Releasing PPOR Title.

[Rixter]

Rixter
I have been trying to keep up here, but am struggling with all the cross postings (and maybe I am a bit slow on the uptake ). Clearly other members are interested in your strategy also - and I dont want to hijack the OP thread.
Would you be so kind to articulate your methods in a new thread? I would be interested to get a clear understanding of your methods (and by the looks of it so would others).

Cheers

Blacky

Following on from this thread at Blacky's request.......

What would you like to know Blacky?

 

[Blacky]

Cheers Rixter.

From what I understand you pay Interest Only (IO) on your Principal Place of Residence (PPOR) debt. Rather than repaying your PPOR loan, you draw a Line of Credit (LOC) against your PPOR and re-invest in additional Investment Properties (IP's).

The additional money which you would be using to pay of principal on your PPOR you use to re-invest in additional IP's.

So, while your PPOR debt remains non-deductible for tax - you increase your wealth faster by owning more IP's.

In addition as your IP's increase in value you have transferred your non-deductable debt onto your IP properties from a security perspective, therefore, releasing the title against your PPOR and this is your fall back position in case ***** hits the fan - you walk away with your PPOR (or can borrow against it).

Is my understanding correct.

I guess my question is that there must be a time lag between increased property value (being able to purchase additional property) and therefore what do you do with spare cash during that period?

As an example I have the cash-flow capacity to invest in additional IP's - however don't have the equity to in current properties to re-draw and don't have the cash savings. Hence I am using an offset against IP's (I don't have any non-investment debt).

Cheers

Blacky

ps - I have used the correct form of abbreviations to assist any newbies with acronyms.

 

[Rixter]

The additional money which you would be using to pay of principal on your PPOR you use to re-invest in additional IP's.

I use the principal portion to cover the 'holding expenses including interest' (not deposits) of additional IP's.

So, while your PPOR debt remains non-deductible for tax - you increase your wealth faster by owning more IP's.

Correct.

In addition as your IP's increase in value you have transferred your non-deductable debt onto your IP properties from a security perspective, therefore, releasing the title against your PPOR and this is your fall back position in case ***** hits the fan - you walk away with your PPOR (or can borrow against it).


Is my understanding correct.

Correct.

I guess my question is that there must be a time lag between increased property value (being able to purchase additional property) and therefore what do you do with spare cash during that period?

As I was purchasing basically one IP per annum this was the only down time between purchases. I already had sufficient equity (in PPOR & IP's) for additional IP deposits.

My IO loan against my PPOR was in the form of a LOC. As such all my wages went into this LOC reducing the balance and interest payable. All our living expenses were paid with credit card and at the end of the month I transfer funds from LOC to pay out credit card balance.

I hope this helps.

 

[Blacky]

As I was purchasing basically one IP per annum this was the only down time between purchases. I already had sufficient equity (in PPOR & IP's) for additional IP deposits.

ok - so your cashflow was about neutral on an annual basis?
basically what you earned firstly went to living and what was left over paid for holding costs and interest.

I presume if cashflow increased above this neutral point you purchased again by drawing down on existing equity (or increased equity as the case may have been) for the deposit and purchase costs.

For those of us without the advantage of existing equity, we need to save up and use excess CF to fund deposits + costs? In which case repaying PPOR debt then re-drawing via LOC is a suitable option.

Also - during your acquisition stage, were you maintaing a safety buffer, for those unexpected expenses/cost increases?

Cheers

Blacky

 

[Rixter]

Also - during your acquisition stage, were you maintaing a safety buffer, for those unexpected expenses/cost increases?

The LOC's are the buffer providing you access to already approved funds should you ever need them. Its cheaper to use OPM than use your own.

 

[Rhinsor]

Just a quick question about your credit card and paying off all living costs.

Do you still pay bills and things that attract a credit card surcharge like 1-2% of the payment or do you use something free like bpay.

I know it's a small cost but it all adds up over the long term.

 

[Rixter]

Do you still pay bills and things that attract a credit card surcharge like 1-2% of the payment or do you use something free like bpay.

