LOC servicing several properties

[arg821]

G'day guys,

I have a LOC which initially funds the 20% for any property purchases. The other 80% is a separate loan secured against the relevant property, and therefore I borrow 100% inclusive of all fees etc, which come out of the LOC.

I now have 7 IPs. All the rent gets paid into the LOC, and all the property interest payments are paid from that LOC also. What this means is, the LOC gradually rises over time as across the board my portfolio is a little negatively geared.

My question is, how do most people structure their banking with multiple IPs? The reason I ask, is that come tax time, I try to work out (roughly) which IP has taken what share from the LOC and balance it all myself. As properties vary in incoming rent/mortage payments etc., you will find over time that one property may be more negative than another, and so the LOC is being drained at different rates by different properties. I've just done a real simple calculation of what "proportion" I believe the LOC is being affected by each individual property based on the purchase price. Its not 100% accurate, but kinda works in the long run.

Any ideas how this can be done a little more professionally??????

Thanks,
Andrew.
PS - if a mortgage broker has some good ideas here, I'm happy to listen!

 

[gooram]

There's software out there that will help with this. It will mean a little more hands on tracking of income and expenditure, but software can track the weekly cashflow (negative or positive) of each IP and you can use this information to determine what percentage of your LOC it is consuming.

As for structure, my structure is a little pedestrian and ad-hoc at the moment, I'm in the process of setting up something similar to yourself, with a high interest offset account for the PPOR loan, then a separate LOC for all IP expenses. All income and rent goes into the offset account to reduce the non-deductible PPOR loan repayments, and all IP interest payments come out of the LOC.

 

[grossreal]

hi agleave
it would be easier to have a loc per property if you wanted to use a loc and then link a card to that account and pay out of the card all transactions are recorded and alot easier to track not a great lover of loc accounts but all to there own in choice.
it gets messy if you throw them all together as you have lots of different depreciation and tracking expenditure would be a night mare.
I run myob but the accountant covers all that.
try to keep to the kiss formular its better in the long run

 

[willy1111]

Hi Agleave,

Who is your LOC with?

If you want to go down the path of having an LOC for each property - perhaps take a look at the St George Portfolio loan. I believe you can have 10-12 sub accounts under the one global limit.

So each time you want to buy a new property, just break up the pie into an extra piece by creating a new sub account, you could also allow enough extra room for the LOC to increase with negative cashflow.

Each sub account would have a different account number, so you can have a sub account per property, would make things a lot easier for you to track.

Some people recommend having a separate LOC again to service the negative cashflow.

You could probably have a similar set up with most of the lenders out there.

Cheers

 

[redwing]

Agreed, I think Rixter does the same (one Investing LOC per IP)..sounds good to me and fits the KISS Principle

I have an Investing LOC against 3 IP's..but one per IP is my goal

 

[arg821]

Who is your LOC with?

Hi Willy1111,
My IP LOC is with Westpac. I originally had my home loan with them, so it was easier to continue to use Westpac. I paid my PPOR house loan off a few years ago now, so I do not have any personal debt of any kind, just the IP loans.

If you want to go down the path of having an LOC for each property - perhaps take a look at the St George Portfolio loan. I believe you can have 10-12 sub accounts under the one global limit.

Is there any real advantage of having a LOC for each property? Normally you get charged a little higher interest rate (although WBC charges me only .05% extra to have my LOC going). I'm just trying to look for the most practical and well organised structure.

So each time you want to buy a new property, just break up the pie into an extra piece by creating a new sub account, you could also allow enough extra room for the LOC to increase with negative cashflow. Each sub account would have a different account number, so you can have a sub account per property, would make things a lot easier for you to track.

Some people recommend having a separate LOC again to service the negative cashflow.

Wouldn't I still be in the same position though? The way I see it, if you want to keep each IP seperate in terms of finances, you would require two accounts. A/C "A" which makes up the bulk of the purchase (70%, 80%, 90% whatever you end up going with), and A/C "B" which has funded the leftover amount plus purchase costs etc. Therefore A/C "B" you have the rent going into, and the mortage payment comes out of to service A/C "A". This would allow you to see exactly how much each property is costing you in interest, and any other random payments etc.

The only problem with this, is I don't like the idea of having 7xIP loans with 7xLOC's servicing them as it is quite complicated. For me to change now would probably cost a fair bit so I'm just curious if it can be done another way....

The single LOC with sub-accounts sound interesting, but I would still end up with 1xLOC account servicing the 7xIP loans so I don't see how it would help?

Andrew.

 

[Rolf Latham]

Hiya

I luv spreadsheets for this, quite an easy thing each month

ta
rolf

 

[redwing]

Agleave

Your IP's are all X'd then?

 

[arg821]

Agleave

Your IP's are all X'd then?

Not that I am aware of. Each IP has its own loan, taken at 80% of its initial value. The other 20% and the purchasing costs were funded directly from the LOC. The only security is the IP itself for its loan. They have all risen in value enough that I could refinance them way above original purchase price and still be under 80% LVR and thus no LMI.

I've noticed a couple of people have mentioned they use a spreadsheet for this - can someone post an example of what they do???

Ta,
Andrew.

 

[Qlds007]

Andrew

Mate if this is the case I would be looking at giving them the flick.

Normally you get charged a little higher interest rate (although WBC charges me only .05% extra to have my LOC going).

 

[sailor]

I'm fairly familiar with QuickBooks, which provides a "class" for each property. So when I'm coding expenses and income...I just nominate which class tis for. I can run all manner of accounting type reports based on class, ie P&L, Balance Sheet, etc. Tis easy.

cheers
Sharon

 

[redwing]

Not that I am aware of. Each IP has its own loan, taken at 80% of its initial value. The other 20% and the purchasing costs were funded directly from the LOC. The only security is the IP itself for its loan. They have all risen in value enough that I could refinance them way above original purchase price and still be under 80% LVR and thus no LMI.

I've noticed a couple of people have mentioned they use a spreadsheet for this - can someone post an example of what they do???

Ta,
Andrew.

Is the LOC against the PPoR that is paid out then?

Sorry, just trying to see where the LOC comes from in this picture..

 

[arg821]

Is the LOC against the PPoR that is paid out then?

Sorry, just trying to see where the LOC comes from in this picture..

Yes, our PPOR is fully owned, with no loan of any kind. Our PPOR is security for the LOC.

Andrew.