I’ve just finished reading “How to create an income for life” by Margaret Lomas. She recomends using a line of credit to use your home equity to buy investment properties. St. George has one for up to 10 properties. Is anyone using this set up? I need some feedback please [?]
From what I remember of Margaret Lomas’ structure, she cross collateralises everything, and has one big LOC, with many sub accounts for each mortgage.
I prefer to have separate loans for my IPs, and one single LOC where I deposit all rent money etc., and have all expenses taken from. As i don’t have a PPOR, this LOC is a 2nd mortgage against one of my IPs.
Cheers
MelYes I use a LOC over my PPoR to buy IP into, I add value then mortgage the property to pay back the LOC account, then buy next property into LOC. The advantage of this is you can act quickly when you see a deal you like and it keeps your equity revolving.
I do the same as Lazyboy – one LOC on one property which is used for deposits for Investments and then separate loans for the investment properties. You don’t need multiple LOCs, but may need more than one depending on amounts of equity in your properties.
Terryw
Discover Home Loans
North Sydney
[email protected]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 Lazyboy and Terry
I was planing on using my LOC for the deposits and then take out loans for the remaining. However I think what you are doing is much better, that way when purchased under value we can get a loan on the value of the property rather then the purchase price. IS this the reason you do this? How do you add value?
I like your way of thinking [
]Regards Bear
I have a line of credit over my PPOR and we have used this so far for a deposit (20%) and all cost on an IP. For the remaining 80% we have taken out an IO loan (fixed[
])
The idea is to repeat this with our next property.
We now dump our savings into this LOC to keep the interest payments as low as possible.I have one question about this though: We haven’t re-used the savings we deposited in our LOC yet, so that means that the whole lot of interest will be tax-deductible if I am correct.
But we probably will have to take out about $10000 to help finance my daughter’s education in a few months time This then won’t be tax-deductible.
So some amounts out of our LOC will be tax deductible, other amounts won’t be.
I am gonna carefully ‘keep the books’ so we know what’s been taken out for the IPs and what’s been taken out for other purposes.
Will this complicate things very much for our accountant (I’m sure he’ll) to work it out at the end of the financial year, or is it simple/common to do it this way?
Thanks if some one knows I’d appreciate it![]Hi Celivia
It will get a bit messy, and is better if you could maybe have a split loan, ie 2 separate accounts to keep business and pleasure separate. if not, detailed records will be the next best thing.
Terryw
Discover Home Loans
North Sydney
[email protected]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
Hi Bear
Yes, that is one way of getting finance based on valuation. if your LOC is large enough, you could pay cash for a property, do it up a bit, and then get a loan on the property to release teh cash abck into your LOC (ready for the next one).
Terryw
Discover Home Loans
North Sydney
[email protected]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
Hey Bear,
You can add Value by 1001 different ways, the more “bang for your buck” the better. Mow the lawns and tidy up the grounds is a good start, paint ( talk to a paint shop about mis-tinted paint, it’s cheap), carpert, carport or I’ve found getting a decent tenent with good furniture always makes the place appear much nicer so in turn increases the valuation.
Here’s some numbers
Purchase price $90,000
renovation $ 7,000
Total costs $97,000
borrow this amount from LOC. Then reno and get valuation eg $120000 Now finance at 80% = 120*.80 = 96k .Deposit 96,000 (from the new mortgage) into LOC ,The result is a property purchased with $1000 of your own money, $96,000 banks money .No re finance, No tax issues, No limits, No sweat .Lazyboy
TerryW,
How do you access the equity of your IP? Do you incur loan fees for each new loan? For the separate loans, is this purchase price minus deposit? It seems that you would very quickly run out of money in your LOC this way. I am missing something?
Leonor
I do the same as Lazyboy – one LOC on one property which is used for deposits for Investments and then separate loans for the investment properties. You don’t need multiple LOCs, but may need more than one depending on amounts of equity in your properties.Terryw
Discover Home Loans
North Sydney
[email protected]Thanks for that Mel,
But how do you access the equity in your IP?
Cheers,
Leo
I prefer to have separate loans for my IPs, and one single LOC where I deposit all rent money etc., and have all expenses taken from. As i don’t have a PPOR, this LOC is a 2nd mortgage against one of my IPs.Leo, it’s a matter of refinancing, either with the same bank, or a different bank, depending on how you want to structure it, and who offers you the best deal.
Even if you have an LOC as you mentioned, it is at a set level when you set it up. To access more equity, you still have to go to the bank to refinance, and increase the limits.
Also, you’ll find that most banks have a level that they’ll lend to before they get uncomfortable. You might want to have a couple of different banks on the go, so your options are better.
Cheers
MelLeonor
You can just apply for a loan increase with your current bank, you don’t have to refinance, but could do this depending on circumstances.
It is worked out like this.
New value x 80%, less current loan = extra available equity.Terryw
Discover Home Loans
North Sydney
[email protected]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
Hey Terry, that’s what I meant when I said using the same bank, cos I couldn’t think of another way to phrase it.[
]Cheers
MelThanks again Terry and Lazyboy, i think i get the picture and i like it [
]. I just have to work out the best way to keep the LOC on the PPOR seperate from the other loans. I know i will save interest if i put all my money in there, but then doesnt it becoming an accounting nightmare as mentioned above?Regards Bear
Bear
Try looking at the LOC from St George and Gateway Credit Union. You can split the LOC into separate accounts. The first account for the PPOR, then all other accounts for investments. The ATO prefers it this way. You throw all income including rent into the first account and pay interest only (if you like) on the other accounts.
This is how Margaret Lomas recommends it.
Elvis
>>she cross collateralises everything<<
To be avoided like the plague if possible because it doesn’t give you the flexibility you need.
Pisces
i use the loan that margaret lomas talks about, i actually had destiny financial solutions set it up for me. i find it very useful. and even flexible.
we have a st george portfolio loan, which allows up to 10 sub accounts. the first account is for my PPOR, where all our pays and rents go into, and where we pay our interest on other loans from. the second account is specifically for our IP’s and the third for shares.
because all the accounts are seperate it is very easy to see what interest is deductible and what is not.
as we pay down our PPOR we reduce our credit limit on the first account and move it across to our IP account. this means we can redraw that money when we need to and make a deposit on an IP. when we buy our next IP we are going to revalue all the properties and have our loan limit increased, therefore increasing the amount we can redraw… and away we go.i like it. it may not be for some ppl, but it works for us. i guess thats the way it is with everything… each to their own.
Hello,
I too had just read Margaret Lomas’ books and it was a great enlightenment for someone like myself. I had just acquired Steve McKnight’s book and is reading through that as well.
I like to know whether the Tax Office has problems with Margaret’s concepts ie.
(1) A Account #1 for personal home loan.
(2) A Account #2 for investment loan.The rental investments goes to Account #1 to reduce personal loan. But use Account #1 to pay interest on Account #2, such that the loan amount in Account #2 doesn’t increase.
My question is, will the tax office have problems with using the rents from an investment property to repay your own personal home loan? OR does the Tax Office don’t care how you spend the income, so long that you can’t artifically increase the loan on Account #2.
Thanks and regards…
I’m sure Margaret explains this in her book. Not sure which one.
I recently attended a seminar where Margaret was the top drawcard, well the only drawcard
She is ver approachable. Try emailing her on her website edestiny.com.au
Regards,
Elvis
]
])
) to work it out at the end of the financial year, or is it simple/common to do it this way?
]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
