Loan structure for IP when PPOR has 0 balance

[MIW]

Current Situation:

PPOR:
value=$550,000
loan=$250,000 P/I
balance=$0
redraw avaliable=$230,000

cash in bank=$42,000
tax bracket=30%

Let's say I want to buy an IP worth $420,000

Options I can think of
1.
a.Redraw $94,000 (20% of $94,000+cost $10,000) from PPOR loan
b.Take out UBank (interest only) variable loan of $420,[email protected]%

2.
a.Discharge PPOR loan (need to pay $600-$1000 loan discharge fee)
b.Take an equity loan of $440,000 (80% of $550,000 value)
-> this will also be used to fund future IP purchases (20% depost+cost)
c.Take out UBank (interest only) variable loan of $420,[email protected]%

Q. Which options give me most tax effectiveness, future IP purchase possibility?

I was advices by a homeloan broker that I need a LOC (of small limit, say $10,000) for depositing rent and pay interests.
Q. Is this the way to go?

In both cases, I will not use the $42,000 to pay for IP deposit. Instead, I put $42,000 into a high interest transaction ccount (5.8%) under my spouse name (not working) to take advantage of $6000 threshold.
Q. Is this a sensible choice as far as tax effectiveness is concerned?

Thanks for your help and suggestions

I don't know about tax effectiveness but I was told to concentrate on wealth building.
So to me the interest rate is somewhat important but it really depends on your goals and what you wish to achieve.
If you plan to buy one IP then perhaps concentrating on detail (interest) is the way to go but if you wish to buy more perhaps a lender which would re-value the IPs more favourably or allow greater LVR may be more suitable.
So it all comes back to what are you planning to achieve?
Few % points don't matter to me if the lender will disclose the valuation and allow greater loan amounts if you wish to duplicate (if you are in the accumulation phase of wealth building) or is more flexible with the product (offset accounts, etc...).
I just thought I will add this point to consider.....

Also a LOC is useful incase of challenges/hardships/emergencies. You could use this buffer to maintain your lifestyle and hope that during that time your IPs would increase in value.
Many people at initial stages find they are too -ve geared and may have longer vacancies or unforseen repairs or loose a job, etc.... LOC is like a contingency plan if you do not have any savings..... or startegy to help during those times.

 

[ali]

Hi Syd

I doubt it

commercial reality works both ways

There is some argument that Cu's, Bs's and community banks and less likely, but in general the evidence ON THE GROUND is contra to that.

ta
rolf

Cheap online lenders are the worst. I have stopped chasing cheap variable interest rates after bitter experience.
Cheers, Ali

 

[Marty McDonald]

Ali I love you!! We all want lower rates but you get what you pay for.

 

[Rolf Latham]

Ali I love you!! We all want lower rates but you get what you pay for.

Personally I prefer

you DONT get what you DONT pay for

because then I find it easier to isolate the real cost of the cheap products .



ta

rolf

 

[htopg]

Personally I prefer

you DONT get what you DONT pay for

because then I find it easier to isolate the real cost of the cheap products .



ta

rolf

I like the idea of "you DONT get what you DONT pay for".
I always start from the cheapest product and find out the additional cost of getting the more expensive products.
And then I see if the additional features in the more expensive products justify the additional cost.
If it does, then I will choose that more expensive product.

 

[Aaron_C]

I like the idea of "you DONT get what you DONT pay for".
I always start from the cheapest product and find out the additional cost of getting the more expensive products.
And then I see if the additional features in the more expensive products justify the additional cost.
If it does, then I will choose that more expensive product.

Problem is htopg you don't know what you don't know.

 

[htopg]

I don't know about tax effectiveness but I was told to concentrate on wealth building.
So to me the interest rate is somewhat important but it really depends on your goals and what you wish to achieve.
If you plan to buy one IP then perhaps concentrating on detail (interest) is the way to go but if you wish to buy more perhaps a lender which would re-value the IPs more favourably or allow greater LVR may be more suitable.
So it all comes back to what are you planning to achieve?
Few % points don't matter to me if the lender will disclose the valuation and allow greater loan amounts if you wish to duplicate (if you are in the accumulation phase of wealth building) or is more flexible with the product (offset accounts, etc...).
I just thought I will add this point to consider.....

Also a LOC is useful incase of challenges/hardships/emergencies. You could use this buffer to maintain your lifestyle and hope that during that time your IPs would increase in value.
Many people at initial stages find they are too -ve geared and may have longer vacancies or unforseen repairs or loose a job, etc.... LOC is like a contingency plan if you do not have any savings..... or startegy to help during those times.

Just talked to BankWest and they told me that BankWest is very conservative on calculating your borrowing power.
Not only they only take 75% of your rental income into their calculation but also when you are thinking of make use of the increased equity of your investment property, they won't let you release it easily compared to the big 4 banks.

My ultimate goal is to duplicate.
While BankWest is cheap but it will not allow me to duplicate easily (according to the person I spoke to in BankWest branch today).

I think I will still go with BankWest for the first IP and later on I will try to switch and refinance when I got increased equity in the IP.

Isn't it logical to "approach lenders in the order of strictness"?
Especially when the strictest lender does not have break/exit fee like BankWest's online 6.29% homeloan?

 

[Rolf Latham]

My ultimate goal is to duplicate.


Isn't it logical to "approach lenders in the order of strictness"?

yes and no

Depends on what you are trying to achieve, and the knowledge base you are operating from.

Of the lenders available to your mindset, you are probably right .

ta

rolf

 

[Aaron_C]

I guess you can always change lenders if you don't like them. If you're going to though just make sure you don't fix your rates.