We have a Amex card & Visa card linked to the same account. In the first instance I will look to use the Amex card because the reward points for doing so is double what it is for the Visa card. If there is a hefty surcharge for the Amex I will use the usually surcharge free Visa instead.

On a side note only our personal living expenses are paid in this manner... All our Investment Property expenses, bar loan interest, is paid for us by our PM's.

I hope this helps.

 

[serrz]

On a side note only our personal living expenses are paid in this manner... All our Investment Property expenses, bar loan interest, is paid for us by our PM's.

I hope this helps.

Is this driven more by convenience / admin? Or is there some other reason?

 

[Rixter]

Is this driven more by convenience / admin? Or is there some other reason?

Two fold really....

All my IP expenses (bar loan interests) are itemised on the monthly PM statements, but more importantly, so every thing runs on auto-pilot to free up my time as much as possible.

The last thing I want to become is a slave to my portfolio.

It defeats the purpose for me building it in the first instance.

 

[BlakeF]

Cheers Rixter.

From what I understand you pay Interest Only (IO) on your Principal Place of Residence (PPOR) debt. Rather than repaying your PPOR loan, you draw a Line of Credit (LOC) against your PPOR and re-invest in additional Investment Properties (IP's).

The additional money which you would be using to pay of principal on your PPOR you use to re-invest in additional IP's.

So, while your PPOR debt remains non-deductible for tax - you increase your wealth faster by owning more IP's.

In addition as your IP's increase in value you have transferred your non-deductable debt onto your IP properties from a security perspective, therefore, releasing the title against your PPOR and this is your fall back position in case ***** hits the fan - you walk away with your PPOR (or can borrow against it).

Is my understanding correct.

I guess my question is that there must be a time lag between increased property value (being able to purchase additional property) and therefore what do you do with spare cash during that period?

As an example I have the cash-flow capacity to invest in additional IP's - however don't have the equity to in current properties to re-draw and don't have the cash savings. Hence I am using an offset against IP's (I don't have any non-investment debt).

Cheers

Blacky

ps - I have used the correct form of abbreviations to assist any newbies with acronyms.

Hi Rixter,

I have understood your method exactly as Blacky explained it here and his question was very similar to what I wanted to ask.

My follow up questions to this are;

1. How do you transfer the debt from your PPOR to your IP's in order to remove all debt attached to your PPOR and thereby gaining access to the titles and an unencumbered PPOR?

2. When would you be able to do the above? What financial position/ how much equity would you need before you could do this?

 

[Rixter]

Hi Rixter,

I have understood your method exactly as Blacky explained it here and his question was very similar to what I wanted to ask.

My follow up questions to this are;

1. How do you transfer the debt from your PPOR to your IP's in order to remove all debt attached to your PPOR and thereby gaining access to the titles and an unencumbered PPOR?

2. When would you be able to do the above? What financial position/ how much equity would you need before you could do this?

1/ Blake, I set up a LOC secured against existing IP and transferred the funds via online banking from the new LOC over to payout the PPOR loan balance and discharge fee...then collected my title from the titles office.

2/ You need enough existing IP equity required to pay out what ever the ppor mortgage balance is.

Even though the new LOC is secured against IP the loan interest is not tax deductible because the drawings were for non income producing purposes. All I have effectively done is switch loan security away from the PPOR across to investment property and released the now unencumbered PPOR title.

I hope this helps.

 

[D.T.]

Whats the benefit of this, isnt debt just being juggled around, the amount stays the same?

EG
Scenario 1
500k PPOR, 200K owing. Take 200K debt against an IP1, pay out PPOR. Have 500K PPOR, collect title; can borrow 400K against it for investment purposes.

Scenario 2
500K PPOR, 200K owing. Take a 2nd loan for 200K to take it up to 400K total. Gives 200K for investment purposes. Still 200K available in IP1 to be usable for investment purposes since we didn't tape into that in Scenario 2; so 400k total available.

400K in 1 place = 400K over 2 places?

 

[Rixter]

Whats the benefit of this, isnt debt just being juggled around, the amount stays the same?

