Loan Structure Cleanup - help?

[dontask]

Guys, there is some good help here so I thought I might post about my own situation. I have been acquiring properties since 2002 and have built up a reasonable portfolio of over 10 properties in Brisbane. My debt is high (but less than 80% LVR), but I have reasonable servicability.

My loans have built up over time and I now realise that its probably not structured the best way. For example, 5 of those properties are cross collateralised. Furthermore, that cross collateralised loan is split into 50k bundles and have had fixed interest rates applied to them. The rationale here was that fixed interest was lower than variable at the time. To avoid the 10k repayment limit of fixed loans, the large loan was split into 50k bundles. The fixed interest rate period will mature soon.

Anyway, it seemed like a good idea at the time.

There are other issues.
- we started to buy in family trust structures w/ corp trustee a few years ago to minimize property tax
- I purchased a home with my brother a few years ago as an IP. However, to get the best interest rate I had to guarantee the entire amount. He pays for his half of the loan and receives half the income. This obviously impacts my debt ceiling.
- Two of the properties are rented by the room (eg: student accom)
- Each purchase was done slowly and carefully and there are no unitblocks/duplex pairs in the portfolio.

Goals:
1) Need available funds to continue investment. I haven't hit a wall yet but this might be soon. The funds will be used to do a development on an existing property or continue to buy and renovate properties.
2) Need to structure the loans in a more meaningful way and optimize for tax.
3) Would like the best interest rate, currently best I can find is 4.60 with a big four bank. However, I would like to focus on (1) and (2) first.

I'm not necessarily looking to refinance with another lender (yet). I'm looking to get some advice from those in the game. Since I'm not looking to refinance, is there some sort of (maybe paid) service I can get?

 

[Terry_w]

Yes, a tax lawyer or tax agent could advise on the loan structures. Because a guarantee is involved (legal advice) a lawyer may be better.

 

[Jess Peletier]

That sounds fun! I love uncrossing portfolios

To give proper advice we'd need more info regarding the properties and loans, it's a complex thing to do and definitely not a one size fit all or generic answer.

If you'd like a local broker Rolf is on the GC and is great at this kind of thing.

In terms of serviceability, the shared loan with your brother is expensive - is buying him out or vice versa an option?

 

[Redom]

Guys, there is some good help here so I thought I might post about my own situation. I have been acquiring properties since 2002 and have built up a reasonable portfolio of over 10 properties in Brisbane. My debt is high (but less than 80% LVR), but I have reasonable servicability.

10 properties in Brissy? I think you'll do very well next year.

The fact your below 80% LVR helps.

My loans have built up over time and I now realise that its probably not structured the best way. For example, 5 of those properties are cross collateralised. Furthermore, that cross collateralised loan is split into 50k bundles and have had fixed interest rates applied to them. The rationale here was that fixed interest was lower than variable at the time. To avoid the 10k repayment limit of fixed loans, the large loan was split into 50k bundles. The fixed interest rate period will mature soon.

Its not that unusual to split to increase your extra repayment ability - see it a lot with MEbank.

However cross collateralising may hurt you in releasing equity out. It may also restrict your ability to move away from your existing lender - which is important to increase your servicing over time.

Are the 5 crossed properties below 80% LVR together?

Anyway, it seemed like a good idea at the time.

There are other issues.
- we started to buy in family trust structures w/ corp trustee a few years ago to minimize property tax

From a finance angle/uncrossing - this may be ok depending on how you've crossed. We'll need more info here.

- I purchased a home with my brother a few years ago as an IP. However, to get the best interest rate I had to guarantee the entire amount. He pays for his half of the loan and receives half the income. This obviously impacts my debt ceiling.

You'll need to include the entire debt into your file. This does impact your debt ceiling.

I'd leave this property untouched until last - it becomes messy because you may need to buy out/sell to remove half of the debt of your portfolio.

