Hi Everyone,
I purchased an investment property which consisted of an old block of 3 non strata units + currently have one mortgage on this total property.
My DA to do a major reno (~$1mm) of these 3 units which I intend to strata (I understand strata units have better valuations + gives me the option to sell 1 in the future) has just been approved.
I will put some of my own $ towards the reno cost but seek the balance from the bank.
I would like to ask for your opinions regarding the structure of the finance for this property – I was thinking of simply increasing my current mortgage or getting a line of credit to cover the reno cost then refinance upon completion so I have 3 different investment loans for each 3 different investment properties (note they won’t be identical so cost/final values be different) – will this help avoid cross collateralisation issue?
Any comments/advice greatly appreciated.
Thank you.Hi Ozboy,
I can’t help with any re-financing ideas – but you did say you would appreciate any comments, and I wanted to say that I gasped when I read how much you were about to spend, and simply wnated to ask whether you weren’t over-capitalising majorly???
Of course, there are units and units – and locations that lift some values way above others too.
But to be spending $330k on ONE unit (one million on 3 of them), you would be wanting to create some equity with that, hopefully WAY more than you spend. Some say, aim to add $2 value for each $1 to spend on a reno – so, are you expecting to add $660k in value to EACH unit? If so, how? What are their starting values, and expected end values?
Making each one strata’ed would add some value for sure. And maybe the units are in Mossman Sydney, or Toorak in Melbourne…. which would see them at a PREMIUM price compared to most other units.
Care to share? ;)
Benny
The block of units were built back in 40’s + in v. poor condition so req a major reno (Im basically bulldozing + rebuilding). The location is waterfront in a premium location. The ‘as if complete’ valuations are 1.2m / 1.3m / 1.5m. I intend to hold forever + even live in the penthouse one day.
Ah, OK – my question to myself has now become “Is $1m enough?” But hey, I’m sure you’ve got that all sorted – go for it.
I hope one of the finance gurus stops by with some thoughts re your finance question……
Benny
In terms of refinancing to three separate loans – this will not remove an cross collateralisation because fundamentally the security is only ONE title. The only way you can separate each unit is if each unit has its own title, at which point each loan can be untangled to tie up with only one property.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
I think increasing the loan shouldn’t produce any tax issues if the loan itself relates to only the units. Once complete the loans can be split and the property strata titled At that point the security for each of the 3 splits can be secured by the unit it relates to.
Get tax advice.
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 intend to hold forever + even live in the penthouse one day.
In such a case, it may be worth re-considering the strata idea. Yes, it will increase the valuation but it will also increase the annual rates 😉
Ethan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
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