How to best finance second IP?

[jkool]

So here is my situation. I have one IP purchased about 2 yrs ago for 140k, currently valued around 200-210k (ballpark figure) on which I owe about 50k on mortgage.

I am looking to purchase another IP and was wondering if any of financial gurus could provide his/her opinion.

What I am thinking currently is to get my property 1 re-valued officially by my bank and if it comes back at what I expect (ca 200k) increse the current loan to that new amount and than redraw to the max to purchase property 2.

In rough numbers I am looking at if the revaluation comes back at 200k and I still owe ca 50k I should have roughly around 150k available to redraw and re-invest anywhere I wish (ie. property 2).

Does this make sense? And what are the potential risk I may be facing? I am trying to aim at no crosscollateral and possibly only utilizing the only one existing loan for the second purchase (ie. not applying for entirely new loan with new fees attached etc etc.)

Any ideas? Is there some better way to go about this?

Thanks in advance for your help

 

[Bazza]

The bank will lend 80% on your equity which is $120k if they value as suggested. I would take $100k of that and buy another IP through another bank/lender for say $400k using the $100k as deposit and keeping the $20k for future buffer. But, I'm no expert.

Cheers,

Bazza

 

[Rolf Latham]

Hey Bazza

You dont want to be an expert either because

x is an unkown quantity and a spurt is " a drip under pressure"...........better to be a specialist

But what you say there is about what most brokers would set their clients up with, 20 % + costs coming from the old place and the 80 % coming from the new place.

Id look at doing a SEPARATE loan for the new money on the old place, just for easier book keeping, and retain the old loan unless there is some other reason why the loans would need to be as one.

ta
rolf

 

[Bradsdad]

As with Rolf, I'd probably opt for the 20% plus costs as a seperate loan against IP1 and the remaining 80% against IP2.
Any extra costs associated with the initial set-up would probably be recouped with the savings on accountants fees in the future or at least save some headaches.

Regards
Steve

 

[dean lynch]

If you want only one loan for the two properties then you would have to cross collatorise. If you are prepared to have two loans then you can avoid the cross. When you borrow above 80-85% of the value of your property you will incur Lenders Mortgage Insurance (LMI). So if you increase the debt on the existing property to its full value and do not provide additional security (cross collateral) you will be required to pay the insurance. This may be preferred and your accountant can advise.

If you buy another property for 200k, your loan will need to be 200+fees, let’s say about 215k. Your overall debt will be 265k against property worth 400k which is 66%, this would avoid LMI. You can half this to 132.5k on each property worth 200k and still avoid LMI, or 80% of the current property = 160k and the remaining 105k on the new investment. Regards, deanlynch.com.au

Cheers,
Dean Lynch
www.deanlynch.com.au

 

[Saint]

Dean

Forgive me but i'm confused... with what youre saying... part looks like you suggest not x-colling and the other part looks like you're promoting it. I understand rolfs and bradsdads point pretty clearly.

EG
if you halved the debt to 132500 on property 1 plus the existing debt of 50 then you're at 182,500.

So if its worth 210k then your lvr is 87% on this property then you have 132500/200000 on the new one which is 66% (assuming you're not going to cross secure - which I dont know why you would given this scenario)

Is that what you're suggesting?

 

[crc_error]

Do this and keep it simple:

Get valuation on IP1.

Re-finance to 80% of IP1 (you don't want to go higher to avoid LMI)

Purchase IP2

Put down 20% deposit plus costs. Draw these funds from IP1

Leave remaining funds in IP1 redraw for rainy day or you can draw some further equity to purchase shares.

 

[Bazza]

Do this and keep it simple:

Get valuation on IP1.

Re-finance to 80% of IP1 (you don't want to go higher to avoid LMI)

Purchase IP2

Put down 20% deposit plus costs. Draw these funds from IP1

Leave remaining funds in IP1 redraw for rainy day or you can draw some further equity to purchase shares.

Isn't that what I said

Cheers,

Bazza

 

[crc_error]

Isn't that what I said

Cheers,

Bazza

yes.. but you said to go to another bank/lender... there is no reason to go with another bank unless she isn't happy with them, or a better offer is obtained elsewhere..

if the investor is on a wealth package with one bank, and getting discounts on their rates, it may be better to stick with the same bank..

 

[Jacque]

Isn't that what I said

Cheers,

Bazza

Yeah but crc said it more clearly and put gaps in between his sentences

Agree with crc's and bazza's suggestions.

Speak to Rolf- he's your man, trust me. Great broker who will look after you

 

[THEHEATH]

yes.. but you said to go to another bank/lender... there is no reason to go with another bank unless she isn't happy with them, or a better offer is obtained elsewhere..

if the investor is on a wealth package with one bank, and getting discounts on their rates, it may be better to stick with the same bank..

There could be a reason, to avoid the "all monies clause"?????

 

[dreaming]

Do this and keep it simple:

Get valuation on IP1.

Re-finance to 80% of IP1 (you don't want to go higher to avoid LMI)

Purchase IP2

Put down 20% deposit plus costs. Draw these funds from IP1

Leave remaining funds in IP1 redraw for rainy day or you can draw some further equity to purchase shares.

Again another though from someone who doesn't know much. Taking such a large amount of equity out of your IP and not using it all to invest, I think it would have some tax implications if are trying to use it to negative gear, also something which I didn't do when I started was consider the advantages of different structures to set up under (trusts etc.) In hind site now, this is something that maybe I shoud have at least explored. Unfortunately I did not know about this site then where there is a wealth of info to give you a bit of direction. I hope this helps you ,good luck.