Finance advice using equity+cash

[kavo]

Hi,

I've only just joined so have much reading to do.

My father and I are looking into buying an IP, him using equity in the home he owns PPOR and my cash as a deposit. Is it possible to put down say 10% cash and use the equity in PPOR to negate the mortgage insurance?

any advice would be appreciated.

 

[Rixter]

Yes it is a relatively simple task. Use a IP savy mortgage broker to structure it correctly for you.

 

[Jamie M]

Yeah it's pretty straight forward providing your dad has enough equity in his home. It's called a family guarantee/pledge. Most lenders allow it - some have quirks.

Cheers

Jamie

 

[kavo]

Thanks for the replies, I might be missing something but how would the IP be set up if we wanted 50% ownership?

 

[Jamie M]

In that case - prob best for your dad to pull some equity out of his PPOR - set it up as a second loan facility.

He then contributes that equity - you contribute your savings.

That way - his PPOR isn't crossed up with the IP and vice versa.

Purchase as tenants in common with a 50/50 split. For ease of accounting - set up the IP loan as two equal splits.

Remember that there's stamps and other costs to be covered too (budget around 4% of the purchase price for those).

Cheers

Jamie

 

[kavo]

Thanks Jamie

 

[Jess Peletier]

Just be aware that having a joint loan will impact your borrowing ability down the track if you want to buy more IP's - you'll be liable for the whole debt, but only half the income so it will take a large toll on your servicing.

 

[Qlds007]

Hi Kavo

You might want to look at keeping your own savings up your sleeve and borrowing 100% + of the purchase price by using a security guarantee or a sub loan on your fathers PPOR

If you father has a loan on his own property and you want to use the equity you can do it as a second mortgage subject to priority.

 

[Redom]

Just be aware that having a joint loan will impact your borrowing ability down the track if you want to buy more IP's - you'll be liable for the whole debt, but only half the income so it will take a large toll on your servicing.

Jess makes a great point - best to have a plan for what you'll like to do in property ahead and see how financing this deal will affect your future goals. Joint purchases effectively reduce your rent by half for purchases you do as an individual down the track. This can be a large hit on your borrowing power going forward.

Cheers,
Redom

 

[Qlds007]

Course not all lenders service this way so not necessarily the be all and end all.

 

[Colin Rice]

My first question is why?

If you can do it on your own and cop some lmi then do it, unless Im missing something?

 

[Jamie M]

Jess makes a great point - best to have a plan for what you'll like to do in property ahead and see how financing this deal will affect your future goals. Joint purchases effectively reduce your rent by half for purchases you do as an individual down the track. This can be a large hit on your borrowing power going forward.

Cheers,
Redom

Not all the time - you can get around this if need be.

Cheers

Jamie

 

[Jess Peletier]

Not all the time - you can get around this if need be.

Cheers

Jamie

Yes, you can get around it, and if the OP has no intention of buying many more IP's it's probably not a big deal - it's just worth knowing in advance for planning, esp. if the OP is planning to do multiple deals with Dad, and wants to get into some big stuff down the track.

Life is just easier when you get the structure right from the start!

 

[kavo]

My first question is why?

If you can do it on your own and cop some lmi then do it, unless Im missing something?

Thanks for the replies.

The intent of going joint was mainly to act as an entry for me and my dad to get into property investments. He owns his home (no mortgage) however neither of us have any experience in IP and the intent was to get something together as a sort of break into the market.

 

[Juliana Ardila]

Thanks for the replies.

The intent of going joint was mainly to act as an entry for me and my dad to get into property investments. He owns his home (no mortgage) however neither of us have any experience in IP and the intent was to get something together as a sort of break into the market.

Hi Kavo

I believe the simplest way to do this is to borrow in joint names and getting your dad to sign a limited guarantee for the 20% deposit plus costs. In this way you would only have one loan to worry about.

I agree that you are best keeping the savings you have since you will be able to get a tax deduction on the interest paid so the more you borrow the bigger the deduction. This money can later be used for your own Owner Occupied property which is not tax deductible although it is your choice.

It would be beneficial to know which of you gets the most tax advantage, I.e who pays more tax. In that way you could structure ownership accordingly. If you pay more tax, the property could be as tenants in common with the majority of the ownership under the person who pays more tax. You will need to seek tax advice about this.

Regarding your borrowing capacity in the future, some banks will allow you to use only the portion of the loan payment that you are responsible for and not the whole monthly payment. This is not really a worry but it may limit which lenders you can use in the future. However, you will also receive a rental income which will offset some of the loan repayment, thus allowing you to borrow more funds in the future.

 

[Corey Batt]

Throwing this one out there:

Why not get your dad to go guarantor for your first IP, and he can draw on his equity to buy his own. You can both learn about investing together, without causing potential pain from a jointly owned asset.

Avoids potential future stamp duty issues, ongoing servicing constraints and still achieves the outcomes of you entering the market and your father getting an investment property.

If the IP you buy under the guarantee has renovation potential, you can spend your 10% savings to renovate the property, have it revalued and then release the guarantee.

 

[Jess Peletier]

I agree with Corey's idea - I'd keep it separate if possible.

The only issue may be dad's age - if he's close to retirement or retired already it will make things a bit trickier.

 

[Colin Rice]

Thanks for the replies.

The intent of going joint was mainly to act as an entry for me and my dad to get into property investments. He owns his home (no mortgage) however neither of us have any experience in IP and the intent was to get something together as a sort of break into the market.

Your welcome.

You would want to explore all options to determine the pros and cons of joint ownership v single ownership with a clued up broker before commiting to anything.

Cheers and all the best.

 

[Terry_w]

Thanks for the replies, I might be missing something but how would the IP be set up if we wanted 50% ownership?

Tenants in common or joint tenants. Mainly different implications on the death of one owner.

On the death of a JT the survivor takes ownership automatically, bypassing the will.

a TIC owner can leave their share to anyone in their will.

 

[Terry_w]

It would be beneficial to know which of you gets the most tax advantage, I.e who pays more tax. In that way you could structure ownership accordingly. If you pay more tax, the property could be as tenants in common with the majority of the ownership under the person who pays more tax. You will need to seek tax advice about this. [/url]

This is short sighted and simplistic.