How to release that equity?

From: Owen .


Here’s something I’ve been thinking about for a bit. The golden rules say “never cross-collaterise the security on your loans”. I have no problems with this for the reasons many people have listed before.

So, say I have 3 IP’s each worth $100k that each have 80% LVR 3-year fixed I/O loans secured against each property individually. Nice and simple, nice and secure, nice cashflow. A year passes by I have had 10% growth in each of my properties so they are each worth $110k and each still have fixed $80k loans.

If I revalue I can borrow 80% of these new valuations. So, $110k * 0.8 = $88k - $80k loan = $8k equity in each. I want to get a LOC with this new equity to make things easier when buying new IP’s but say $8k isn’t enough to buy a new place. How do I structure this to get the use of all of my available equity?

Do I get a LOC for $24k secured across all 3 IP’s? Do I get 3 separate LOC’s for $8k each individually secured? Do I restructure the whole thing so I have 2 $88k loans individually secured against 2 of the properties and 1 $64k loan and a $24k LOC secured against the 3rd IP? If the loans are fixed I will be up for loads of break costs with this scenario.

So how have people used small bits of equity across a portfolio without cross-collaterising?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
Last edited by a moderator:
Reply: 1
From: Rolf Latham


Hi Owen

With baby properties you have little choice but to xcoll if you want to access the funds if you are locked into fixed rates. There are exceptions to all rules and this case may be one of them. If you cant break the fixed loans I cant see any option. 8 k LOCs are not a doable with most lenders and

In any case depending on the lender you may be in twouble anyway coz they may have a 50 k facility limit.

Ta

Rolf
 
Last edited by a moderator:
Reply: 1.1
From: Owen .


Hi Rolf,

Figured as much. This is where the argument for and against fixing loans comes in.

I guess initially you do what you have to ensure cashflow and serviceability and as your portfolio grows and you get greater equity and income then the types of loans your get will change. With that change comes the flexibility to grow faster and restructure as needed. That and time.

>>>> In any case depending on the lender you may be in twouble anyway coz they may have a 50 k facility limit. <<<<<

Wascally banks!!!! My numbers were hypothetical but good reminder anyway.

Thanks Rolf.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1.1
From: Will G


Can you explain what you mean by the 50 k facility limit ?. I assume it is related to the LOC

Cheers,
Will
 
Last edited by a moderator:
Reply: 1.1.1.1
From: Rolf Latham


Hi Will

Many of the smaller lenders and mortgage originators have minimum loan amounts of 50 k.

Ta


Rolf
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1.1.1.1
From: Will G


Got ya. Thanks
 
Last edited by a moderator:
Reply: 2
From: Ken .


This topic has got me thinking that I may be about to go down the wrong road.

I currently have a PPOR as well as 4 IP's. The whole lot is x-col in that the mortgage for the PPOR is at 80%, as it is for 1 of the IP's, 2nd is about 40%, and there is no mortgage on the last 2 IP's.I have never been comfortable with the PPOR mortgage being 80%, as the amount owing on it is about 20%, the other 60% covers the IP's.

To take advantage of the increased equity in the IP's as well as a better financial deal, I am in the process of refinancing the lot.

I was going to get an equity loan approved up to 80% on all the properties individually and have them all stand alone, ie- 5 seperate loans and mortgages.

This thread has made me realize that the amount of usable equity in each of the IP's, as individuals, will be too small

I still want to seperate my PPOR from the IP's with an LOC loan up to 80%, of which 20% is the actual amount owing on the PPOR with the other 60% available for...opportunities.

As for the IP's, would I be better served by getting 1 equity loan approved up to 80% of the new valuation of all IP's together, this puts all the equity in 1 usable size

Thanks

Ken
 
Last edited by a moderator:
Reply: 2.1
From: Rolf Latham


Hi

You can still achieve what you want as you said.

Separate the PPOR, and then xcoll the others to each other only.

What values and lender ?

Ta

Rolf
 
Last edited by a moderator:
Reply: 2.1.1
From: Ken .


Rolf

I am selling 1 of the IP, my estimated value of the remainder is $500k, borrowings needed to cover existing debt is $330k.
PPOR borrowings is $110k.

Am having discussions with the local Community (bendigo) bank, they have offered professional rate of 6.15% for Equity loans (LOC)

Thanks

Ken
 
Last edited by a moderator:
Reply: 2.1.1.1
From: Steve Mcleod


Hi all,
Would it be possible to do a top up (up to 80%)of existing loans and use each top up to form your deposit, thus avoiding X-col.?
I have a P&I loan and to do this there is no fees or charges ,just stamp duty on the additional monies.Hope this helps.

steve
 
Last edited by a moderator:
Top