Newbie: Investment property loan options

[1200det]

Having issues working out how to approach the purchase of 1st investment property.

PPOR: Own this home worth $400k (so have equity)

Investment: Price of potential investment property is $200K with $240 a week rental return.

I have $30k for a deposit ? Do i put down my 30K deposit and loan the rest as principal + interest loan and pay the difference from my wage weekly. Or go for Interest only and pay the minimum for tax purposes.

Any ideas would be appreciated ?

 

[Propertunity]

I have $30k for a deposit ? Do i put down my 30K deposit

Yes, you'll need the $30K for a 10% deposit ($20K on a $200K loan) + stamp duty, legals, mortgage insurance etc.

and loan the rest as principal + interest loan and pay the difference from my wage weekly. Or go for Interest only and pay the minimum for tax purposes.

IO for cash preservation firstly and tax purposes as a last consideration.

See this thread for a discussion on IO or P&I for an investor like yourself
http://www.somersoft.com/forums/showthread.php?t=53406

 

[tobe]

I suggest not using you after tax savings as the deposit, rather borrow 20% of the IP cost and stamps from your O/O property, and then another loan secured against the IP for the remaining 80% of the purchase.
This gives you a better tax position, and therefore a better return on investment.

you can then put that 30k in your offset account, or a term deposit so you can sleep at night. Nothing like cash in the bank.

 

[Jamie M]

I would use the equity in your PPOR as a deposit on your investment property. That way, you can use the banks money instead of your own cash.

To do this, you'll need to get a top up on your current loan. Depending on your current lender, you may be able to refinance up to 90% LVR.

This will give you a deposit - you'd then apply for the IP loan.

Personally, I'd then take out an IO loan with a 100% offset attached for the IP. Any savings you have can be parked in your offset (starting with your $30k as Tobe said) which will lower the interest repayments.

Jamie

 

[1200det]

Thankyou so much for the prompt replies, When i see it simply laid out like that it all makes perfect sense.

1. My PPOR loan was originally 90K in which i have like $1k owing, so i redraw $30k from that loan for deposit and other costs.

2. Apply for a Interest only loan for the 80% against the investment property.

3. Setup an offset account to the Investment property loan and put in my $30k savings. Would i then pay my wage into this account ? or just cover the difference ?

Thanks

 

[Jamie M]

No worries at all, responses in bold.

Thankyou so much for the prompt replies, When i see it simply laid out like that it all makes perfect sense.

1. My PPOR loan was originally 90K in which i have like $1k owing, so i redraw $30k from that loan for deposit and other costs.

The deposit (20% of $200k) and other costs is likely to be closer to the $50k mark. So redraw (if you have access to this amount currently) or refinance your current loan to $140k.

2. Apply for a Interest only loan for the 80% against the investment property.

yep

3. Setup an offset account to the Investment property loan and put in my $30k savings. Would i then pay my wage into this account ? or just cover the difference ?

if you can setup an offset account against your PPOR, it would be best. Drive down the principal on it first because this interest is not tax deductable. I know a great IP savvy accountant in Canberra if it helps

Thanks

 

[1200det]

Mortza - If you could send me the details of the accountant would be appreciated.

 

[1200det]

1. PPOR Loan - Only have $1000 left to pay so could withdraw $50K from this loan for Deposit and other costs.

2. Apply for Interest only loan for $180K

Would i then get an offset account against the PPOR loan which would be $51K or the 2nd investment loan which would be the 180K ? I assume the PPOR loan.

Rental return gets paid into the 2nd loan ? Would i then need to be paying any shortfall from the rent into this loan ?

 

[Jamie M]

1. PPOR Loan - Only have $1000 left to pay so could withdraw $50K from this loan for Deposit and other costs.

Sounds good.

2. Apply for Interest only loan for $180K

Make it $160k (80% of $200k)

Would i then get an offset account against the PPOR loan which would be $51K or the 2nd investment loan which would be the 180K ? I assume the PPOR loan.

I don't think it matters, as both loans will be used for investment purposes.

Rental return gets paid into the 2nd loan ? Would i then need to be paying any shortfall from the rent into this loan ?

Yes - or into any other account you prefer

Cheers,

Jamie

 

[tobe]

Just be careful redrawing for investment, its fine, until you redraw the same loan for a non investment purpose, which 'taints' the whole lot.

While your doing the 80% finance for the house, I'd restructure the O/O loan and split off a seperate investment portion.

no harm in being pedantic.

 

[Ski-bum]

1. PPOR Loan - Only have $1000 left to pay so could withdraw $50K from this loan for Deposit and other costs.

Does your PPOR loan have a redraw or offset attached to it? If you access redraw funds from the PPOR loan, the interest on these funds may not be fully tax deductable - speak to an accountant.

I would:

1) get new loan or LOC for 20% deposit plus purchase costs (approx $50K) secured against PPOR.

2) get another loan for 80% of new property secured against itself.

Both loans IO if you want to maximise cashflow. Offset account against either loan with rents, wages (ie. all income) and savings sitting in it.

 

[amsaini15]

Does your PPOR loan have a redraw or offset attached to it? If you access redraw funds from the PPOR loan, the interest on these funds may not be fully tax deductable - speak to an accountant.

Ski-bum, accessing funds to pay for IP from offset account on PPOR is not borrowing whereas accessing funds from redraw facility on PPOR is a borrowing and thus fully deductible.

 

[Rolf Latham]

Hi 1200

"mortza" is your canberran neighbour and will be able to help u structure this properly so that you get the right benefit.......perhaps more so than any bank can.........just about perspective.

Although Jamie is theoretically a "freshie" in the mortgage broking game, he has personal experience in spades and is strongly supported through mentorship in the "rubber stamp" stuff, something a branchie usuallly cant offer.

ta
rolf