Beginner question, regarding finance!

Hi guys, just thought i'd let everyone how helpful this forum has been! I've been lurking for a couple of years.

So, I've just turned 24 and three months ago I purchased an AFH home for 185k, I borrowed 95% and so with LMI I have a loan of 178k. I have 50k in an offset account while I live in the home to keep the payments down.
I've done some renos (5k worth) on the place and it's been valued at 245k.
Approx rental value is 275-300 a week.
Plan is to live in it for the 6 months then to rent it out, it should be about neutral. I've found another home for 205k that I want to buy and use immediately as an IP, would rent for 300 a week.*
My gf and I will be getting married next year and will want to buy a PPOR. I earn 85k a year, Chelsea's studying so I'll just buy this second one in my name, but by the time we get PPOR she'll be on 60k.

How should I structure loans to buy the 205k home, can I use equity from current home? Or equity and cash? Also, once they are both rentals how do you keep track of expenses for tax purposes? Do you have one credit card for IP expenses? Does all rental income go into the corresponding home loan?

Also, we won't spend more then 350k on PPOR, which will be an IP down the track anyway!
Currently my 178k loan is on variable with CBA.

Thanks a tonne guys!
 
You can ask CBA to increase the loan against the IP to fund the next purchase. Just make sure you keep the loans separate and don't cross collateralise.
 
Welcome to the forums.

For the 205k purchase top up your current IP loan for the purchase. Avoid using your offset cash as this can be retained later for your PPoR purchase, to maximise tax benefits.

re: avoiding x-col, have the equity accessed so you can use the funds as a cash deposit, don't tie the securities together. If you're using a good broker or banker, they should understand when you tell them not to cross collateralise.
 
Sure that the applications are done at a similar time (due to the cash out / release of equity in LMI territory) but also ensuring that there are two applications submitted, not one.
 
Best not to use your cash for the next one as that will mean more non deductible interest when you buy your PPOR.

Set up a LOC on the first one if enough equity. If not then consider some strategies to use your own money with affecting the deductibility later.
 
Oh, so is that how a property portfolio is structured? You just keep increasing the one loan for your IPs? So say I have 5 IPs worth 200k each, I would have one single loan of 1mill for all of them?
Also, do you have a transactional account set up with the losn that all the rents and expenses come out of? Do you keep any profits at end of year in account for a rainy day or put it in another account that's non deductible?

Beginner 101, sorry
 
Oh, so is that how a property portfolio is structured? You just keep increasing the one loan for your IPs? So say I have 5 IPs worth 200k each, I would have one single loan of 1mill for all of them?
Also, do you have a transactional account set up with the losn that all the rents and expenses come out of? Do you keep any profits at end of year in account for a rainy day or put it in another account that's non deductible?

Beginner 101, sorry

Not exactly.

You can top up your existing IP1 mortgage to 220k, giving you 42.5k funds available. Those funds can be used for IP deposits. The new IP2 purchase of 205k will then use part or all of the 42.5k as it's deposit, a standalone loan for the rest of the purchase price.

In simple terms at the end of the purchase of IP2 it would look a little like this:

IP loan 1: 220k
IP loan 2: 184k

On a 90% lend for IP 2, you would still have funds left over from the equity access. You can store this in the IP loan redraw account, for further purchases in the future.


One large loan on the other hand is an indication of a x-coll loan.
 
Oh, so is that how a property portfolio is structured? You just keep increasing the one loan for your IPs? So say I have 5 IPs worth 200k each, I would have one single loan of 1mill for all of them?

That would be the exact opposite of what you do. Ideally you should have separate loans for each property, secured only by that property. What you're proposing is about as bad as it gets. You'll loose all control over your finances and won't be able to clearly identify what money is for what property.

Corey (CJay) is in Adelaide. He's very good at what he does and will be able to help you figure out and optimise an finance plan to complement your investment strategy. Getting him to help you would be a good place to start.
 
RookieLearner - the best way to look at it is to treat each property as individuals. Do not lump them together as one big loan or as one big security value. Then you will understand how important it is to get separate loans and maximise equity on each one.
 
Oh! That makes sense, so Cjay, the 42.5k figure you mentioned, where'd you get that figure from? If I do it that way and only use a portion of the 42.5k do I pay interest on the whole 220k or just what's been used?

Oh Brady, I had two real estate agents come out and they valued it at 260k-275k, so I figured banks are probably more conservative so I kind of came up with figure myself using comparable sales. Is that wrong?

Yep, will have to use his services!
 
I came to that figure by taking 90% of 245k minus current liability. That exposes your current accessible equity available.

CBA will allow you to go above 90% for top ups, but case by case. 90% is an easier and more cost effective number. :)

By putting the excess funds used back into the redraw you will only be liable for interest on the funds used.

Best bet regarding your value of the property would be to order a valuation on the property, so you have an accurate understanding of how much funds you have available for access.

Hope that helps.
 
Oh! That makes sense, so Cjay, the 42.5k figure you mentioned, where'd you get that figure from? If I do it that way and only use a portion of the 42.5k do I pay interest on the whole 220k or just what's been used?

Oh Brady, I had two real estate agents come out and they valued it at 260k-275k, so I figured banks are probably more conservative so I kind of came up with figure myself using comparable sales. Is that wrong?

Yep, will have to use his services!

Yes compareable sales is the best method to use, sometimes even worth while passing the comparables you have onto the bank/broker to forward to the valuer...

If your loan is $178k and value of $185k you likely paid about $4700 in LMI, you will get credits for this so you could quiet easily borrow up to 95% again with not much LMI to pay. I work it out that you could get approx $54.5k and the LMI will only be ~$1k
 
Was taking out a 95% loan a bad idea? My justification was it meant I had ready access to my cash and with it in an offset it kept my monthly repayments to about the same anyway... Also as its part of the loan does that mean its a deductible part of the debt?
 
Was taking out a 95% loan a bad idea? My justification was it meant I had ready access to my cash and with it in an offset it kept my monthly repayments to about the same anyway... Also as its part of the loan does that mean its a deductible part of the debt?

I think its fine, if your purpose if for it to be an investment... Look at the LMI as a cost of doing business.

LMI isn't too expensive whilst under $300k

And as you said its allowed you to retain your capital/cash
 
Was taking out a 95% loan a bad idea? My justification was it meant I had ready access to my cash and with it in an offset it kept my monthly repayments to about the same anyway... Also as its part of the loan does that mean its a deductible part of the debt?

Not a bad idea, you made a rational decision. It's generally suggested that if you use 95% lends, to do this early - which you did. Brady touches on a good point, as you've paid substantial LMI it may be cost effective to go up to 95% of the new value. There is greater scrutiny placed on 95%'ers, but if you have a healthy credit file without much activity, good conduct etc there aren't too many problems.

As you have capitalised the LMI the interest is deductible.
 
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