All Topics / Finance / line of credit strategy?

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  • Profile photo of JMillerJMiller
    Member
    @jmiller
    Join Date: 2010
    Post Count: 7
    April 1, 2011 - 12:27 pm

    Hi can someone explain to me about line of credit strategy for property investment. cheers

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    April 2, 2011 - 4:51 am

    Do you want to enlighten us more about the strategy as it is a new one on me.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of JMillerJMiller
    Member
    @jmiller
    Join Date: 2010
    Post Count: 7
    April 2, 2011 - 7:12 am

    Hi .
    Maybe if I explain my situation.My PPOR is valued at 360K I owe 220K I have split the loan half fixed. I  recently purchased a property for  230k using my PPOR equity as my deposit so I owe 230K the property rents for $280 week and I have interest only loan.(my first mistake cross collaterising loans)
    We have a combined income of about 180K no other debt.
     with any money saved and we pay extra payments on our PPOR.
    I would like to buy a third property what would be the best way to go about it and someone suggested line of credit. Not sure how to go about it or the exact workings of it so if any one can help it would be appreciated thanks

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    April 2, 2011 - 8:30 am

    Sorry now i understand I was assuming there was some new LOC strategy i hadnt yet come across.

    Firstly i would probably think about uncrossing your loans so that you are able to buy IP #2 without getting further into the mire.

    You need to work backwards when calculating the numbers so to ensure you have enough to settle IP2 without incurring too much LMi and also limiting your risk.

    Let us assume that the new IP you buy has a purchase price of say $250K and we look to take a standalone loan of say 90% being $225,000. Acqusition costs come to say $15,000 so you are going to need a total of $40,000.

    Now we also look to have IP 1 standing alone as well.

    Assume that you take out a 90% loan here also so $230K x 90% = $207,000

    You then look to take the $40K from IP2 & the $23K from IP 1 by using a LOC secured against your PPOR.

    As the IP's increase in value you draw back upto 90% of the increased value and pay down the LOC so that it can be used again to fund further deposits.

    You could always use an equity loan instead of an LOC especially if the lender charges a substantially higher rate for an LOC.

    Your mortgage broker should be able to map out such a structure for you keeping your PPOR with 1 lender and the IP's separate.

    Cheers

    Yours in Finance 

    Richard Taylor | Australia's leading private lender

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