Hey guys,
Thought I’d post up regarding my situation, hope you can help!
I currently have a property which is +tive cashflow and have about $300,000 in equity.
How do I go about financing a 2nd property. I’ve read things about LOC etc but not sure where to start.
TIA
Hi Tia
Normally what we suggest to our clients is that they establish an investment line of credit against the security and use this to draw down and fund 20% of the purchase price of the new investment property and acqusition costs.
Then on a standalone basis take out a separate interest only loan for 80% of the new purchase price on the security of the investment property only.
Repeat for each new property.
Richard Taylor | Australia's leading private lender
Hi,
Thanks Richard.
So for clarification….. lets say I draw a LOC of $200K on the first property which I lets say I have $300K owing still, this brings my total loan on the first property to $500K yes?
Does this then mean I make my monthly payments on $500K?
Hi there
Yes it would be a separate loan but on the basis that 20% plus costs came to 200K then Yes the total loan balance on the first property would be $500K.
Interest is only charged on the drawn down balance so assume that you had fully draw the loan of $200K then interest would be charged on a daily basis on the full amount.
Richard Taylor | Australia's leading private lender
Thanks for you’re reply.
I have about $30k in total that I’ve paid down on the Principal. Would it be more advisable to take this out and put it into an offset account?
Hi there
Unfortunately it is too late to do this as the funds on the redraw wont be tax deductible.
Be better off to set up the line of credit for the increased amount.
Your Broker should be able to do this for you.
Richard Taylor | Australia's leading private lender
Could you explain why it isn’t tax deductible?
What could I have done if the 30k was in an offset account?
So if I’m going to purchase a 2nd IP, I shouldn’t redraw the 30k rather I should set up a LoC leaving the 30k in the loan?
Sorry I don’t really understand this.
Thanks Richard!
Simply boils down to the purpose of the original funds.
Unless the original loan was an investment loan interest on a redrawn amount on an owner occupied property is not deductible.
If the loan had been an interest only loan with 100% offset then you would have been fine.
Need to separate the 2 account hence our suggestion of a line of credit.
Probably need more hard data to advise further.
Richard Taylor | Australia's leading private lender
The original loan is a owner occupied property loan with 30k of principal repayments in it.
What hard data do you need to advise further?
If I take out a LoC, will the interest be deductible on it?
Nulify the advance repayments and if the line of credit is used to fund the deposit for an investment property or other investment then the interest will be deductible.
Richard Taylor | Australia's leading private lender
Thanks for that. So because I’m treating this 1st property as an IP, would it be advisable to switch the loan to a IO loan with a 100% offset facility?
Then draw a LoC to use for deposit on 2nd IP
Cheers
Yes exactly would suggest that is the way forward.
Richard Taylor | Australia's leading private lender
Ok if I move forward with that plan, what happens to the offset account and repayments on the original loan?
Does the LoC account and repayments on original loan consolidate or are they 2 different things?
Should be salary still go into the offset account or LoC now?
Salary should definately be going into the offset account not the LOC.
With regards to the interest repayments on the new IO loan linked to the offset account this will depend on whom the loan is with. The type of offset account will vary from lender to lender.
Some reduce the interest charged others you maintain the same repayment and the debt balance reduces which is of course not ideal on an IP.
Richard Taylor | Australia's leading private lender
Your advice is greatly appreciated Richard.
So when I have 2 IP’s each with their own offset account and one with a Loc…should all rent and other income go into just ONE of the offset accounts(1st IP) to then pay monthly repayments on original loan and LoC
What happens to the 2nd IP’s offset account? Should any income be going into that one?
Gets confusing once you start purchasing more than one
Thanks again!
No real benefit in having 2 offset accounts so put everything in the one.
Probably an idea to start speading your sik and looking at new lender for your IP's
Richard Taylor | Australia's leading private lender
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