How to buy a second investment property

Hi Sam

Difficult to comment without all of the other financial information but assuming you have no cash funds i think you will be limited to what equity you can access.

Most lenders will limit your equity release to 90% of their valuation so depending on whether the renovation has added much in the way of increased value will determine what you can and cannot get out of the deal.

Realistically for an IP you are going to need 10% of the purchase price plus your acqusition costs so on a $350K purchase price probably need around $50,000 in accessible funds.

Who is the current lender ?

This will determine who they use for valuation and the likelyhood of squeezing out some extra funds.

If you do have cash i would be looking to pay down the current PPOR loan and taking out a new sub loan to 90% of the lenders valuation. You want to maximise your deductible debt.

Cheers

Yours in Finance

Good for you!

I prefer to pay of the loan, but that's just me. i don't like the idea of pending loans, I'd rather have it out of the way. 

Cheers!

Hi Sam

It's a second loan set up against your current property. For example, just say your current property is worth $400k and you were able to access equity up to 90% of its value, you'd have the following set-up:

Loan 1: $315k (current loan)

Loan 2: $45k (this is the equity release or sub loan)

The $45k would then be used to fund the deposit/costs on your next IP purchase.

If you are using cash towards the purchase, then it may be worthwhile paying down some of your current loan with the cash – and then re-borrow.

To provide an example, just say you were going to use $20k cash towards the deal. You could pay it off your current loan and then re-borrow so your set-up would look like this:

Loan 1: $295k (current loan minus $20k you've just paid off)

Loan 2: $65k (this is the equity release or sub loan)

Why would you do this? Because the $65k would be tax deductible. If you simply used $20k of your own cash and $45k in equity, only the $45k would be deductible, the $20k savings wouldn't be.

It wouldn't be a bad idea to get a decent broker to set this up for your properly – Richard who's already responded to your post would be able to sort this out for you.

Hope that helps.

Jamie

Hi Sam

Yes definitely you want to go IO especially if you have non deductible PPOR debt.

Issue of course would be the CBA serviceability model is a shocker and you will struggle to get CBA to agree to go to a 90% lvr without a defined purpose. 'Future investment' wont wash with CBA these days.

Cheers

Yours in Finance

Hi Sam

Personally, I'd extract that equity before fixing a portion of your loan.

You don't want to fix now and then find out that the bank you're with won't allow you to access equity for whatever reason.

You also need to be careful about PPOR loans and redraw – there could be taxation implications here.

Cheers

Jamie

Hi again Sam

Chances are they'll have no idea about what you're aiming to do – it sounds harsh but it's a reality in most branches.

Richard Taylor who responded above will be able to set this up properly for you and you won't have to worry about the branch staff making a mess of your loans.

Cheers

Jamie