- Two of the properties are rented by the room (eg: student accom)

No problem - if it is well documented and proven than its fine.
- Each purchase was done slowly and carefully and there are no unitblocks/duplex pairs in the portfolio.

Goals:
1) Need available funds to continue investment. I haven't hit a wall yet but this might be soon. The funds will be used to do a development on an existing property or continue to buy and renovate properties.

I'd personally uncross and cash out back up to 80% LVR. It's difficult to know how much cash this would give you without numbers, but it should improve.
2) Need to structure the loans in a more meaningful way and optimize for tax.
Is all your debt investment debt? You're likely to be able to structure your affairs differently to optimise tax (the tax gurus generally have swift methods).
3) Would like the best interest rate, currently best I can find is 4.60 with a big four bank. However, I would like to focus on (1) and (2) first.
Your reaching about the 'bottom' that's given by the Big4. It's a very good rate and given for large portfolios.

I'm not necessarily looking to refinance with another lender (yet). I'm looking to get some advice from those in the game.

If you're looking to uncross, there's no way about it without some sort of refinance.

Perhaps look to do an internal refinance and uncross.

Since I'm not looking to refinance, is there some sort of (maybe paid) service I can get?

Comments in red above.

 

[Jamie M]

Hiya dontask

You mentioned that some of the loans are fixed - if so, uncrossing now could be an expensive exercise so I wouldn't jump straight into it without further investigation.

Are all the properties owned under the same entity? If not - careful consideration needs to be given here also when refinancing/uncrossing.

Cheers

Jamie

 

[dontask]

Yes, a tax lawyer or tax agent could advise on the loan structures. Because a guarantee is involved (legal advice) a lawyer may be better.

I think you're right. Finding a good tax lawyer is now a new year resolution.

To give proper advice we'd need more info regarding the properties and loans, it's a complex thing to do and definitely not a one size fit all or generic answer.

If you'd like a local broker Rolf is on the GC and is great at this kind of thing.

Rather not give too much away on a public forum but I just calculated we're at 71% LVR. I'll get my facts together properly and then approach some experts.

In terms of serviceability, the shared loan with your brother is expensive - is buying him out or vice versa an option?

Yes, agree with you here. We purchased at auction and I agreed to it because it seemed the easiest option at the time. The upside is that we got the property at a good price and it was cashflow positive early so we're laughing now. I thought that there would be a way to restructure the loan so that it wouldn't affect my peak debt now but I guess I was wrong.

10 properties in Brissy? I think you'll do very well next year.

I hope so. But recently there is talk of the dropping oil price creating deflation - this could be disastrous for someone holding large amounts of debt like myself.

Are the 5 crossed properties below 80% LVR together?

Yes. =)

I'd personally uncross and cash out back up to 80% LVR. It's difficult to know how much cash this would give you without numbers, but it should improve.

Your comments make sense but now that I think about it I need to wait for the fixed stuff to mature first. The other loans, which are secured by the trusts (but personally guaranteed) might be candidates to refinance quickly.

Is all your debt investment debt? You're likely to be able to structure your affairs differently to optimise tax (the tax gurus generally have swift methods).

The quick answer is most. I stupidly used some money for some non-deductible debt (eg: car) and now every year I have to apportion everything. Takes a long time.

 

[Rolf Latham]

Goals:
1) Need available funds to continue investment. I haven't hit a wall yet but this might be soon. The funds will be used to do a development on an existing property or continue to buy and renovate properties.
2) Need to structure the loans in a more meaningful way and optimize for tax.
3) Would like the best interest rate, currently best I can find is 4.60 with a big four bank. However, I would like to focus on (1) and (2) first.

thank god for the blue bit

Availability of funds in a safe and structured manner is often only thought about once money is hard to come by ....................

Your premonition of having issues with accessing more funds is probably right. Most lenders will provide enough rope to cause you to be stuck half way down the cliff, but they usually wont provide enough to get you down safely

ta

rolf