How to acquire a 2nd Investment property after purchasing the 1st one?

Hi Sammie

Welcome aboard the PI.com family and I hope you enjoy your time with us.

Structuring your loan correctly and an appropriate choice of lender is paramount to long term property investing success.

To often we see forum clients with poorly structured loans with lenders which are clearly not suitable to the borrowers long term objectives. Interest rate is one thing but it is certainly not the be all and end all for building a portfolio.

The 2 key elements to moving forward rapidly are serviceability and the ability to keep coming up with required deposit to satisfy a lenders criteria.

In the main serviceability can be overcome in the early days however the hard part is coming up with the 10% deposit and acquisition costs. This can be released from equity from other properties where these properties have enjoyed capital growth as is the course most investors take.

Of course this is not always as easy as it sounds as you have to battle valuers, mortgage insurers etc etc.

Start by making sure you have a good Broker who knows his onions and has experience with investors.

Cheers

Yours in Finance

Sammie wrote:

Hi knightm, thanks so much for your feedback. Just wondering if you’d know if there are articles that could give me a little more insights on the structuring strategies of the loan? Maybe examples of ways on loan structures?

many thanks!

As above Richard Taylor has a great track record and some good wisdom in this area – chat with him. As a private investor starting out I did everything in my own name but different lenders across each property to avoid cross collateralisation. Otherwise my view is that loan structuring is quite important and you should probably see an accountant (who is experienced in property and structures) and a good broker. I have recently heard from a client of Jamie Moore from passgo homeloans happy with the overall structuring advice. A lot depends on your risk profile. If you are a standard wage earner in a low risk profession (risk of getting personally sued) then own name is probably fine. If you are in a high risk profession (like a sole trader medical doctor or something) then use trusts. Trusts have commercial applications too other than asset protection but they are expensive and daunting to some, I would argue its better to make a start rather then spend years debating the perfect structure and actually doing nothing. Get the best info you can, then move forward!

Sammie,

Here is what I do. When I buy, I make sure I am going to get an early capital gain on the property. I research for an area thats about to take off. Then build a house and land package. Or if it’s a new unit development, I get the best location in the building. Renovate a property, only if it is a very cheap buy. Renovating is more of a hobby with the amount of time you spend, you don’t make wages.

It becomes almost a full time job while you are in the process. It takes focus.

When you have established an early capital gain, sometimes immediately or in 6-12 months at least. Use a valuer that is approved by the bank, but works for you. Then get the property revalued and get the bank to give you more cash as a draw down based on the increased valuation. Often you need to have another bank ready to refinance if they don’t give you the money. This is mainly a negotiating tool though.

Build for your next deposit. Set up a trust, or company and use that entity, and a different bank to buy again with.

Don’t tell the banks everything you have and keep the loans separate. You don’t have to tell them of other trust or company holdings. But in your personal name they want to know.

For your third IP purchase , you reverse the same strategy back to your personal name to suck up any other taxable income you may have.

You can also group the companies and loan money back and forth as you need it between companies or trust

I am not an accountant or lawyer, but have had a lot of advice as I build my portfolio.

I do however, help people find early capital growth opportunities.

Hope this helps