Hi,
Here is a hypothetical scenario: I have $250K saved up. I want to to purchase a house to live in valued at $450K. But later, say next year, I want to also buy an investment unit.
Which scenario would work best?
1.Get two loans, one for each property, ie borrow $200K for the house in one loan (together with my $250K). Then next year, apply for another loan to borrow $250K for an investment unit?
2. Get one big loan: Borrow $450K to buy the house, and use my $250K saved up to buy the investment unit? Assuming that if the investment unit has no tenants for 6 months, I would find it difficult to make the repayments on $450K.
Please comment.
Thanks Adam
Hi Adam
Firstly welcome to the forum and i hope you enjoy your time with us.
Way i would probably structure the loan if you were a client is mine is:
1) $200K Interest only loan linked to a 100% offset account.
2) Investment line of credit to 80% of the purchase price less the existing loan in 1) above.You wouldnt pay anything for the Line of Credit until you drew down on the loan and would be probably be able to negotiate a better overall interest rate / package based on the higher loan amount.
Your mortgage broker should be able to offer you some suitable options.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I would do neither. You would want to minimise the size of your PPOR loan and maximise the investment loan to enable you to save more tax.
Richard's method makes sense.
Loan 1. A small PPOR loan by using $250,000 as deposit.
Loan 2. You then take out a LOC up to 80% of the value of this.Loan 3 for the new property. IO as high LVR as possible with the deposit etc from loan 2. So you will end up borrowing 105% of the investment property. Loan 3 is only secured by the investment property. Loans 1 and 2 are only secured by the PPOR.
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
BTW, if you did your option 2 and used $250,000 to buy the IP:
$250,000 x 7% = $17,500
That means you would have had $17,500 less in tax deductions!
That is a huge difference in tax
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
Thanks Richard and Terry!
Now I understand….minimise PPOR loan and maximise IP loans.
I will keep browsing the forums
Thanks again!
Asea – if the home you are looking at could become an Investment Property at some stage in the future, and replaceed by another home, you may wish to consider an offset account structure.
This will give you some flexibility with your funds moving forward.
Derek agreed that is also why i suggested the loan should be interest only with 100% offset from day 1.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Richard,
It's that Qld broker speak – gets me everytime.
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