Borrowing fund for IP not using PPOR ?

[JohnHenry]

Hi All,

I've just been told by my friend who went into a property seminar that one of the key to stay safe in Property investment business is that we should not borrow money from bank using our own home as the equity (to avoid cross-collateralized our PPOR) ?

suppose I only have one home PPOR then how is that possible to get another funding to buy the first IP, Can anyone shed some light in this matter please ?

 

[Rolf Latham]

Hi JH

a number of strategies may work, but without knowing the content of the seminar im like a 'deer in the headlights"

Save enough cash for a depsoit and costs may be one silly way....

ta'rolf

 

[JohnHenry]

Exactly yes that's why I am confused now as how it can be possible ?

 

[Rolf Latham]

Lets try an example

Say you had a PPOR with 100 k loan and it was worth 400 k

You want to buy an IP worth 300

The approximate cost like stamp duty say 10 k

To minimise LMI on the purchase u can put down 20 % = 60 000 and you need another 10, so 70 k all up, and take an 80 % loan on the IP ( 240 000)

WHat you can do is take a loan on the PPOR thats separate to the 100 k, and make that 70 000 secured ONLY to the PPOR.

if u are really paranoid, you can use different lenders for the 2 above scenarios

ta
rolf

 

[BV]

Hi All,

I've just been told by my friend who went into a property seminar that one of the key to stay safe in Property investment business is that we should not borrow money from bank using our own home as the equity (to avoid cross-collateralized our PPOR) ?

suppose I only have one home PPOR then how is that possible to get another funding to buy the first IP, Can anyone shed some light in this matter please ?

JH
The lender needs to have something as security or they won't lend you money for the deposit of the IP

However, as Rolf said you can ask the bank to lend you money against your PPOR and to make those funds available as redraw so you can pull them out and use them as the deposit for your IP

Your PPOR will be mortgaged but it won't be crossC'd with the IP
and as Rolf said, you don't need to get your IP loan from the same lender

 

[Focus]

I agree with Rolf but would add that I advise my clients to have the loan on the PPOR ready to go before you start even looking for your first (next) investment property. Having a larger deposit has helped me knock $$$ off the purchase price.

 

[JohnHenry]

I agree with Rolf but would add that I advise my clients to have the loan on the PPOR ready to go before you start even looking for your first (next) investment property. Having a larger deposit has helped me knock $$$ off the purchase price.

Thanks for the advice Focus, I just now heard from a property seminar the terms for this is ...Firewalling

So do you mean that assuming the Offset account has redraw facility, you are suggesting to withdraw some amount necessary for deposit and borrow from another bank ?

 

[Peter_Tersteeg]

So do you mean that assuming the Offset account has redraw facility, you are suggesting to withdraw some amount necessary for deposit and borrow from another bank ?

An offset account is simply a savings account connected to the loan (it doesn't exactly have a redraw).

You set up a second loan account beside your existing home loan, both secured by your home. This second loan initially doesn't owe anything, so you can then redraw the funds for investment use, such as deposits for the next IP.

The rest of the funds for the IP can come from any bank you wish. This structure keep all the properties isolated from each other (I guess you could call this firewalling).