EG
Scenario 1
500k PPOR, 200K owing. Take 200K debt against an IP1, pay out PPOR. Have 500K PPOR, collect title; can borrow 400K against it for investment purposes.

Scenario 2
500K PPOR, 200K owing. Take a 2nd loan for 200K to take it up to 400K total. Gives 200K for investment purposes. Still 200K available in IP1 to be usable for investment purposes since we didn't tape into that in Scenario 2; so 400k total available.

400K in 1 place = 400K over 2 places?

Correct, debt remains the same.

Its for releasing titles and taking them across to another bank.

Just showing how you can release PPOR as an example.

I did it for a while..gave me a nice fuzzy warm feeling knowing I had my ppor title in hand, but effectively it's dead equity I could have been using to continue building our portfolio.

Thats why I took it to another bank for further investments.

I strongly suggest to anyone serious about building a substantially large residential portfolio to structure your finance exposures across multiple banks/lenders.

I hope this helps.

 

[INVSTOR]

Correct, debt remains the same.

Its for releasing titles and taking them across to another bank.

Just showing how you can release PPOR as an example.

I did it for a while..gave me a nice fuzzy warm feeling knowing I had my ppor title in hand, but effectively it's dead equity I could have been using to continue building our portfolio.

Thats why I took it to another bank for further investments.

I strongly suggest to anyone serious about building a substantially large residential portfolio to structure your finance exposures across multiple banks/lenders.

I hope this helps.

Would that only work though if you weren't planning on selling any of the properties?

 

[Rixter]

Would that only work though if you weren't planning on selling any of the properties?

You can release title and sell it if you wanted to. Means you get all the proceeds from the sale (less selling costs & CGT if an IP) instead of paying out the bank and taking the balance.

 

[BlakeF]

1/ Blake, I set up a LOC secured against existing IP and transferred the funds via online banking from the new LOC over to payout the PPOR loan balance and discharge fee...then collected my title from the titles office.

2/ You need enough existing IP equity required to pay out what ever the ppor mortgage balance is.

Even though the new LOC is secured against IP the loan interest is not tax deductible because the drawings were for non income producing purposes. All I have effectively done is switch loan security away from the PPOR across to investment property and released the now unencumbered PPOR title.

I hope this helps.

That really does help. Thank you so much Rixter.

 

[BlakeF]

Correct, debt remains the same.

Its for releasing titles and taking them across to another bank.

Just showing how you can release PPOR as an example.

I did it for a while..gave me a nice fuzzy warm feeling knowing I had my ppor title in hand, but effectively it's dead equity I could have been using to continue building our portfolio.

Thats why I took it to another bank for further investments.

I strongly suggest to anyone serious about building a substantially large residential portfolio to structure your finance exposures across multiple banks/lenders.

I hope this helps.

Some more great info here too. Thanks Rixter.

Why do you suggest finance across multiple lenders? What is the major benefit?

 

[Rixter]

Some more great info here too. Thanks Rixter.

Why do you suggest finance across multiple lenders? What is the major benefit?

If all your property is with the one lender then your entire portfolio is at the mercy of that lender.

If they say no more funds then you dont have any other titles you can borrow against with another lender to continue on building your portfolio with.

This is where an IP savy mortgage broker really comes into play for you. When starting out they can advise & structure your finances with lenders who have the more stricter lending criteria, then as your portfolio grows finance funds with lender who are more lenient in serviceability calculations.

If you start out with the latter lenders first, as your portfolio grows the harder it becomes for you to secure finance with each additional purchase.

 

[BlakeF]

If all your property is with the one lender then your entire portfolio is at the mercy of that lender.

If they say no more funds then you dont have any other titles you can borrow against with another lender to continue on building your portfolio with.

This is where an IP savy mortgage broker really comes into play for you. When starting out they can advise & structure your finances with lenders who have the more stricter lending criteria, then as your portfolio grows finance funds with lender who are more lenient in serviceability calculations.

If you start out with the latter lenders first, as your portfolio grows the harder it becomes for you to secure finance with each additional purchase.

Thanks mate. Really appreciate all the great advice.