effective loan structures for PPOR/IP

[quintets]

I'd like to structure the existing IP loans and new (big) PPOR loan so we can easily get back into the IP game. Like everyone, I'd like to get to the magical land of LOE, but we're starting out all over again, and I just want to know the key first "baby steps". Does anyone have any ideas on how to structure our loans effectively? We've just bought a new PPOR and will probably put property investing on hold for a while because we've just really stretched ourselves to get this one fantastic house.

I'm most likely refinancing everything with Heritage's pro-pack (HBS), no x-collateral and putting as many split accounts in as possible. We're going to borrow 80% of the purchase price and get the rest from an LOC we also have with HBS from our other two existing IPs.

Even though the other IP loans are pre-existing, I'll push to have separate sub-accounts added on the LOC so I can separate out my existing income-producing balance from the part used for the PPOR. My broker has said this is possible.

I'll also push to have two (or more?) separate accounts on the PPOR loan so I can pay extra into the PPOR into account A, then draw out into account B to diversify our portfolio into shares a bit. We've got too much in just IP, IMO.

Does anyone have other ideas on loan structure, or any other kind of structure?

We'll also have to clamp down on spending to make this all work. I'll probably dust off my copy of Anita Bell's How to Pay Off Your Mortgage in Five Years to get some ideas on cutting costs. This whole thing is going to be a bit of a leap of faith for the partner and I. We've never had to live this tight before. It will be kinda like being "poor" for a while until we slowly get a bit of financial momentum going again.

I really don't want to just stop all investing just because we've gone out on a limb to get our dream home. I think we've bought well. It's Sydney (Picnic Point) and the market seems to be a level playing field now between buyers and sellers. Some houses take forever to sell, others are getting snapped up if the vendor is realistic. We had already missed out on two properties that were just bit below or above asking price and gone within a week. Not this time. We pulled the trigger with one viewing on this one.

PS: We'll rent it out for a year or so because rental income would be much higher than what we pay where we rent now a few streets over.

Oh...this is too much fun. Any comments would be appreciated

 

[Rolf Latham]

Hiya

My main comment would be to be very careful that you can muck around with loan limits.

I do a fair bit of HBS stuff and I wouldnt use them as a first choice for that sort of set up ( that being a debt recycle statregy).........everytime you want to change the splits on a global limit, you are up for a new loan app..............

While that might not seem much of an impediment because the fees are covered by the pro pack, remember that while u might service well for a loan today, the next IP deal you get may stop that PPOR limit restructure in its tracks.

I tend to use ST George Portfolio and Westpac Premier Advantage Pack Locs for debt recycle strategies, since you can change any of the split limits simply with a letter.

ta
rolf

 

[quintets]

Rolf,

I did a search of debt recycle and am I right that for it to work, you need the flexibility to move the split limits at will without much penalty? I'm assuming the idea is start with a loan of say, $100k. You'd start with split A at 100K and split B at $0. After I paid off $10K on split A, do I then ask to get the limits on A/B moved from 100/0 to 90/10 so I can redraw $10K from B? Then after paying another $10K into A, one moves the 90/10 split to a 80/20 split...etc. It seems one keeps moving the splits without changing the original facility limit? Obviously, the money drawn from B has to be used for something the ATO deems "income producing"...whatever.

If this is true, then your comment means that HBS won't let me change the split limits without incurring a new application. Does that mean I shouldn't bother negotiate up front the ability to change the splits with just a letter before signing the umbrella pro-pack agreement? Or am I trying to change the impossible?

Obviously, I'll have to get my own personal tax advice, but am I right on the mechanics of the debt recycle approach? Am I right that this strategy is relatively new?

Wondering,

Jireh