Hello forumites
I really enjoy the knowledge that a lot of you have here in this forum, so I come to you with 'hat in hand'.
Our PPOR, (value 335k, owe 251k)
An IP (thinking of selling), value 269k, owe 236k. Rented at $230 p.w.1 wage, 50k.
Our PPOR is with a big4, pro package….
Our IP, same lender, fixed at 6.75% with 1 year to go.To keep the IP, (and I suppose continue getting the tax breaks and capital gain from the IP), is it worth re-structuring my loans to a LOC format? Could we afford another IP with these figures? I'd really appreciatte any worthwhile replies.
Thx, Paul
Hi Paul
No certainly couldnt suggest that you switch either loan to a LOC.
If you are suggesting that you look to take out a LOC on the existing securities (I have a feeling they will be cross collateralised then) then this is an idea and the funds could be used as deposit and acquisition costs for the new IP. Then look to take out a standalone loan secured against your new IP.
In saying all of this serviceability will be a little tight but without further information it is difficult to assess accurately.
Richard Taylor | Australia's leading private lender
Hi Richard
Thanks for your comments.
The two loans are crossed….yeah I know what some people think about that!!
I'm trying to get my head around the whole LOC structure and whether, given our finances above, future wealth creation is still possible.TenorB
Sometimes take the plunge can be daunting but worth it.
Clients dont like to pay uncessary costs but sometimes expenses such a LMI are merely an opportunity cost and can help you move forward when equity is tight.
Correct structure is a lot more important for achieving your long term investing goals than trying to save a quid or too on Bank costs.
Richard Taylor | Australia's leading private lender
Hi
I have the same dilemma as you Paul, so i cannot advise although im posting here while we are on the same topic.Richard, im interested to know whether you believe a LOC iis a good product for investors. Im quite conservative with my investing and very diciplined with our budget so i am on the fence on whether to use a LOC. I can see the benefits of having flexibility to use the funds as a deposit on further investments, as all loans are stand alone. On past occasions i would just refinance one first, then take out new loan for the balance.
However i just hear a lot of people/brokers tell me to increase loan and use redraw facility instead. Which i know is cheaper but it still is not the same thing and not as flexible. Are LOC's really all that bad??
TenorBb
I wouldn't recommend a LOC for your general loans either, but would recommend setting one up for any spare equity you have.Investment expenses and costs can then be borrowed from the LOC freeing up cash to place into your non-deductible home loan.
However, Your two properties value at $604,000. 80% LVR is $483,000, but you have current loans of $487,000 so you would not have much equity available, even if you went to 90%.
Hybrid
LOCs are not bad, but a lot of people have no knowledge of the tax laws and are creating potential problems for themselves mixing business and non-business. I had one person take a LOC on their investment property and then place all their wages into the account each month to save interest. This taxation suicide which could have been avoiding by using a IO loan with an offset account instead.
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 TerryW,
If i may pick your brain…
how about my scenario?:$250k loan owing on principal residenc, value $420k
4 investment properties loan total owing $596k, value $850kI am thinking of refinancing our $250k home loan up to 80% ($336k) and having say $260k of it for personal home, and balance will be used for deposits on further investment purchase as well as some minor reno costs for existing investments.
Ive never had a 'split' loan before, can i set up one in this instance? have sub accounts so personal is separated from investment on a LOC? in terms of setting it up correctly for tax purposes?
Hi Hybrid
Yes, I would suggest you look at setting up a LOC on your home loan. Keep the existing portio separate and use the LOC solely for investment related purposes such as deposits and property costs.
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
Hybrid
Yes that would be fine. As long as you keep the home loan portion and the LOC separate.
Link your offset account to the home loan and use the LOC to fund deposits and acquisition costs.
Just ensure to maximise the interest savings you have all of your salaried income and rents going directly into the offset.
As Terry has mentioned to utilise a LOC for reducing your interest and mixing both investment and personal borrowings in one is Taxation suicide.Richard Taylor | Australia's leading private lender
Thanks Terry, Richard.
Another quick question. Say i have a facility max approved at 335k however have only drawn down $300k, would another loan (to finance balance of purchase after using LOC funds for deposit) be assessed taking into account just the draw down amount or the full $335k even though i haven't used it yet?
I hope that makes sense…
Yes certainly makes sense.
The limit amount is the amount considered as your current liability.
It is the same as having a credit card with a limit higher than you actually require – it may effect your borrowing capacity.
Richard Taylor | Australia's leading private lender
Ok, thats what i thought. So then, how does one benefit and keep investing by borrowing against equity to fund repayments on other investment debts? I know that this is only safe and works provided your portfolio continues to grow each year (otherwise you eat away your equity..)
I spoke to a couple of buyers agents once, a couple of years ago and they said that is how they service $1mill + debts whilst only making $40-50k income from their jobs. I dont get it since you would still eventually reach a limit with serviceability wouldn't you? They were neg geared investors.
Or maybe im missing something? i guess they might be using lo doc loans…
Hey Hybrid,
what I'm wondering is how long you have had your investment properties for? I ask this because you still have personal debt ie. non tax deductible debt? To have accummulated 4 investment properties and still carry personal debt surprises me. What income bracket are you in?
I think whatever move you are about to make needs to be well thought out. Structure is everything.Hi Turbo,
i started investing just over 4 years ago. We have $130k combined income. 2 investments are positively geared and the other 2 are giving me 5% rent return which im in the process of improving through renovations. All our loans are IO, even PPOR.
But yes im at that stage where i want to get my loan structure right so i can scale up.
Hi,
Sounds a bit like me a few years ago. We had one investment which was going great and we had $180,000 debt on our own home but were struggling to get into our next investment property. The banks were no help and said we needed to reduce our home loan or earn more money. Then a work colleague of mine suggested that I speak to his guy that he was using.
So one evening this guy turned up and sat down and just listened to me and listened to what my wife and I wanted. Then in plain English simple terms (ie. no financial jargon) told me exactly what I needed to do and how to do it. 12 months later we have paid our personal debt down to $45,000, we have 2 investment properties and are currently in the process of securing another one. That evening was the best couple of hours I spent with anyone in the property/finance business. You have to talk to the right people and get the right advice.
how about my scenario?:
You must be logged in to reply to this topic. If you don't have an account, you can register here.
