Loc investing questions

[Kiwibaz]

Hi,

I'm looking for a little advice on whether a loc loan is the right way to go or not.

We currently have a fixed rate loan of on PPOR and a interest only loan on a block that is currently being built on. The investment loan is secured against our PPOR. I'm about to purchase another investment property which will be with another bank and 80% lend.

When the fixed rate loan expires in march next year I was planning to get a line of credit across all the properties to allow further investing and also help pay down the bad debt on the PPOR. I know that within the loc I will need separate 'accounts' to keep the investments clear for tax.

Is this a sound way to move forward or should I get one loan for each, and future, investment property?

Thanks

Baz

 

[Peter_Tersteeg]

Your cross-collateralising all of your loans and properties which is almost certainly unnecessary and puts a lot of power in the banks hands. Also a LOC is simply an evergreen interest only loan which the bank will generally charge extra for. You could probably acheive the same result with an interest only loan to access your equity.

For more information on this, search google using, "somersoft.com.au: cross collateralisation".

My suggestion would be:

1. Don't secure the investment property loan against your own home.

2. Instead, use a separate interest only loan to access the equity in your PPOR. You can then use this as a cash deposit against the investment property.

3. Borrow the remaining funds for that purchase in a seprate loan secured soley by that investment property.

4. If you've accessed enough equity from your PPOR in step 2, you may still have sufficient deposits for additional purchases.

There's very few disadvantages to structuring things this way and a lot of good reasons to do it. If structured properly, the financial result and interest rates, etc, should be the same if not better.

The advice you're getting from either a bank or a broker isn't particuarly good and isn't in your favour.

 

[Rolf Latham]

Hi,

I'm looking for a little advice on whether a loc loan is the right way to go or not.

We currently have a fixed rate loan of on PPOR and a interest only loan on a block that is currently being built on. The investment loan is secured against our PPOR. I'm about to purchase another investment property which will be with another bank and 80% lend.

When the fixed rate loan expires in march next year I was planning to get a line of credit across all the properties to allow further investing and also help pay down the bad debt on the PPOR. I know that within the loc I will need separate 'accounts' to keep the investments clear for tax.

Is this a sound way to move forward or should I get one loan for each, and future, investment property?

Thanks

Baz

Hi Baz

Welcome

In general, but not always, standalone loans work better than xcoll, for the BORROWER !

Here is an ancient post, but most still applies ( as do some new bits post GFC)

http://somersoft.com/forums/showpost.php?p=120656&postcount=6

ta
rolf

 

[Aaron_C]

Kiwibaz I would suggest you rethink your structuring. It sounds like you have been sold the 'master limit' product from banks like AMP which allow you to access equity across all your properties, all in one nice neat package.

However, what they fail to tell you is that if you ever need to sell / extract equity, ALL properties will need to be revalued, subjecting you to revaluation risk, default risk etc which are not necessary.

I agree with PT_Bear's suggestion that a stock-standard interest-only loan secured against each property, separately, would possibly be the better way forward. Line of Credit is fine too but as long as it each LOC is secured against one property only, and with a lender that doesn't charge a higher premium for LOC. I would speak to a broker about how you can structure it properly to avoid the future pitfalls than rolf's post alluded to.

 

[Kiwibaz]

Thanks for all the feedback and advice guys. Guess it off to find a new broker to have a chat with.

Baz

 

[Terry_w]

Hi,

I'm looking for a little advice on whether a loc loan is the right way to go or not.

We currently have a fixed rate loan of on PPOR and a interest only loan on a block that is currently being built on. The investment loan is secured against our PPOR. I'm about to purchase another investment property which will be with another bank and 80% lend.

When the fixed rate loan expires in march next year I was planning to get a line of credit across all the properties to allow further investing and also help pay down the bad debt on the PPOR. I know that within the loc I will need separate 'accounts' to keep the investments clear for tax.

Is this a sound way to move forward or should I get one loan for each, and future, investment property?

Thanks

Baz

not the right way to go i think.