PPOR to IP

[doozer]

Hello,
OK here goes my somewhat long winded situation and eventual query.
My aim is to accumulate several IPs to have a secure and comfortable future. Iam 26 years old.
As a result of a work transfer we are about to rent our PPOR (3br home) so it now becomes an IP. Purchase price (in Bundaberg area) was $89500 -FHOG= $82500. We paid $11500 deposit to have a $71k mortgage in July 2002. We now have a mortgage of $57500 paying 5.99% P&I over 25 years with Members Equity(Super Members HomeLoans). Once this place is rented out we will be 40 mins away paying $130p/w rent. Our combined incomes are $67k and I am very keen to buy another IP, perhaps a unit.
1.Should we refinance by going to a IO loan on the soon to be IP and open LOC to purchase another one?
2. What is the best way to structure our loans to purchase a second IP and then a third and so on?

Different authors tell you different things, so I just need advice which will assist us to accumulate IPs and therefore long term wealth. Thanks in advance.

 

[XBenX]

try the search function - this issue has been dscussed quite a bit before, read through the previous posts then ask away with any further qn's you have

cheers,

ben

 

[Rolf Latham]

Hi Doozer

I would be looking to convert to an IO product if you are going to be buying a new PPOR as a result of the work transfer.

If you are NOT buying a new PPOR the amount of Principal you are paying on a 58 000 would be very small compared to your incomes. I would then just draw equity with a LOC but if you are doing that a 90 % refinance to all io may also apply

Ideally, it would be good for you to have a chat with an independent mortgage broker, but not before you have outlined what you want to achieve. A good broker can help you to set goals by showing what can be done.

Ta

Rolf

 

[doozer]

Thanks for your replies. In answer to your question Rolf, no we won't be buying a PPOR as the town has population 1000, houses have been on the market for 2 years and it just wouldn't be a sound financial move to buy there. I omitted in the last message that our soon-t-be IP has been appraised at $100-$105k, the growth due to landcsaping & various other improvemnets. As the mortgage sits at $57500 it seems we have equity if keeping at 80%LVR of $26500, perhaps a bit less. I don't fully comprehend LOC as opposed to putting down this equity as a deposit for another IP-or is it the same thing?
Jan Somers says she is a big fan of LOC so I trust her word! Our current lender does not have LOC facility but their rates are excellent. What other lenders would be able to assist with our situation?
I have spoken to a couple of mortgage brokers, and mates who are property investors. Brokers seem to say Wizard or Heritage, mates are saying Westpac(Bankwest). So confused!

 

[Kevmeister]

Using a LOC or using the equity in your property amounts to largely the same thing, but how the security is structured may be different.

Establishing a LOC leaves the LOC secured against your ex-PPOR, yet the LOC's funds are free to pay against anything you choose (eg. the deposit on another IP). The balance on the IP (ie. after the deposit) is then obtained by mortgage against the IP. In this way you do not have 1 loan covered by more than one property (x-collateralisation), which is generally a less-flexible situation to get into.

Without a LOC, you can probably go to your lender and advise of your desire to purchase an IP, and they will take both your PPOR and the new IP as security.

Personally, I am arranging a LOC because I like the idea of the funds being "prearranged" and ready to use when I need them (eg. to provide a deposit on contract signing).