nuts and bolts

From: Gail H

Hi everyone,
This is a dumb little question, but it is the nuts and bolts of buying multiple IPs that baffles me. I'm planning to use a line of credit on my home loan to use as deposits. I'm hoping to buy 3 or maybe 4 IPs this year. Do I have to draw the deposits for the different properties from different accounts (for tax purposes), or can I just do it all from the same account? Is there any real advantage in having the loans with the same lender? Would you ever have more than one property for the IPs, or would you always take out separate loans for each one? Sorry about this very basic stuff, but these are the questions that the books never address.

Thanks everyone

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Reply: 1
From: Paul Zagoridis

Hi Gail

The only dumb question is the unasked one. At the same time it never hurts to check the archives ;-)

Good luck in buying 3 or 4 IP's this year.

When you find an area you like you will be tempted to buy a few IP's at once.

I'd suggest if you don't own IP's yet do not buy the second IP until you settle and rent out the first. It doesn't matter how good the deal looks there is always something overlooked. Multiple settlements are stressful and (potentially) expensive.

I've used lines of credit, personal loans, overdrafts, and credit cards to make deposits. So your LOC is fine for the deposits. No normal tax planning on the source of the funds if you own the IP's personally.

Think about structuring your IP's in an entity like a company or trust. Owning IP's in your personal name is cheap at first but potentially risky (court action, succession planning) and expensive to change (stamp duty).

Deposits from your personal accounts (e.g. LOC) can be lent to the entity (and interest charged).

Talk to a good independent broker. They will save you money. Rolf is worth talking to.

Do not have a cross-colateralised loan. If you try to change one property it normally involves huge pain to change the loan.

It's ok to deal with just one bank. Packages are available to make it cheaper and easier at first. But don't let them lock you in. They will eventually stop lending you money. Then you have leverage when you move to a new bank. The new bank will not think of you as a 1-4 IP customer but a 4-8 IP customer.

Good luck again Gail, we're cheering you on.


Paul Zag
WealthEsteem coming soon at...
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Reply: 2
From: Gail H

Thanks so much for your advice Paul. I still have so much to learn and undoubtedly there is much trial and error ahead, but this forum is such a great way of avoiding some of the pitfalls.

Its difficult to get rid of the sense of urgency, as I'm just so damn mad at myself for not doing this earlier. Especially now that my home town (Melbourne) is so expensive in the sure fire growth areas. But perhaps everyone feels that they should have started earlier. Better today than never, eh? I'll heed your words of warning.

Thanks again

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Reply: 2.1
From: Mark Laszczuk

Don't be mad at yourself for not starting earlier. The great thing is you've started, full stop. Remember, 94% of the population (or thereabouts) retire on a pension. So be happy that you're part of the 6%. Also, think about the prices like this: they seem expensive now, but in ten years, you'll be saying to yourself "Geez I'm glad I bought those places for such a small price.'

'no hat, some cattle'
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Reply: 3
From: Dale Gatherum-Goss

Hi Gail!

Congrats on taking the plunge and good luck. I agree with Paul, one at a time.

As for the LOC question . . . you may use the same LOC for as many IP's as you like and still claim the interest relevant to the IP's. Record keeping will be important to avoid paying your accountant a minor fortune to wade through it all.

As for different lenders . . . this is something where I have heard many compelling arguments for both sides of the story. However, if one lender will give you what you want and do so at a discounted rate because you are now borrowing more money, then I would not have a problem with this.

Horses for courses.

I also agree with Paul that you might want to think about the longer term issues of holding IP's in your name instead of a trust.

Have fun and I hope that everything works well for you.

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Reply: 3.1
From: Joanna K

Hello Gail,

Try talking to St George Bank. They have a line of Credit product that allows you to set up different accounts for different propertys and you receive separate statements for each account.

Kind regards

Joanna Karavasilis
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Reply: 4
From: Miakat .

Hi Gail,

Have you read Jan Somers new book yet? It goes into quite a lot of detail about the finance side of the whole process. Very worthwhile read if you want to structure your finances correctly.

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