OK I am planning to buy another IP as soon as I see the one that I want.
I thought I’d just pay for the property fully out of my LOC (from our PPOR).
THis way I won’t need to put a ‘subject to finance’ clause in my offer and I can also offer early settlement if the vendor wants the money fast.This may be a good negotiating point.Also, I won’t have to rush and stress over getting finance for it.
I am not sure how I should go about it after that, if I want that money paid back into my LOC.
I could refinance the IP, but how does that work?
Can I, after refinancing the IP, deposit this money back into my LOC (well 80% of it)?
Will I still receive the tax benefits (interest deductions) after doing this, i.e. using the money I get from refinancing to reduce my interest payments of my LOC?
Is there a point in refinancing? What would be the best way to do this?
Hope yo can explain, cause I really have no idea
]Cecilia,
There is no problem with this strategy that I can see except that you might be doing the finance twice – but it does save the uncertainty and stress that comes with the whole application process.
Once the IP settles you can then apply for the new loan you chose. Poss at 80% to avoid the LMI.
The funds from this loan go back into your LOC.
No tax issues as the debts were always taken out for the IP.
The only point of doing this would be to get a cheaper rate and to free up the LOC for the next deal. There is probably no real reason why you couldn’t leave it on the LOC if you are happy. Sticking with the LOC, whilst the rate is higher, will save you the new borrowing costs. If the IP is a cheapie then you might be better off leaving it on the LOC and wearing the higher rate but saving the new loan costs…..
Hope this helps,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
This is fantastic information, as usual, Simon, thanks.[
][^]
It is all much clearer to me now.[8D]Hi Celivia,
It is fantastic that you have a Line of Credit as, as you say, this allows you to act immediately.
As far as refinancing is concerned, seeing you aren’t under finance pressure (unless you are anxious to buy the next property), it may be better to consider waiting for a little while until any improvements you are planning to make are in place.
There are actually two factors at work which will enable you to recoup a greater amount of money via a loan :
1. the difference the improvements make to the value of the property
and
2. AFTER the property is registered into one’s name
the lender is no longer restricted to taking the lower of the purchase price and the valuation figure to determine the loan amount when we apply for finance.Thus you will be able to recoup more of your outlay than you could if you applied for finance immediately.
It will also avoid additional costs which one would incur if one firstly applied for finance and thence shotly thereafter applied for an increase.
Cheers,
Pisces
Good advice Pisces.
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks Pisces, I love this idea[^], I hadn’t thought about the cost I can avoid this way by not having to apply for an increase later, it all makes very good sense.
So now all I have to do is find my next IP! [8D]Cecilia,
The cost is one thing but Pisces best idea is that if a little time and reno work goes by you may well be able to finance above the 80% mark without LMI – perhaps even 100%! Depending on the new valuation.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Yes, this would be greater than great! But the fact that my husband is a licenced carpenter doesn’t really help if the property is a 6 hours (or more) drive away, and he’s stuck in Sydney because he has contracts here and can’t get away.
He has done some minor work on the property that we have in Dubbo, but he can’t get away for longer than 2 or 3 days, things are busy at the moment.
I’m lacking the experience to know whether a reno will still be worth it if you have to have all the work done by others.
I should take some time to seriously find out whether it will work, because it would be fantastic if that’s the case.
Thank you both for your wonderful advice.[
][]Hello Simon and Pisces,
Can I jump on the first post here and ask you, I have bought my first IP which settles on 1 March. I have a LOC on the PPOR with which I can entirely pay for hte new house. I am going to lease option it.
Can you tell me pls if I go get a mortgage for it after settlment ie 80% and pay back the LOC, if it’s within 6 mths the bank simply uses the contract price? My friend is a valuer and she said they would just use the contract price if < 6 mths.Also, do I need to “disclose” if it’s a lease option I’m planning to do or have done? Is it just a “normal” loan?
Thanks!!!
skippygirl[]Can you tell me pls if I go get a mortgage for it after settlment ie 80% and pay back the LOC, if it’s within 6 mths the bank simply uses the contract price? My friend is a valuer and she said they would just use the contract price if < 6 mths.
All depends on which lender we use. If you wanted a new valuation we would use the appropriate lender.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Skippy. yes you could use the LOC. The bank may try to use the contract price, but if you say you have done some substantial improvements you could get away with a new valuation being done. But you also have to convince the valuer it is worth more than you paid for it-thats the hard part.
If you are going to sell an option over the security property, then you will probably need to inform the bank and/or get their permission to do this. Read one of your other mortgage contracts.
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 Celivia,
You said : “Yes, this would be greater than great! But the fact that my husband is a licenced carpenter doesn’t really help if the property is a 6 hours (or more) drive away, and he’s stuck in Sydney because he has contracts here and can’t get away.”
There really isn’t a lot of difference who carries out the work.
If your husband does (carry out the job for you) it cost him because he misses out on doing other (paid) jobs.
So what difference does it really make if you need to pay someone else for doing the job as at the same time your husband will earn equivalent moneys at his own job.
Yes, there is a difference I guess, your husband would be working longer hours. [
] and in a way you would have to allow for his wages as he could have been earning money doing a job elsewhere.I don’t quite understand it when you say “I’m lacking the experience to know whether a reno will still be worth it if you have to have all the work done by others.”
Presumably you do obtain quotes (or at least some idea how much the renovations are likely to cost) before you decide to buy don’t you ?
Pisces
Thanks, Simon and Terry for your responses. Learning on my first one.
skippygirl[
]Pisces, thanks for your reply, I should have explained better. What I really meant is that, say that the property was closeby, around Sydney, we could just drive there during weekends and do some work, and also sometimes there is a quiet day like in the middle of the week or so, that he would be able to finish at say 10 or 11am, he could use the rest of that day to do work on the property so we still wouldn’t loose any income.
Also, my husband has lots of little bits and pieces left over (LOL more like a whole garage full of stuff)from other odd jobs and from our own home renovations/extension e.g. paint and timber, we could use that instead of having to pay for materials and labour if you have to have the job done by someone else.
But yes as you say, we must have quotes done before we make an offer, to find out if it’s worth the trouble. Also find out how much the property will increase in value after the renovations. It might as well be very much worth it, other people make a living out of it, so we just have to look into it seriously. [
]Hi again Simon and Pisces.[
]
Just wanted to let you know that your advice was great and I took avantage of your ideas.I found a property where we do not HAVE to do any work, it’s OK as is and there’s a tenant with a lease till July.
Still the property has potential for adding value, e.g. there’s a driveway but no garage or carport. There’s no pergola or BBQ area in backyard. There’s no frontgate and no plants or shrubs in the front or backyards, just lawn.
So a very basic property, as basic as they come!
We can take a while to make these improvements, then refinance it.[^]So thanks.
]
]
] and in a way you would have to allow for his wages as he could have been earning money doing a job elsewhere.You must be logged in to reply to this topic. If you don't have an account, you can register here.
