Finance

[WebBoard]

From: Mike .


Thinking aloud
From: david
Date: 8/4/00
Time: 12:34:35 PM

Im looking to buy another IP, however my dilemma is how to financially do this. One option is to use my equity in my own "home" as to borrow 110%. However, I'm a little reluctant to do this, as I wish to use my equity in my home for future purchases. If I used my equity now and then again and again, my house would be security for a number of houses, putting my house at a (slight) risk.

The reason I would use my equity in the future instead of now as in the future I would have built up a lot more equity in my own home and hence I can make a larger IP purchase with this.

My other option, using creative finance, is to take out a personal loan for a deposit, and my house won't be connected to the new Ip. Now I hear you saying we will need to show the bank 6 months saving. We have done this through paying extra on our house.

So in essence what this is doing is putting the personal loan on our 'home' and then using our extra payments on our home as a deposit. The advantage of this is the Ip and home are with different banks, and our home wont be used as security for the Ip, meaning we can use our 'larger' equity on our home in the future.

I hope everyone isn't too confused about this. Thanks

 

[WebBoard]

Robert

Reply: 1
From: Mike .


A loud thought
From: Robert
Date: 8/4/00
Time: 1:00:23 PM

David,

How about you take out a 'LOC' (line of credit) on you private residence for say $50000. As LOC's are a lot cheaper on interest rates then a personal loan. You then get the benefit of a redraw facility so you'll never have to pay out in bank fees to get a new loan again.

Then once you've set up a LOC you have all your spare cash put straight into this account including rent, DO NOT US THIS ACCOUNT FOR ANYTHING OTHER THEN INVESTMENTS ie: buying shares, paying mortgages on other IP's etc, then once the LOC has come back down to a small amount you can then go out and purchase another property with already having a deposit.

In essence get a LOC for a 20% deposit +fees, and any financial institution will provide the remaining 80%. Also this way you miss out on having to pay any mortgage insurance as a benefit.

Just one simple way to structure your financial situation.

NOTE: You did say you wanted to keep your residence debt free for larger IP purchases, Why? If it takes you 5-10 years to have enough equity to do this you'll be behind the eight ball. Start of with what can be purchased NOW not later. In 5-10 years your first IP's should be able to be remortgaged to provide this "large" amount to buy "bigger" IP's.

Hope this gives you something to really think about.

Robert

 

[WebBoard]

David

Reply: 1.1
From: Mike .


Re: A loud thought
From: David
Date: 8/4/00
Time: 2:22:02 PM

Thanks for your assistance Robert. However the problem I have is most of the equity I have built up is through extra repayments. As I understand it an offset account is basically the same as a LOC.

I can take this equity out of the offset account, however, that pushes up what I owe on the house (non-tax deductible).

 

[WebBoard]

Robert

Reply: 1.1.1
From: Mike .


Re: A loud thought
From: Robert
Date: 8/4/00
Time: 2:46:31 PM

You could take it out of the offset account, but then it would end up an accountants nightmare, and cost you heaps for the priviledge of giving the accountant that nightmare.

You could possibly visit your bank and get 2 separate mortgages, one still being an offset account. The other being a LOC.

Example: (Change these figures to your conditions as see what you come up with) Property price $200k Amount owing $120k

Two Loans Offset account = $120k LOC = $40k

This still keeps you mortgage on your residence under 80% or you could take the LOC to $70k to run it at 95% of property valuation. Then you can pay everything onto the OFFSET account to get rid of the undeductable mortgage asap and make standard payments from the OFFSET account to the LOC to keep it all running.

This achieves 2 objectives:

1) You get more equity in your property faster by all cash going onto an offset account to lower payable interest.

2) Paying the base of your LOC means that you'll always have the highest amount possible to claim back on tax deductions.

Hope this helps a bit more.

Robert

 

[WebBoard]

Owen

Reply: 1.1.1.1
From: Mike .


Re: A loud thought
From: Owen
Date: 8/4/00
Time: 4:57:31 PM

I'm with Robert on this one. Check out the Cash Flow Positive thread for how I set my loans up for my IP's.

Owen