Hi All, back to gain some more knowledge from everyone
I currently have an IP thats been rented out since the end of March and I'm renting with mates to save money.
(I must admit I have the best tenants ever!)My IP is currently neutrally/slighty positively geared by a few K after I've done all my calculations.
I'm currently looking to purchase another IP in the same suburb as my current one as I've lived in the area and since I was 2 years old and know its on the way up with council developments. (Unfortunatly land not subdividable yet)
My main question is how should I set up the new loan and how much deposit should I use.
Currently:
Offset has $36K, $44K as of next Thursday (Bonus). Rent from current IP goes into offset aswell as salary.
My loan is IO with 288K remaining. House is valued at around $340-360K
My current Bank has stated I can loan about an additional $330-350K aslong as it generates rent above 300pw. Easy
House value will be looking at around $320K then stamp duty etc.Should I use all the money in the offset account+equity as a deposit to not get LMI but my current IP then wont be neut geared.
Should I use the equity in my current IP as a deposit and have the current loan split into two. Also no LMI?
Should I borrow 95% of the property price and have LMI as it's tax deducatble then use most of the offset money for another deposit on another IP in the future?Current income: About 68K + 23K rent.
No other debt besides IP loanI think that's everything
Look at an alternative as there are a couple of options to go to 90-95% without paying LMI.
Whilst it is a Tax deductible expense it is something where possible i would avoid or at least reduce.
(Remember it will be cheaper to start again with a new lender and less LMI exposure than to use your current Bank whose exposure willl be the 2 loans added together)Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi RyanJD,
If very important that if you use the current lender you don't allow them cross-collateralise the properties. They may tell you this is how it is done and yes that's true in bank world but it's not the only way and you need to protect your position and keep the flexibility to change, sell or refinance in your portfolio without getting "permission" that can be required when you cross-collateralise. The best time to avoid this is right now when you are buying your second property. Consider using a different lender too.
Whether you pay the LMI or not it depends on your personal choice and your plans for the next IP purchase. Sometimes it is better to use LMI and have the cash for the next purchase or have a buffer available in your own bank account as your own insurance policy. Don't leave yourself with nothing to fall back on if something goes wrong.
Best of luck.
Tracey
The money in your offset account is cash so if you use it up and then require cash later for personal expenses you may have to borrow it back and this may create adverse tax consequences. However this may save LMI.
Do you have a home loan? if so then paying the money into the home loan and reborrowing may give greater tax advantages.
If no home loan then using the cash now will mean you have less cash later to pay for a home loan (which means more non deductible interest).
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 everyone,
Terry I've got a IO loan home with the money in a 100% offset.
I've been told by my bank i can reduce my current home loan now to 6.95% from 7.10% but if i reduce the loan from 288K to 262K i can have the loan for 6.85% because the LVR will be 75%. Is this a good deal?
I've noticed other banks have pretty crap deals on there websites. Do brokers get access to better deals for clients?
Ok, so you have a PPOR loan and an IP loan already?
If that is the case you would be saving more tax in you paid the money into the loan and then reborrowed it, under a separate split, for investment purposes. You would b reducing non deductible debt and increasing tax deductions.
You really shouldn't go to a bank yourself. It is like doing your own conveyancing, risky!
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
I'm renting with mates so only one loan which is for the investment property.
I refinanced to IO when i started renting it
If you are renting then paying more money into an investment loan means you will have less cash available for private expenses.
imagine if you had $100,000 cash and then used this to purchase an investment property, a year later you decide to go out and buy a house to live in. Net result is you have a $100,000 higher loan on your home and a lower loan on your investment. This would mean about $7,000 pa less in tax deductions.
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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