Hi All,
This one is about choices and the pros and cons.
Background
PPOR owned outright, mortgage still active but 100% offset. Property value around 1.5m, mortgage value 160k.
IPs 2 small studios, generating $5k p/a total of +cashflow (these are currently crossed), IO mortgage against them for about 60% of value 450k (this will revert to PI in 6 months). Long term hold on these of 13+years, originally under wifes name, payed them off, then sold them to me to release equity to pay off PPOR.
High income bracket PAYE.
I have excess income to fund a negatively geared environment.Goal
Develop income stream to offset early partial/full retirement from 60yo (currently 45)Scenario
Have gift of 80k to apply towards next IPs. Looking at acquiring 2 IPs of around 350k each.Question
Structure? I have read the articles/posts etc around not crossing.What are the pros and cons to think about.
a) buy 1 IP @ 350k @ 80% LVR using the full 80K?
b) buy 2 IPs at 350k @ 90% LVR and pay LMI?
c) buy 2 IPs at 350k @ 80% LVR, 10% cash and cross the security with existing IPs.Loan repayment would be PI
Don’t want to securitise against family home under any circumstance. I can lose my shirt, but not my bed :-D
Looking for long term hold on all IPs.
-
This topic was modified 9 years, 11 months ago by
tlgsydney.
Hi tig
On the basis you are fully aware of the pros and cons of not crossing it all boils down to comfort level.
Not sure why you would use the 80K gift to put down as deposit on an IP in your sole name but guess you have your reasons.
Why would you not use the funds to pay down the PPOR by 80k and then borrow the 80K using your existing IP’s as security meaning that you would end up borrowing 100% + of the new purchase price /s.
If you intend too pay down the principal rapidly why would you not put the Title in the name of your wife with 2 of you on the loan.
You could look at a fixed rate loan with 100% offset account. A few lenders offer such options.Away from this it will merely boil down to your personal opinion.
I paid off the principal of all of our IP loans and for the last 11 years have enjoyed a very healthy rental income but most people understand that you would not pay off the principal of an IP when you still have non deductible PPOR debt.
LMI is an opportunity cost which is Tax deductible so if you feel the fact of borrowing a higher lvr percentage and paying a premium for it gives you peace of mind that your other properties are not being used as security why not go to 88.9% lvr and look at buying multiple securities.
Sensible structuring and the right choice of lender should see you achieve your end goals.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard.
Our PPOR is effectively paid off 160k owing, 160k in offset. This is just a risk/opportunity/comfort decision. On top of this I have another 80k free.
Ok all noted.
Why wouldn’t you buy the IP in your wife’s name or in Trust given that you intend to pay down the loan as quickly as possible ?
An IP with 80K used as deposit is likely to positively geared from day 1 so income v expenditure will only increase over time as the debt gets smaller.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks again Richard.
The new IPs would likely be -ve geared and offset against the +ve geared current IPs. As IPs become +ve we would look to expand portfolio and -ve something to offset any +ve. One goal, to have a self sustaining growth.
Yes, trusts etc are something we are considering. Still waiting to meet with our acct to discuss. Current IPs are in my name only, carry over from internal sale to release equity.
Ok still would have thought with an 80k deposit and a P & I repayment the property would be cash flow positive at current rates of interest so not sure why the Title would be in your name.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
OK, undertand where you are now. That comes back to a choice of A, B, C from the first question.
Do I buy 1 at 80% (+ve G) or 2 at 90% (-ve G)? Then 2nd question on 2 IPs, is do you pay LMI on 90% or cross it with other IPs to not pay LMI?
Yes I think you should consider the ownership structure in more detail.
Any property you buy will be cashflow positive very soon, if not immediately. This will then result in even more tax payable if you own it.
Can’t see why someone in your situation would even consider paying LMI. Just a waste of money in this instance. with your option C there is no reason to cross securities in this situation either.
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
Sorry, I may be miss understanding the cross securities thing a little in this case. I thought using the first set of properties as part security (10% cash, 10% property security against existing) the 2nd IPs was “crossing”?
This is just to avoid LMI.
Cross security is using 2 properties as security for one loan. This can be avoided completely in this situation and you could borrow 105% (ie full price and costs) without crossing and without incurring LMI.
-
This reply was modified 9 years, 11 months ago by Terryw.
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
To avoid cross col + LMI you could just draw the equity out as an equity access, then put this forwards as security alongside the cash for the new loan (which is only secured against the new purchase).
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
-
This topic was modified 9 years, 11 months ago by
You must be logged in to reply to this topic. If you don't have an account, you can register here.
