2nd IP financing

Hi all, I've had my first IP for nearly 12 months and am ready to start looking for another. Can anyone tell me how I go about getting finance for the second one? Is it all about using the equity in the first one, or are there tricks of the trade I'm missing?

I welcome all tales of success or otherwise....
 
Hi Molly

My prefered strategy for clients is to get them to look at an investment line of credit secured against their existing property and use this (subject to available equity) to fund the 20% deposit and acqusition costs for the new IP.

Then in turn take out a standalone investment loan secured solely against the new property.

As time goes on and the value of IP 2 increases top up to 80% of the increased valuation and pay down the Line of Credit which can then be used for additional deposits on further investment property purchases.

Repeat until retired.
 
I agree. As tempting as it might be, initially, and as hard as your bank may try to lure you into using the equity in your existing property to secure a stand alone or x-coll loan, it will come back to bit you in the future.
As has been suggested, milk some equity from the existing IP, then take that to another bank, slap it on the counter and tell them it's your deposit for your next IP.
Take it from someone who learned this the hard way.
 
One small caveat I would have with LOCs rather than an IO term loan, be aware that some LOCs have a "repayable on demand" clause in them. Some clients dont like that. I dont know of anyone that this clause has been used on where they have been compliant with their loan, but its there for a reason im sure

ta
rolrf
 
Hi All,

I'm new to this so sorry for silly questions.

Why is it bad to use existing property as security for the loan for a new IP?

Alex
 
Equity

This may be a silly question, but how do I work out how much equity I have? Do I need an agent to value the place?
 
As has been suggested, milk some equity from the existing IP, then take that to another bank, slap it on the counter and tell them it's your deposit for your next IP.
Take it from someone who learned this the hard way.

Going to another lender if possible is a very good point made by Rob. Even if the bank has not sought to x-collateralise, almost every bank contract will have an 'all monies' clause tcked away in the fine print. In simple terms, they can call money in from any account you may have with them.

This may be a silly question, but how do I work out how much equity I have? Do I need an agent to value the place?
Molly, there are no silly questions, only silly actions from not asking questions.

You don't need an Agent if you just want to get a guide. Look at the recent selling prices of similar properties in the area of your property (say within past 3-4 months), take away what loans are owing, what's left is your equity.

Example: House is worth $300k
Less loans of $180k
Equity = $120k

Project 1080.

The project: 10 IPs in 80 mths.
 
Just remember "equity" and available "equity" can be 2 different things. usually only 90-95% of this maybe available. Using anything over 80% will take you down the LMI path.



Regards
Steve
 
Hi all, I've had my first IP for nearly 12 months and am ready to start looking for another. Can anyone tell me how I go about getting finance for the second one? Is it all about using the equity in the first one, or are there tricks of the trade I'm missing?

I welcome all tales of success or otherwise....

Hi and welcome!

Back to the basics of the question:

Find a good Mortgage Broker.

A good Morgage Broker will:

1. Listen to your needs and take into account your future plans.
2. Source a loan from a lender that suits these needs and plans.
3. Explain to you what Line Of Credit Accounts and other financial products mean and how they may or may not benefit you.

Yes, use the equity in your first property to purchase your second.

Good luck!

Regards, Jo
 
Thanks Jo - will let you know how I go.
My Broker came very highler recommended and I have been very happy with her thus far. Will see where this relationship takes me! :)
 
No, she didn't explain it to me when purchasing my first IP, however I am yet to meet with her re: 2nd IP.
I've done some number crunching and i might have to wait a little longer, which is very frustrating!
 
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