Hi guys, I've been quiet lurker of somersoft forums for a while, slowing learning more about property investing and ways to go about it. It would be great if anyone could shed some light on my problem at hand, and share a bit of your knowledge/experience with a beginner property investor.
A quick bit about myself – I have purchased my first property 9 months ago (a unit in Sydney) and now recently rented it out as an IP. It is negatively geared at the moment but hopefully it will become positively geared in a year’s time.I am ambitious to purchase my second IP, another unit down in Melbourne, but I am not sure how to finance it. I have done my calculations in terms of borrowing costs, rental yield and how much I can borrow based on my current serviceability (These calculations I can provide for you). I have also calculated about 35k in equity in my IP atm.
From my reading and understanding, I believe the best way to finance another deposit is through a line of credit. Is this how most other property investor's finance their second/third etc purchases? Isn’t using a LoC like having another small mortgage (for the deposit + fees) alongside the main mortgage for the property as well, wouldn’t this mean there will be two repayments one for the H/L and one for the LoC? Also is it possible to use equity from properties (fully paid off) say under my Parent's name? Should it be Interest Only? Fixed for 5 years or something…
I guess the loan structure is the overall question I am concerned about… and whether am I at my limit in serving this second mortgage+LoC… if any further numbers or figures are required (i.e. net monthly salary etc) I don’t mind providing.. Thanks all!Hi tetrisman
Firstly welcome to the forum and I hope tyou enjoy your time with us.
Structuring the finance on a new purchase is something you need to get right otherwise it will just cause you problems in the future.
Normally we would recommend to our clients a line of credit secured against the prime residence and then a standalone interest only loan on the new IP. Ideally these securities should not be cross collateralised.
The other thing you need to bear in mind is that lenders normally only go to a 90% lend on a refinance or line of credit so you maybe limited on the amount of equity you can access.
Bear in mind mortgage insurance will be payable on the new loan and whilst there are lenders out there that will still do a 95% lvr + LMI you need to come up with the associated purchase costs and stamp duty.
Depending on the actual purchase price a 100% investment loan could also be an option.
Without further information it is difficult to provide you with a accurate assessment but happy to do this for you if you want to provide further details.
Richard Taylor | Australia's leading private lender
G’day Richard,
Thank you for your reply.
Here are some further details for my current IP situation and the serviceability I can provide to the new loan.
IP1:
Purchase Price: $260k
Original Loan amount: $208k
Valuation: $280k
Loan Balance: $193k
Equity (80%): 32k
Rental income: $360/wk ($18000 for 50wks)
Rental expense: $22,426.20 per yr
Current personal income is $65k (inc. super) / yr. Take home monthly pay is $3,400 month.
Personal expenses (inc. bills and rent): $1,200 / monthHmm… with figures like this what possibly could I do? I figured I wouldn’t be able to purchase anything more than 200k? Thanks.
How do you know that you valution is 280k from purchasing price of 260k…9 months ago
Sydney's apartment price is down across…Ok couple of immediate issues here which could be got around with a bit of careful planning.
Firstly i will assume that the valuation is correct and that the figures we are working on are as per stated.
Your current loan appears to either be a P & I loan or you have made a capital reduction so be very careful if you redraw or take a new loan that the purpose of the funds is solely for investment otherwise you will contaminate the deductability of the loan interest.Subject to your holds the current mortgage on the property you should be able to go upto an 90% lvr which will free up a little available capital. (Mortgage Insurance will be payable however this is a loan cost and can be claimed as a deduction).
I probably would not use the same lender as the LMI premium will be higher so thats another consideration.
Serviceability well thats another matter. Lenders work on a % of your rental income and this will be circa 75-80% of the Gross rent. In addition on the liability front most factor in a Living Allowance depending on the number of applicants so for a single applicant they will allow between $800 -$1100 each month. This is on top of you rent payment.
I still think the application is doable however there are a few questions that still need to be answered.
Richard Taylor | Australia's leading private lender
god_of_money,
Its just an average quote I got from a couple of REAs.
Richard,
(Sorry but I am going to ask some fairly newbie questions)
Yes it is a P& I loan, I'm fixed for 3 years on it. I am abit slow on the terminology, but what do you mean by capital reduction? And yes the redrawn funds will only be used for investment purposes only. (deposit+initial+closing costs).
For my second IP would a IO loan be more suited? with an Offset account? Is this offset account simply a savings account linked with the homeloan itself?
I plan on utilsing only 80% of my equity (trying to avoid LMI) and will be taking out the loan from a different lender (Westpac).
What are the few other questions which need to be asked?
Thanks
You must be logged in to reply to this topic. If you don't have an account, you can register here.
