Hi All,
I've scoured the finance section and haven't come up with a full answer thus far.My wife own our own home and recently moved to a large country town from the city.
Our current property is being tenanted out $270pw with a loan of $225K (esitmate home is worth ~280K).
We are currently renting in our new town.
We're looking at building a place in our current town for ~300K.
We then plan in ~3yrs moving back to the city and keeping both places as our portfolio.
What are your thoughts on this as a strategy, and what would be the best structure to put in place?
Regards
DarrylDJB79 wrote:Hi All,
I've scoured the finance section and haven't come up with a full answer thus far.My wife own our own home and recently moved to a large country town from the city.
Our current property is being tenanted out $270pw with a loan of $225K (esitmate home is worth ~280K).
We are currently renting in our new town.
We're looking at building a place in our current town for ~300K.
We then plan in ~3yrs moving back to the city and keeping both places as our portfolio.
What are your thougths on this as a strategy, and what would be the best structure to put in place?
Hi
Sounds like a wealth creation strategy that John Fitzgerald uses…a strategy i personally think has many advantages;
1. Since your “old” home will become a IP it will help with the tax part.
2. A lot of people make the mistake of moving to a WHOLE new area and buying/building from day 1; But in your case- since your renting it gives you time to search for your place, understand the market better ( rental, growth?), get some local knowledge about the community and you still have the flexibility of building SOMEWHERE else if you find this place is not suitable.
Finally the most important part of any wealth creation; the financial structure/ strategy to maximize benefit.
Really need a bit more information for a detail structure; but the most important features are:1. Allows cash out…and for your benefit you might want to consider a lender with a no question ask 90% LVR cash out— it will help when cashflow is limited.
2. Apply for Interest only for 5 years – this will imporve and provide better cash flow ( you need every $ you can get for the construction)
3. Get basic Loan only- but one with unlimited redraw features
4. Don;t X- cross any of your properties
5. Soil test should be carry out if it’s a vacant land your buying
6. Go with a lender that allows Valuation prior to credit checkRegards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
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Hi Michael,
Thanks for the info.The part my wife and I are mod interested in is how not to cross collateralise.
We have no liquid assets ATM as all our spare $$$ went into paying our home loan down over the past 2 yrs.
If we assume 280K property value and 225K loan, how would we go about accessing that equity?
How much of that equity could we pull out?
How does a LoC work?
Regards
DarrylHi Darryl
Welcome to the forum.
To avoid cross collaterisation you would:
1. Top up your current home loan to access some cash for a deposit and purchasing costs for your next property; and
2. Take out a separate loan for the remainderSome lenders allow cashout up to 90% of the properties value. Looking at your numbers, it seems that you’ve got around $25k that you could possibly access.
Hope that helps
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
DJB79 wrote:Hi Michael,
Thanks for the info.The part my wife and I are mod interested in is how not to cross collateralise.
We have no liquid assets ATM as all our spare $$$ went into paying our home loan down over the past 2 yrs.
If we assume 280K property value and 225K loan, how would we go about accessing that equity?
How much of that equity could we pull out?
How does a LoC work?
Regards
DarrylHi
Read jamie’s post, it answers your questions- but adding on;
The amount of “useable” equity you have in your current position is $20,500 ( after you refinance with a 90% LVR- paying LMI to QBE)
If you went to your local bank and asked this same question; what they would tell you is to bring this loan over to them and then they will allow you to take up your 2nd loan using your first home as security – X-cross. A big NO NO!
How would you go about this problem?
1. Choose the right lender! NOT all lender allows refinance at 90% LVR with no question ask cash out! and some has restriction on postcode as well.
2. Presuming point 1 is ok and your in the right postcode/area- refinance with the 90% LVR cash out your $20,500 equity which will help with your next purchase- dont need to be a seperate loan; can be one loan or split up to you.
How Does LOC work?
Similar to the above, but the loan itself is “interest only”, you can redraw as much $$ as you want and when you want up to your loan amount.. The interest is higher. Just more flexible.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
DJB79 wrote:Hi Michael,….spare $$$ went into paying our home loan down over the past 2 yrs.
>It sounds like you have a bit of “redraw” or overpayment in your current mortgage – depending which product you are on you can redraw this $$ out without any refinance or paperwork.
