Advice on first IP structure

[UrbanPlanner]

Hi guys

My partner and I are looking at getting our first IP early 2013 and just want some advice as to how to structure the loan(s) etc. Our situation:

Income - $155k combined
PPOR - Purchased for $430k 18 months ago with 10% deposit
Bank Val - $470k, owe $374k (although bank val is debatable as they called it a 2x1, when it's a 3x1 and missed a few VERY similar comparables in the same street that recently sold for $500k+, but for our purpose it's not worth getting into it)
Broad brush strategy - accumulate as many IP's now with the potential for quick cosmetic reno, that are close to neutral, then in a few years sell 1 or 2 to fund a decent upgrade for PPOR..
We're currently with BankWest - 5.79% variable

What would be the best way to structure the finance for the first IP, using the equity from PPOR? would it be best to stay with BW to avoid having to pay LMI again? If we do stay with BW can we do it in a way that we can keep the IP and PPOR separated i.e. no x-coll?

Thanks in advance.

 

[tvadera]

Hi,

I would say avoid Cross Coll if possible, also would go for IO loan for IP so that you can deduct all mortgage payments. After 5 years if you want can switch to P&I or still stick to IO by calling your lender. Not all lenders allow this but most do

I would shop around for a better deal and talk to mortgage broker, if all fails you can still go and talk to BW they have your file so know your financial figures.

I would redraw equity from PPOR only if it does not trigger LMI payment and use that as a deposit towards IP. Any spare cash I would just dump it in PPOR offset acct

Also think about fixing IP loan with fixed rates being low and can provide peace of mind but comes down if you are comfortable going down the fixed route.

All the best with ur IP purchase

Regards,
TV

 

[Aaron_C]

Bankwest is super conservative when it comes to lending.

Setting aside the question of what to actually buy - if you are confident that your valuation should be above $500,000 (and have sales to prove it), then order another valuation with another lender (a broker can do this for you). If your valuation is correct, you won't have to pay LMI again. It may also give you access to some equity trapped in your property that can be used for deposits for future IPs - and you can potentially save money as 5.79% is considered pricey in this market for a full-doc loan with no LMI.

As tv said - avoid cross coll where possible but this is quite an easy thing to avoid if you are careful about it. Most important thing is to set yourself up for the next purchase now.

 

[Mick C]

1. Try to get an upfront val ( no credit hits) with a 2nd bank...you may be pleasantly surprised.

2. If the value is the same with the 2nd bank, then "generally" speaking without knowing your financial and goals etc...i would stick with BW as you have already paid for the LMI, with the increase in equity the LMI cost would be pro-rated, probably less then $400.

3. One of your issues you will face with a cosmetic flip strategy or any renovations strategy is that the bank will not fund it unless the property has gone up in value ( + >6 month) so you really need as much CASH as possible....so it MAY be worthwhile investigating into another lenders and balancing the cost of the LMI with how much cash they are willing to lend and the how easy or difficult if might be to access the money now or later on.

4. Yes you can keep the IP and PPOR separated, un-crossed with the same lender....if you cross it your LMI cost will sky rocket.

5. I'm more incline for you to stick with variable; in case you want to jump ship and refinance after your renovations due to better valuation and ease of access to $$ with another lenders.

If you do prefer fixed for budget wise, consider a partial fix.
But on an $155k combine income, i doubt you will have a serous budgets issues this early into your investing journey.

6. Yes the equity from PPOR to fund the IP- yes. But make sure the loans are separate!!!!!!


Good luck

Regards
Michael

 

[Rolf Latham]

Hiya

I dont like BWA, BUT regardless of any val with another lender, you will need a sensational result to justify moving ...................

470 x .90 = 423

u owe 374

Assuming you dont need a cash buffer 423 - 374 as a NEW loan gives you 49 000 to use as deposit and costs on a new separate IP loan.

You will only pay LMI on the new amount

My guess is that you previously paid 6000 or so.

The additional top up premium will be approx 2200 or so to access 49 000. Further, if the property increases further in value over the next few years AND you qualify for lending conditions etc , you can re use the majority of the lmi already paid.

You'd need a val of 560 000 to achieve the same outcome with a new lender and no new LMI...................

I come across this weekly where a borrower has LMI fears which are often fostered by bankers/brokers looking to turn over a new deal and in the process stuffing up your resources.

On the surface, you have good income, and so therefore I would class you as equity bound,so ...........

LMI is your friend

ta
rolf







You may then be able to get a separate NEW loan to 95 % for the new property purchase, secured only to the new property.

ta
rolf

 

[UrbanPlanner]

Thanks guys. We've been seeing a broker and he was the one who organised for CBA to do the valuation and also recommends staying with BW to avoid having to pay LMI and also get a discount on the interest rates (5.59%?) across our loans. Im not at all doubting his abilities as a broker, just doing my DD and seeing if there's better ways of doing things.

Aaron, in terms of what we want to buy, either an older house with a bit of land (450sqm min) around Morley (near Galleria), Bayswater, Bassendean etc that we can do a quick value-add using our own cash probably, or a newer unit closer to the City with less land. We don't intend on spending more than $400k so in terms of the current valuation figure, it sounds like we'll have enough equity for a deposit based on a ~$470k valuation.

Mick, not 'flipping' as such, really just a quick value-add to [hopefully] increase yield, so more buy and hold, at least for the short-medium term. And yeah not fussed on fixing as I think it all comes out in the wash long-term anyway.

Rolf, so staying with BW would be beneficial in terms of LMI in the context of the current valuation?

So would we best off going for a 95% lend (if the property is negative) meaning that we would only need to use say $20k equity + costs on a $400k purchase? I know a lot of people have different ways of determining it, but does ATO consider an IP to be negative geared when the rental income is greater than the loan repayments? or is there more to it?

Cheers