offered me this :

    To go for a split loan in which, 85K(balance of land purchases) on Variable rate of 4.99% for 1 yr and then Std. Variable Rate -.5% after the first year. 282K loan for the IP just bought goes on a 5 year Fixed Interest of 6.14%.
    I would like to fix this loan as that would help me to plan better and also as this is my first IP I would like that xtra security and certainity.

    However what I would like to know specifically is:
    *) How much of this loan should I be putting on Fixed rate. Should I putting the entire amount (like the one suggested by the bank) or change the ratio.
    *) As I want to invest further later I would also like to be as flexible as possible. As of now both my land blocks are being used as a security to finance 110% on my new IP. I would also be needing money in 2-3 years time for construction purposes on the blocks of land that I have.
    *) Also as an IP what types of Insurances should I be getting and which companies/ bank deal in them. I guess I need to have Home insurance and Landlord insurance (any other type required) and what type of these insurances are preferred.

    Thanks for the answers in advance.

    -D-

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    May 27, 2003 - 4:27 am

    D

    Watch out for fixed rates. The break costs can be very high. You never know when you may want to refiance to withdraw extra equity or when you may even sell a property.

    It looks like Combank is trying to cross collateralise your loans. Maybe a better way would be to withdraw some equity form you land as the LVRs are low. You could then use this as deposit and get a 90 or 95% loan for your IP. This gives you greater flexibility in the future.

    Terryw
    [email protected]

    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 djonesdjones
    Member
    @djones
    Join Date: 2003
    Post Count: 20
    May 27, 2003 - 7:28 am

    Thanks alot TerryW and Michael for your responses.

    Regarding ur suggestions for selling the land, i did consider doing it but my reasons for not doing it is because 1) Iam renting at the moment and would like to build on that land as my PPOR, also 2) The place has shown good appreciation from 135K to 220K in 6 months and land is running out there.
    Thirdly i can use the 2 block of land to build another house which would basically serve as my 2nd IP and being new would also give me Depreciation benefits.

    Iam at the moment earning 60+ so the tax benefits also attrcat me to an extent though they are not my primary focus.

    I would welcome your thoughts on my above strategy and as such iam not very fixed on future plan of action and would definately consider something more beneficial.

    Now back to my original questions regarding the structure of the loan.
    The reason i dont want to draw down on my equity of land and pay towards thge IP is due to the tax benefits. As i dont get any tax benefits on my land loans i want to get rid of them asap and on other hand have a 110% on my IP house as that makes it negatiuvely geared and gives me tax benefits.

    Second question regarding fixing of the loan i would like to know what if i my IP house is on fixed rate loan and it goes up in value. In this if i want to borrow against it would this be considered breaking the loan and would need to pay breaking fee. If this is the case then i could probably keep the loan variable as that would give me mor eflexibility and also i dont see rates going significantly up over the next year. I can probably fix a portion of it in an years time.

    I will be interested on your thoughts on above.

    Also in regards to the insurance iam thinking on going for a comprehensive package with CGU which includes Building,Legal liability, Default Rent, Loss of rent, Damage by tenant.this is costing me around $500p.a. Is it benefcial to go thru the Insurance broker???

    thanks,

    -D-

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