HI Guys,
I'm seeking advice on how to buy my 2nd investment property (IP)
Currently I have owned my first IP for a year now and since purchasing it the equity growth is approximately $100K. I would like to know how to set up a line of credit to enable me to purchase my 2nd IP without CROSS COLATERALISING……..Do I get the bank to which I have the current mortgage to valuate the IP and use this line of credit as a DEPOSIT for the next investment property with ANOTHER bank?
How have you guys done it without CROSS COLATERALISING your investment properties?
Any tips would be greatly appreciated!
Hi flare_windmill
Welcome to the Forum. We all hope you enjoy your time here.
Yes, you pretty much got it spot on. However have a chat with one of the excellent brokers in this sub forum and you'll get a few other options to think about, e.g will you go for a line of credit or a facility with a 100% offset. I'm sure they also suggest setting up a "split" facility on your current loan (if possible). You've come to the right place
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
You don't need to go to a new bank. Just get a LOC (as you said) on IP1 and use that as a deposit. Get a separate loan for the next. Repeat with IP3 etc.
You can also use a second split as a term loan (standard variable) with an offset account against it and use this as a deposit (although this option doesn't allow interest capitalisation with some banks).
The bank you are with will provide the valuation on your existing IP.
The second loan is set as Catalyst has mentioned. You can go with your existing bank or another bank. Keeping it with your existing bank can be cheaper if you're on a pro pack and possibly can get additional discounts for higher volume of loans.
If you are in a pro pack, then generally there should be no additional application fees and the loans should be covered by the single annual fee. If you're on a basic package then switching to a pro pack is a fairly simple and inexpensive exercise (depending on the bank).
Instructing the bank that the assets are not to be cross collateralising as well doesn't hurt.
Which lender are you with?
In the most simplistic sense – it's a two stage process.
1. Depending on the lender, you could probably "top-up" your loan to 90% of the properties value.
2. You would then use the "top-up" as a deposit for your next property. You could either stick with your current lender or go elsewhere. Depends on who offers the best deal for your circumstances.
Cheers,
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
So by the sounds of things, you can have 2 loans with the same lender and not have the 2 IP cross colateralising? That certainly is great news.
I currently have approximately 40K sitting in my first IP loan account offsetting it (with commonwealth bank)….As I mentioned the equity growth in my first IP will be approximately 100K.
What is the best option….stick with my current bank and get another mortgage for the 2nd IP?
Or Go to another bank with the LOC and leave cash in the account untouched?I intend to claim the interest component as a tax deduction hence I'm tempted to go with another bank other than my current lender as long as they are willing to give me an interest only loan.
Hi Flare,
Yep, you can certainly have two loans with the same lender that aren't crossed collaterised.
If you have $40k in your offset, you could use that for your next IP purchase instead of taking out a LOC. Depending of course on the price of the IP you're looking at.
In any case, have a chat with a good broker that works with investors and they'll be able to advise on the best course of action.
Cheers,
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hey Flare,
You can still get I/O and not moving it from CBA. Remember the costs to move loans is the discharge fee and possibly deferred establishment fees (if you've held the loan for less than 4 years) which can be expensive. Look into this before making the decision to move the loan as these are fees some don't consider until after they refinance the loan from their current lender.
As Jamie mentioned, perhaps have a chat with a good broker in your area and then all of your questions can be answered to your own specific needs.
Hi, an easy structure would be to simply top up your existing loan creating a second split to cover costs and deposit for the purchase and making sure you have a free redraw facility as this is cheaper than a Line of Credit. Depending on your existing lender and rate, it might be even more cost effective to refinance to a lender like Hll Ltd at 6.59% (and depending on break costs of course). You can also apply for another loan to purchase with the same lender without cross securing.
Regards
Tony Born
07 3103 2205
http://www.wealthwithproperty.net
[email protected]Hi tony,
Thanks for the advice. I think at this stage I'll go with the idea of topping up my existing loan and using it as a deposit. It will make life during tax time simplier!
Will the bank work out my maximum lending amount of money without taking account the equity of my first investment property? As the interest component is deductable I'd like to leave the cash I've saved so far untouched (for a rainny day / renovations if it came up).
flare_windmill wrote:Hi tony,Thanks for the advice. I think at this stage I'll go with the idea of topping up my existing loan and using it as a deposit. It will make life during tax time simplier!
Will the bank work out my maximum lending amount of money without taking account the equity of my first investment property? As the interest component is deductable I'd like to leave the cash I've saved so far untouched (for a rainny day / renovations if it came up).
If you are withdrawing from a non-deductible loan It could actually make tax time much more difficult and you could end up reducing your tax deductions – unless you have a separate loan.
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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