LOC to buy an IP

Hi Folks,

I currently have 1 PPOR and planning to buy an IP before end of the year.
Would like to know more about extracting equity from the current property and use LOC to fund the next IP purchase.

Some variables:
A = PPOR initial puchase price = 500k
B = PPOR new price (bank valuation) = 600k
C = Loan amount = 300k

D = Total equity that can be withdrawn = (80% x B) - C = 180k
E = Assume D is correct, then I can buy an IP with price up to 720K (180K as 25% deposit with 5% is the purchasing cost: solicitor, stamp duty, etc)

Some questions:
Q1 - is that correct that I could withdraw the equity (D) as LOC?
Q2 - now if I have D (180k sitting in LOC account).
Fast forward to the next 3 months, I haven't found the right IP and if the B has gone up from 600k to 700k, could we then tell the bank to top up the LOC amount if I want to buy a property > 720k?

Please help to answer some of the Qs above. Much appreciate your help.
 
Some questions:
Q1 - is that correct that I could withdraw the equity (D) as LOC?
Q2 - now if I have D (180k sitting in LOC account).
Fast forward to the next 3 months, I haven't found the right IP and if the B has gone up from 600k to 700k, could we then tell the bank to top up the LOC amount if I want to buy a property > 720k?

Please help to answer some of the Qs above. Much appreciate your help.

Hiya

1. Yep - but prob best to just take out an interest only loan and avoid the premium that LOCs generally incur.

2. Usually it's ok - the bank might have a minimum wait time of 6 months.

Cheers

Jamie
 
If you are willing to use a little LMI, I would normally suggest you go for slightly higher LVR loan on the IP and hold your LOC back for challenge or opportunity

ta
rolf
 
1. Why a LOC and not a term loan (unless its w/ Macquarie it will save you a bit and no recourse for the lender to close the facility at will)

2. Keep the properties separate. You need to tell the broker or banker of this as they may cross you by default.

3. Consider the importance of upfront valuations moving forward
 
IO term loan can give you the same outcome as a as a LOC with a lesser interest rate and no recourse clause.

Some lenders are more forthcoming with LOCs over certain thresholds so may be necessary unless you want to move lenders.

LOC generally eliminate contamination issues as well.
 
Thanks all for your brilliant responses. Now I understand it a bit better from various different inputs/angles and time for me to lay out the plan and finally take the plunge.

You guys rock!
 
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