Borrowing Against PPOR For Cash+ Ip

HI all,

I live with my girlfriend at present and have been trying to persuade her to start investing in real estate. She is a very conservative almost relucant individual so it's hard work trying to motivate her. I would like to offer some info to help entice her to invest. I don't want to get it wrong otherwise that could be disastrous.

Anyway... I have recently bought and IP (high cash - low capital growth (CG)) and as such I don't have the 30K for the deposit and fees to buy any more IP's for the time being. My girlfriend has a PPOR which is worth around 230K and she owes around 116K, she uses a offset P&I loan to reduce interest and pay principle.

I have put it to her that she should buy an IP by utilising the equity in her PPOR, even possibly purchasing one together, using my 18K cash (from shares) as a part deposit.

I am wondering what is the best way to finance a new place. Does she get a new loan against her house to draw the funds out of equity for the deposit and fees. and then get another loan on the IP. I think it would be best to have the loans seperate from the PPOR loan as it helps with taxation.

Also would it pay to borrow enough to cover 5% with Mortgage Insurance (MI) and buy more properties quicker, or borrow 20% to avoid MI and wait for CG to kick in. I would like her to buy a cash+ property (albeit low CG) as that helps your position and if your in it for the long term, CG will happen after some time anyway.

I think that it would be beneficial to buy a high CG property next... to balance income and growth over the portfolio. This is the strategy i will be trying to adopt in my portfolio.

I think I know an answer to my questions but your thoughts are appreciated, and maybe I've missed some aspect.

I hope this makes sense...I tend to waffle sometimes...;-)

keg75

keg75 said:

I am wondering what is the best way to finance a new place. Does she get a new loan against her house to draw the funds out of equity for the deposit and fees. and then get another loan on the IP. I think it would be best to have the loans seperate from the PPOR loan as it helps with taxation.

Click to expand...

Keg,

Sounds like a good plan.

Probably your GF should consider a line of credit as well as other loan options to pull the cash out of her house. If she uses the new loan only for investment purposes she gets the tax benefits....if she simply refinanced with a single loan part personal, part investment it can get complicated.

I think you should be cautious about purchasing jointly with a GF (or BF for that matter)....unless you're planning knot tying or children.....commitment levels can vary & if a relationship breaks up it can get messy - not that children or knots actually prevent break-ups, they just demonstrate a level of commitment

If your GF is not that interested in IPs & this is your strategy for getting her interested - well you might find it works better to take her along to meet some of your friends...incidentally at an investor gathering. Let her talk to some other investors & maybe ask some questions.....YOU may not be able to communicate the benefits to her where a virtual stranger will be able to

Cheers,

Aceyducey

Hi Keg,
provided you can convince your girlfriend and have the income to service new loans I would go about in 2 steps:

1. Increase the loan on your girlfreinds PPOR to 80% (either with an Offset product or a Line-of-Credit) to $68,000 ((230K * 80%) -116K).

2. You then use the $68,000 to pay 20% deposit on $250K home plus about $15K costs (VIC). Then you take out an 80% lend against the new IP

This way you avoid having to pay mortgage insurance and your properties are not cross-collateralised. You could of course, provided you have a clean CRAA and good serviceability and the Mortgage Insurers acceot it, take out a higher lend against your IP thus preserving more equity and enabling to repeat the same exercise at least one more time.

I hope this helps a little. Pls give me a call or send me an e-mail should you wish to discuss in more detail.

Great use of supporting diagrams to explain your concept there RolfS - well done !

Rolf,

Great use of the diagram. practical demonstration.

Keg,

Welcome to the forum

Give Rolf a call he knows what he is talking about, and take AC/DC's suggestion up and go along to one of the somersoft get togethers with your partner, I don't know which state you are in but there are get togethers up & down the eastern seaboard at least monthy. check out "meeting point"

You'll both learn a bunch and meet some great people to boot.

Hi All,

Thanks for the responses so far, all have been insightful (albeit the couple from thommo).

I couple of suggestions were along the lines of my thoughts I just need some confirmation.

I would prefer that we do keep investing seperate that way if there are any issues with the relationship it wouldn't get messy trying to determine who gets what.

I also know that unless she is encourage she will sit back and do nothing about investing (apart from the 'investment' in her PPOR).

I may look at a investor gathering - I am a little shy so this may be a little overwhelming. A few friends invest in property and her dad makes his money from his 3 IP's, so I always try and learn from them.

Anyway thanks again to most of you.

Cheers

keg75

p.s. in responses to thommo - I may be unqualified but I have been with her almost 9 yrs, so I feel that we complement each other and help each other make decisions, and I am writing to the forum to get advice.... also I am not quite sure about your "But if I want one beside me, mine will do" comment. I am not going to sit here and 'flame' you, so have a good day

Kegs,

Just had a look at your location & not sure there any get togethers near the moon?

You may be shyish but you'll find everyone would make you VERY welcome. A great way to meet like minded people.

Keep hanging out at the forum and you'll learn a bunch

Your call.

Hi Keg75,

You have come to the right place to get your financial and structural questions answered but there may be more to your situation.

You have mentioned the word 'Grilfriend' rather than wife. Perhaps your Girlfriend see's buying an IP together as 'more than just a financial commitment' and is waiting for a ring on her finger before she is ready to commit t an IP. I may be 'barking up the wrong tree' but there are psychological barriers for a lot of people to overcome before they are comfortable investing.

Hope this helps !