Thanks for your responses to my previous post. Here is another.
We own our PPOR freehold valued at $260,000 (title in my name only) and have cash in the bank of $180,000. My income is $45,000 pa and my wife is currently between jobs. We have just established a family trust (both being trustees).
Our aim is to embark on a multiple IP portfolio by buying IP#1 in the near future. IP#1 would hopefully be a $380,000-$400,000 house rented at $400-$450 pw. IPs to be bought in trust’s name.
My questions are:
1. How best can we use our cash in the bank and the equity in our PPOR?
2. What are the pros and cons of the following plan?
. Use $90,000 cash as 20% deposit on IP#1 and a loan secured by IP#1 for the balance of 80%. Then, say within 3-6 months, use the other $90,000 cash as 20% deposit on IP#2 and a separate loan secured by IP#2 for the balance of 80%. Leaving our PPOR unmortgaged till we decide to purchase IP#3.3. Are we under-utilising the equity in our PPOR by proceeding above?
Thanks
PeterHi Peter
This one is fairly simple but just needs to be structured properly.
Look to establish a Line of credit against your PPOR to a level of 80/90% LVR (80% + means you will probably be paying LMI) so maybe go to 80% first but with a lender that you can increase it down the track).
Then look to take out individual standalone loan secured against each IP again to a level of 80% using your LOC to bridge the 20% deposit and acuisition costs. Link a 100% offset account to the Interest only IP loan and deposit your cash in this account.
This will give you on call access to your funds as well as offsetting the interest being charged on the IP loan.
Repeat formula for following IP's utilising cash when LOC has been fully drawn.
Richard Taylor | Australia's leading private lender
Hi Peter
With two trustees you could be doubling your risk and reducing borrowing capacity in the long run.
I agree with Richard, probably an idea to get the LOC on the PPOR first. You will then have this and the cash available to purchase bargins when they pop up. You could pay cash, then mortgage these properties. This may allow you to get higher LVR loans as the lenders could lend based on value rather than purchase price. Once you settle you could then mortgage these and put the money back into the LOC and repeat the process.
Make sure you document everything – loans from yourselves to the trust etc.
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 Peter,
First of all, congratulations on having a great cash/equity position.
I agree with the comments above but I think serviceability might become an issue. I don't know how much your wife will earn when she starts the new job but on your income there will be some challenges.
I think you should invest your cash in some good income generating investment and use that to help improve your serviceability and offset some negative gearing. Leaving your cash in the bank for ~6% return is underutilising it.Thanks Richard for your very clear and logical reply.
Thanks Terry. When you say "You could pay cash, then mortgage these properties", I assume you mean pay for IP in full with cash (chq from LOC and cash ex offset a/c). Then mortgage IP after settlement and put the money back into the LOC.
Thanks propertypower. Your congrats and reply are appreciated.
Peter
Thats it Peter.
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
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