If your with CBA- log onto netbank -> go to “transfer” – > scroll down to homeloans/ redraw -> transfer available funds over
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
[/quote] If you went to your local bank and asked this same question; what they would tell you is to bring this loan over to them and then they will allow you to take up your 2nd loan using your first home as security – X-cross. A big NO NO! How would you go about this problem?
[/quote]Hi Michael,
I have a similar situation and have to change to new lender in order to refinance for the existing loan. The bank said what you mentioned. It seems OK because I can utilize my existing property to fund the new own-occupied and also avoid paying mortgage insurance. What is the trick / problem?THanks,
EricHi Eric
Basically, by putting up property 1 to secure property 2 – you’re providing more security to the bank than required and it can also be a pain later on when trying to access equity.
To avoid this, you can (depending on your lender) “top-up” your current loan to access enough cash for a deposit and purchasing costs (stamp duty, etc) for your next property. You then establish another loan for the remaining portion.
This way, you’ve kept the two properties separate – which is in your best interest (not the banks).
Hope that helps
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]
eric_agape wrote:If you went to your local bank and asked this same question; what they would tell you is to bring this loan over to them and then they will allow you to take up your 2nd loan using your first home as security – X-cross. A big NO NO! How would you go about this problem?
[/quote]Hi Michael,
I have a similar situation and have to change to new lender in order to refinance for the existing loan. The bank said what you mentioned. It seems OK because I can utilize my existing property to fund the new own-occupied and also avoid paying mortgage insurance. What is the trick / problem?THanks,
Eric
[/quote]
Hi eric,
Sorry for getting back to you. But what jamie said is correct. So really two options
1. Top up with lender now ( maybe even re-draw ONLINE! no hassle and done within 5 min)
2. Refinacne with Cash out.Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
I would be a bit wary of doing a Redraw as it will have Tax consequences depending on what you wish to use the money for.
A separate loan is oh so much cleaner.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Agree with Richard – you really do have to be careful when using the redraw facility.
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]
Yes agree. if it’s going to be a IP…it will contaminate the loan with a re-draw in terms of tax.
Refin with 2+ loan split would be the smarter option.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks for the advices.
I must go for other lender for Refinacne with Cash out option because I'm using Onedirect won't accept any variations to existing loan.
The reason for refinance is to ensure to have enough cash for new own-occupied property.
It sounds wiser to have two separate loans. One is refinance of the existing loan and the other for new property. Right?
I'll check with the lender again.
Welcome Eric
Yes re-fin as 2 loans:
Loan 1
A. For existing place ( which will turn into a IP)
B. cash out for your deposit ie 20%… ( which will be part of your PPOR loan )Loan 2
A. New PPOR loan for your new place, using the deposit from loan 1-B.Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
My friend told me if I refinance my existing place and cash out for the deposit of new place, the difference of increased loan amount is not tax deductable.
i.e. If the existing loan is 200K, after refinance and turn it into IP with 300K loan. The interest of 100K loan is not tax deductable. I can only claim the interest from 200K in the end of FY.
Is it true??
My original plan is to refinance and borrow as much as I can from the IP loan and top up to my new living place. Then I can pay off my new place faster and the investment loan will be handled separately and the interest from IP loan is for tax purpose
Do I misunderstand something?
Thanks,
EricYour friend is right.
Any funds that is NOT used for investment purpose you can not claim a tax deduction.
So if you had 200k in your IP- and you top it up to by another $100k, but use this $!00k as deposit for your PPOR – then only the $200k will be tax deductable- Hence why i suggested a Split loan; to keep them separate.Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
eric_agape wrote:My friend told me if I refinance my existing place and cash out for the deposit of new place, the difference of increased loan amount is not tax deductable.i.e. If the existing loan is 200K, after refinance and turn it into IP with 300K loan. The interest of 100K loan is not tax deductable. I can only claim the interest from 200K in the end of FY.
Is it true??
My original plan is to refinance and borrow as much as I can from the IP loan and top up to my new living place. Then I can pay off my new place faster and the investment loan will be handled separately and the interest from IP loan is for tax purpose
Do I misunderstand something?
Thanks,
EricIt all comes down to “purpose” – what are the funds being used for?
If the funds are being used to purchase an investment – then the funds are tax deductible.
If the funds are being used to purchase a principle place of residency (which is not an investment) then the funds are not tax deductible.
As mentioned above, if you go down this path, set-up a second loan split so you can clearly identify the deductible from the non-deductible portion.
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]
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