Cross Collateral

[michael barrett]

Been offered advised from a financial planner

secure loan based on equity in owner occupied home
use 70% to invest in property within 6k of Brisbane CBD
use 30% to invest in managed funds
use return form managed fund to pay down the owner occupied portion of loan
use aggressive tax deductions to reduce the loan

this strategy should yield a significant reduction in the owner occupied loan within three years
little activity on the investment property aspect of the loan, but Captial Gain should compensate for this

This is new to me
What are the obvious & not so obvious pitfalls

regards
M

[WillG]

Hi,

From the title of your post 'Cross Collateral' you seem to think the advice you have been offered involves 'Cross Collateralisation'.

This will only be the case if your new IP loan is secured against your PPOR.

If 70% of the loan taken against your PPOR covers more than 20% of the value of the new IP then the IP should stand on its own and you will not be cross collateralised

use 30% to invest in managed funds is pure cash then you aren't cross collateralised.

Can you be more specific with some of the values such as value of PPOR and the amount of equity you have.

Cheers

[simonjulie]

Hi M
Some people like to control their finances and others get other people to do it for them for various reasons.
Which kind of investor are you?
IMHO, It might be of considrable benefit to your financial future if you were to educate yourself in that regard instead of relying on a financial planner to tell you what to do.
The above structure uses property as a leveraging tool to pay off your PPOR quicker. redirect the tax that you would have paid to the taxation department into your IP for your future financial benefit. And thirdly spreading your liquid equity over various financial asset classes to take advantage of the countercycle effects of Shares and Property.
In a perfect world this would be a sound set and forget strategy however this is not a perfect world and the economic clock ticks eratically.
Financial education is the key.
I read this statement a while back and I really think it is true. "if you want to be a thin person, eat, drink and live as a thin person does" the same aqpplies to financial freedom.
This forum has an archive worth billions of $$$$ in info regarding property investment. Have a read I am sure it will inspire you to ask more questions.
another saying"your life is shaped by the questions you ask.
Kind regards
Simon

[Qlds007]

Michael

Yes all good in theory and as long as the loan is structured correctly will work well.

Just bear in mind that you Fin Adviser has an interest in you investing in managed funds as he more than likely receives a commission. I assume that he isnt licensed to find you a property.

Just make sure you are not buying to the wrong end of the economic cycle as far as the market is concerned. Property prices in Brisbane have certainly flattened and there are a few good bargains to be had.

Make sure that you dont cross collaralise the 2 loans as that will cause you problems in the future. I also can't see the problem in borrowing against the invt property to a level of say 80%.

As i say make sure you structure your home loan corrctly in order to achieve the desired result which is obviouly reducing the principal on your home loan as quickly as possible.

[michael barrett]

Richard,
the adviser is set up with a partner
the adviser is a licensed realestate agent and a licensed financial planner.
his partner is an accredited mortgage broker

they propose to find the property
manage the investment fund
manage the investment property
write up the financial plan

am i overexposed to one person/group

regards
Michael

[michael barrett]

Simon,
I'm too busy to manage it myself and don't have enough enthusaism to do it properly, so I'm prepared to do this in a conservative manner.

Do you have a suggested book that deals with this type of investment strategy.
Someone mentioned Peter Spann, but I don't know how that it

regards
Michael

[michael barrett]

WilyG
thanks for the advise and I recognise I need to wiseup on the terminology.
There is about 60% equity in the PPOR

I thought I would be cross collateralised under the following circumstance.
I would have one mortgage covering two properties.
If the stategy failed and I defaulted on the loan the both properties could be callled in.

Again, apologies for not understanding enough yet.
regards
Michael

[DavidMc]

Richard,
the adviser is set up with a partner
the adviser is a licensed realestate agent and a licensed financial planner.
his partner is an accredited mortgage broker

they propose to find the property
manage the investment fund
manage the investment property
write up the financial plan

am i overexposed to one person/group

Hi Micheal,

In my opinion it all sounds like a pretty good way to go (in terms of the setup). My advice if you go ahead with this 'all in one' group - ensure that you get an INDEPENDANT valuation on the property. Two valuers in QLD are Herriots Valuers (on 07 5532 6000) or Herron Todd White (07 3210 3000).

This mob might very well be a reputable and ethical organisation, however you should be aware that there are some out there that onsell highly inflated real estate and rip people off tens of thousands because they don't know the true value of the property.


Cheers,

David.

[Qlds007]

Michael

Hate to say it sounds too close for me.

Must admit don't like the sounds of the adviser also being a real estate agent doesnt sound too impartial to me.

I can't see why you woul dever have the 2 loans X collaralised.
What happens if you decide to selll one property in the future or want to refinance your home loan.

Yes both Herriots and HTW are good valuers but remember the Bank will more than likely do there own valuation.

Are you telling me that after all this they are still charging you for all this wonderful advice.

Feel free to email me off the forum and I will tell you what i think of the organisation cocnerned as well as what they have recommended.

[Rolf Latham]

Hiya

Look very carefully and take the advice already given.

Keep your property and finance and legals separate, that way there is much less rosk of a snow job.

ta

rolf

[Les]

G'day Michael,

Keep your property and finance and legals separate

And Les says "Keep your PPOR and IP's borrowings separate" - that way, if the worst happened, you'd still keep your house. In other words, think carefully before using cross-collateralisation.

(In my case, my PPOR has loans against it for investing, but the same lender is NOT used for IP loans - helps me to sleep at night...)

Regards,