How do you guys set up LOC's?

[ILoveProperty]

Hi All
Just wondering how to best set things up for the next property purchase.
I have one LOC, against my PPOR, which I've used for deposits for two properties. I was going to increase me LOC limit and use for the deposit on another property but is there a better way? With my existing LOC structure I found it difficult to accurately apportion interest to each IP.
Is it common to have separate LOC's (against say a PPOR) for each IP?
Thanks

 

[Qlds007]

Just open another sub account and name it the street address of the property you are using it for.

Then it becomes easily identifiable for you.

You can do this for each new IP if it makes life easier.

 

[cgw]

Hi,

I have 3 IPs, each have a separate LOC up to 80%, I have another LOC No 4, that holds all the 3 IPs other 20%. Each month I have auto transfers fm my personal account to pay off the interest on each of the 4 x IP accounts. This keeps it all separate fm my personal account, and interest is all tax deductable.
My personal account also is on a LOC, but this is in credit, as I will only ever start drawing down on this if I get desparate.
Next IP I buy, I will get another LOC for 80% of the value of the property, and increase my LOC No 4 for the 20% deposit etc. At first I found it a bit complicated, but get a good broker to show it to you on paper and it should make sense.

Cheers

 

[ILoveProperty]

Thanks Richard, that's what I was hoping.

And more thanks cgw. That sounds really good for future plans to increase LOC limits on individual IP's after they've gone up in value.

Is it just as easy to get 80% LOC's on properties as it is to get a loan?

 

[dee]

CGW you lost me there after the 3 IP and 3 LOC
the 4th LOC - how do you set that up exactly
cheers
dee

 

[ILoveProperty]

Dee
If it was my situation. I'd have one 'general' LOC against equity in my PPOR (CGW's #4).
To purchase my next IP I would draw 20% deposit from the general LOC and get the 80% remainder from an LOC set up against the new IP. No standard loands involved.
Percentages are only for example. Purchasing costs could come out of general LOC, etc.

 

[cgw]

Dee,

I Love Property, has explained it. I find it too difficult in this context. Hopefully a good property broker will be able to show you using your own situation.
LOC No 4 is the one that I used for the deposits, that is secured against my PPOR, and I can up this again, for the deposit for another IP, and get another LOC for the new IP.
Hope I haven't confused you.

 

[Alanna]

I have one LOC against PPOR which is used for all partnership property expenses and some purchases. We also have second LOC against a different property for all family trust property expenses and deposits on new IPs in family trust name.
Accountant apportions expenses and interest to each property using excel formulae and our record keeping.

Also have a couple of separate home loans for other properties, but no redraw facility - everyday maintenance etc comes from LOCs.
Historically LOC has proven more expensive than standard home loans but interest rates are now the same with our lender anyways.

 

[gooram]

I do the same as above, this is the first year of this new structure for me, so tax time next year I will use my record keeping to add the correct amount of interest to the expenses for each IP.

I'm sure if I get this down using excel, then it'll be alot easier than managing a new LOC for each IP.

On that though, I assume there will be no extra costs with several LOCs as you'd have a wealth package or something similar? What happens when you go to a new lender, will they provide a LOC with no annual fees and a reduced interest rate? Suppose that comes down to your negotiation skills.

Also, each new LOC incurs stamp duty doesn't it?

 

[wpggtom]

LOC or interest only?

Hi all,

Just a question on this subject (I'm new to this and just trying to educate myself swiftly so I can make our first IP purchase). We have about $270,000 borrowable equity on our PPOR and just trying to figure out a finance strategy. Is a LOC a better option than a separate interest-only loan??

 

[Qlds007]

Wendy

Yes / No depends if you are referring to the investment loan or the deposit.

Crux is try and separate the loans to avoid and X collaralising of securities a preferred strategy of some of the lenders out there.

 

[gooram]

I'd suggest you do some searching on cross collateralising, as there's some very interesting points made in previous threads about the pro's and con's.

On structure, read this thread cover to cover.

http://www.somersoft.com/forums/showthread.php?t=26532