I would like to put my situation out there to see what people think and how I can best utilise it to increase my wealth through property. Me and my wife are both 28
I currently own two properties with my wife (one is in my name the other is in both)
The first is one I bought in 2002 for $170k and is worth about $340k owing $170k rent $285p/w (coastal NSW)
Second we bought in April last year for $430k and is worth about $480k owing $350k rent $480p/w (western Sydney)
This second one we purchased and lived in for 8 months before having to move interstate for work, so it is our "home" for tax reasons and what not.We are renting with a subsidised rent paying $170p/w
I have a very secure job, paying around $70k and my wife is currently working part time earning about $20k (as a bank would see it) however is getting more like $30k due to weekend penalty rates.(She is about to commence full time university study, so these working hours will be the norm for the next few years) We are able to pay off these loans without issue. We are currently looking at purchasing a property in the SE Qld region as an investment and am looking for about $300-350k however $400k looks more realistic for something reliable and preferable new/newer.
I am looking at refinancing the $170k property to an 80% LVR, and then using the funds as the deposit for this property, with anything left over going to the other associated costs, we also have enough in out other loan to redraw at no cost, to cover the rest of the costs. We are planning to finance this 3rd property at 80% LVR, thus saving us 2x mortgage insurance costs which are dead money.
I am looking at refinancing my first loan into the same bank (NAB) as my second property, however have heard over the years that it is better to keep them seperate… not sure on this one, but I know I get a discount and no fees, due to my current loan package with them (as well as the convienience of everything being in the one area).
The final loan is yet to be determined on who to go with, but will be dependant on what deals i can find and once I have sorted the first loan, I will be looking at that.
Not sure what else to add, but would like some advice on what people think of this and what I could do better etc. I have put as much detail in here so as to allow you to best understand the situation, which I believe is very good at this stage, and I am in a very good position to buy right now.
John
John,
You are in a good position now, well done.
The real question is what are your goals and timetable? Once you have that, you can better put a strategy and plan into place to achieve it.On the basis you want to continue to purchase IP's I would refinance your 1st IP probably to 80% if you can (that will depend on your borrowing capacity for this as well as your borrowing capacity for the next IP) and set up a separate LOC just for investment purposes. I don't have a problem continuing with NAB if you are already with them and they will give you the funds you want at a reasonable price. You may need to go higher to 85% and incur some LMI to give yourself flexibility in the future. As an IP, they should be IO loans. As you no longer have a PPOR, have an offset a/c set up against one of the IP's. I would not consider paying P&I on any of these, just use your offset instead. Wealth after all is assets less liabilities so your goal is to increase one and decrease the other but the timing to do so is often separate, so you concentrate on one at a time.
I consider you generally need about $120k facility to safety purchase another median priced IP, using about $90k as deposit and costs and having about $30k as safety net and debt recycling strategy. Then go to another lender to borrow the rest and in your case, again perhaps going to near an 85% lend. The reason for the 85% is that lenders are still comfortable, mortgage insurers are comfortable and it preserves your own funds. The LMI is included with the loan and tax deductible over 5 years anyway.
Again it gets back to your goals and timetable.
Redraw can be a problem so be careful of it. Go to another lender for the 3rd IP, lots of reasons including lender risk, ability to revalue and refinance separately etc.
Good luck
GregTo clarify, my PPOR is still the second property, as I have relocated due to work reasons, and am renting the property out while I am away (which may be quite a few years :p perfect for me though).
The loan on this property is a special loan through NAB and my employer and it MUST be P&I, however this is fine with me.
The First loan is/was IO (just ran out) and with Adelaide Bank. (need to make a decision as to stay or move banks before I sign back on for IO with them, also want to extend it to 80% LVR) I am considering refiancing however there will be about 2k worth of costs to refiance it to another bank, but the interest rate is about 7.4% however I can get it almost 1% lower with NAB and no fees, due to my current package with them.At this stage we have an offset account on the NAB home loan, however have extra cash on the loan itself, as the offset account is also our everyday account and is calculated monthly, whereis the loan account is daily, and I can redraw it without charge at any time.
Cheers for the advice, anything else anyone can suggest would be great.
if you choose to refinance with NAB be sure to make it clear that you do not want the properties to be cross collateralised. This becomes really messy if you wish to sell one of the properties.
Hmmm
I might just keep them separate, as the second property, being our PPOR, is a good one for sale if the price is right (further down the track). Plus I want it to be a quick sale, as my strategy for that one if we do sell it, is to reinvest quickly somewhere where prices are lagging behind, so I might keep it with NAB and go elsewhere with the others.
John,
If you are swapping lenders from AB anyway, look around for the best offer for you. While NAB is competitive, they are not the best around, their internal valuation policies are very conservative and hit and miss and you get into the cross-collateralised or at best, 'all monies guarantee'. You would probably be better served going to another lender rather than NAB for your first IPYou should be able to revalue and refinance with AB at 6.74% but check the fees involved. You will only need a simple IO loan, no pro pack, just internet access and no bells or whistles.
Keep the offset with NAB but I would be cautious with the redraw down the track. You may be better served having a separate transaction account for your day to day banking and keeping the offset account specifically to reduce the interest on the loan (sounds like a DHOAS loan) by putting surplus funds into the offset rather than the loan itself.
Good luck
GregTo throw a spanner in the works, my actual loan is with Adelaide Bank, however is through Australian Mortgage Options. They arent the best people to deal with as most of the time they are just a relay service to AB yet I still have to do everything through them.
The NAB loan is staying as is it is everything else around it I am wanting to change.
I have taken the cross collateralisation into consideration and am happy to keep them separate, just looking at keeping the loan with AB competitive, at 170k interest rates aren't of greatest importance, as are fees (including refinance costs) but if I am going to take it to 250-270k it becomes more pertinent.
I have shot off an email to them explaining that the current interest rate I am paying is a bit too high (I believe it is 7.44% from last check though everything is filed away atm) and am unhappy with the current loan. I have asked them to see what they can do for me it make it better, and let them know if it cannot be done then i will be refinancing elsewhere, to which I have already decided to go with ING Direct and Westpac for refinancing and a new loan. Both of these offer around 6.7-6.8% no frills investment IO loans with no ongoing fees (ING up to 5years WBC with up to 10 years).
Cheers for the advice.
Hi,
If I was in your position I would consider having a chat to a mortgage broker. We go to (an Aussie home loans) broker as they have access to all of the bank's loans and can source a loan suitable to your needs. They don't charge you any fees for their services as the bank who you choose pays Aussie for referring you to them.
Also I noticed a comment on cross col. Avoid it unless you absolutaly need it. If you cross colateralise your properties it is very expensive to un cross them. Also if you wish to draw down equity, they will get a valuer to re-value all of the crossed properties at your expense. They will then only lend you up to 80% of the properties combined value. ( without mortgage insurance, and depending on you serviceability)
If for any reason your crossed properties have fallen in value they can re – call the loan. Be vary wary of cross colateralising.
We have 5 properties all with separate loans. All of the repayments come out of a line of credit and all rents go into the line of credit. We keep our PPR with a separate bank with separate bank account for tax.
Hope this is of help to you.
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