Planning my loan set-up

[WattleIdo]

Planning loan set-up

Experienced investors and experts, please.
Am wondering where to go from this point:

Have 2 IP loans
1/ fixed @ 4.49 for next 2 and a half years - no redraw, no offset though offset is possible if I like. negatively geared property

2/ variable @ 5.07 with $40K redraw. This is positively geared and almost covers losses on property 1. Can open up offset with this if I like, too.

Property 1 has little or no equity
Property 2 has around $120K available + redraw = $160K

Property 2 was used as colateral for property 1. Have decided to keep these 2 properties crossed until Property 1 gains enough value to uncross them or until fixed loan completes and then use redraw to reduce principle (maybe?).

Am with Teachers Mutual Bank and find that the benefits outweigh any drawbacks. Am one of those people who would prefer to pay down loans - within reason.

Am thinking about buying another property soon. Probably I'd live in it while I renovate it. I may later turn it into an IP - or not.

Would like your advice on the best way to structure my loans from here. How would I go about setting up a loan for a PPOR if using equity from IP?

 

[stumpie]

Experienced investors and experts, please.
Am wondering where to go from this point:

Have 2 IP loans
1/ fixed @ 4.49 for next 2 and a half years - no redraw, no offset though offset is possible if I like. negatively geared property

2/ variable @ 5.07 with $40K redraw. This is positively geared and almost covers losses on property 1. Can open up offset with this if I like, too.

Property 1 has little or no equity
Property 2 has around $120K available + redraw = $160K

Property 2 was used as colateral for property 1. Have decided to keep these 2 properties crossed until Property 1 gains enough value to uncross them or until fixed loan completes and then use redraw to reduce principle (maybe?).

Am with Teachers Mutual Bank and find that the benefits outweigh any drawbacks. Am one of those people who would prefer to pay down loans - within reason.

Am thinking about buying another property soon. Probably I'd live in it while I renovate it. I may later turn it into an IP - or not.

Would like your advice on the best way to structure my loans from here. How would I go about setting up a loan for a PPOR if using equity from IP?

First up, for IP 2 if you insist on reducing debt i would setup an offset on IP 2 and stop paying down the loan and put the extra funds into the offset account to reduce the interest charged then you can move the funds from the offset to any FUTURE PPOR's offset account.

OK if you are wanting to buy a PPOR and to renovate then eventually turn it into an IP. My humble thoughts are; buy this property standalone using either a 10% (with LMI) deposit or a 20% deposit using your equity in IP2 (get a loan split to access the deposit. As part of the loan structure for the PPOR setup an offset account and put any excess funds in here instead of paying down the loan. Also see if there's an LOC feature for the loan product if not make sure you can have multiple loan splits with redraw to plan for the future conversion. Renovate away? when you convert to an IP get a QS to do a depreciation report, get it officially valued and release the equity into an LOC or in a new loan split.

An option instead of living in it is to continue to rent but still buy this property as an IP and renovate to add value and manufacture equity. Others more experienced may need to correct me or add more smart ways to invest.

 

[WattleIdo]

Thank you stumpie. that is excellent advice tailored just for me and you are very generous!

 

[Peter_Tersteeg]

Further to Stumpy's excellent comments, you might find that your estimate of $160k in available equity is actually far less considering the two properties are crossed.

Given that the IP 1 loan is fixed, it's likely to be difficult to remove the x-coll until (a) there's enough equity in the property to stand alone and (b) the fixed rate expires as it can't practically be changed unless you're willing to break the fixed rate contract.

The problem with x-coll is that your equity is a function of the value of the entire portfolio rather than being based on IP 2's value. Without knowing the specific values and loans of every property involved, it's not possible to determine what the available equity is.

Definitely go with the offset account. Keeping your own money separate from money borrowed is a key concept in property investment taxation.

 

[WattleIdo]

Thanks PT - good point about the equity and the crossing of loans.
Am getting both properties valued again and hopefully I'm not too far off. should be enough there for me to move ahead with a cheapie, anyway.