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"
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"
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