Second opinion wanted - setting up loan structure for first time

I am about to buy first IP this month and am in the process of formalising a loan and a structure to handle ongoing purchases of properties.

I really want to set this up right from the start as I am getting conflicting views from my broker and from what I am reading and am just looking for a second opinion or recommdations.

Currently I own and owe nothing. I also have a 50K Cash deposit. My long term goal is to buy an IP every 4 months for the next 3 years as well as a PPOR some time next year after hopefully gaining some equity to have a portfolio of approx 12 properties to eventually sit on for 10 years+. Average price would be < 300K, cash positive and across the country (different regions/activities).


The first property is 250K and at the moment looking at Portfolio LOC with ST George. This would allow flexibility for additional purchases and easier management and I guess the original appeal.

My feeling now though is that whilst that product (or a similar LOC) allows this flexibility it will be cross collaterised (unless you request and ensure otherwise) and that is a no-no later on.

On the other hand having ongoing muitple IO loans with an offset/redraw with either a different lender or same will give you more freedom & control but adds the overhead off multiple accounts/fees and lenders etc.

Any thoughts?
My feeling now though is that whilst that product (or a similar LOC) allows this flexibility it will be cross collaterised (unless you request and ensure otherwise) and that is a no-no later on.

On the other hand having a IO loan with an offset
 
I am about to buy first IP this month and am in the process of formalising a loan and a structure to handle ongoing purchases of properties.

I really want to set this up right from the start as I am getting conflicting views from my broker and from what I am reading and am just looking for a second opinion or recommdations.

Currently I own and owe nothing. I also have a 50K Cash deposit. My long term goal is to buy an IP every 4 months for the next 3 years as well as a PPOR some time next year after hopefully gaining some equity to have a portfolio of approx 12 properties to eventually sit on for 10 years+. Average price would be < 300K, cash positive and across the country (different regions/activities).


The first property is 250K and at the moment looking at Portfolio LOC with ST George. This would allow flexibility for additional purchases and easier management and I guess the original appeal.

My feeling now though is that whilst that product (or a similar LOC) allows this flexibility it will be cross collaterised (unless you request and ensure otherwise) and that is a no-no later on.

On the other hand having ongoing muitple IO loans with an offset/redraw with either a different lender or same will give you more freedom & control but adds the overhead off multiple accounts/fees and lenders etc.

Any thoughts?
My feeling now though is that whilst that product (or a similar LOC) allows this flexibility it will be cross collaterised (unless you request and ensure otherwise) and that is a no-no later on.

On the other hand having a IO loan with an offset

Give St Goerge Port a BIG miss.

The benefit is only realised when you are prepared to cross collateralise your portfolio OR............you have a couple of big securities with various loan splits.

There isnt enough information to make any real recommendation here in any case.

In general but not always youd want to consider an IO with 100 % offset. BUT the choice of lender AND mortgage insurer us critical for you given your limited resources and stated goals.

So critical in fact, that using the wrong lender or the wrong insurer at the wrong part of your investing career and you will be sitting out of the game for a while !

ta

rolf
 
For instance (apologies to Rolf for the plain speaking version),

If there are 5 lenders willing to lend to you now, go with the one that is only just able to lend you that amount, leaving the next lenders powder dry for the next purchase, and so on until you reach the last lender, who uses negative gearing, calculates other mortgages at the actual dollar amount paid rather than a serviceability or plug interest rate, and might use a rental appraisal from a property manager rather than a notional rental percentage.

Dont get fussed on rate. Dont get fussed on fees. Get interested in structure.
 
Give St Goerge Port a BIG miss.

The benefit is only realised when you are prepared to cross collateralise your portfolio OR............you have a couple of big securities with various loan splits.

There isnt enough information to make any real recommendation here in any case.


In general but not always youd want to consider an IO with 100 % offset. BUT the choice of lender AND mortgage insurer us critical for you given your limited resources and stated goals.

So critical in fact, that using the wrong lender or the wrong insurer at the wrong part of your investing career and you will be sitting out of the game for a while !

ta

rolf

Thanks - that is what I am thinking now that the IO with 100% offset is much better. And yes agree starting wrong at wrong time is not what I want to do.

What more information is required for a recommendation? maybe from looking at it 3 a year is more realistic.

Here is my plan in more detail (well at least for the first 3 years in terms of accummulating)

First loan is for planned purchase at 225K at 90% LVR ($25K deposit). This would be a new property in QLD (so applicable for 10K builder bonus) which will offset buying costs (Stamp duty, transfers etc). LMI will be capitalised into the loan (approx 3K).

I'll add this is a NRAS property so lenders are Westpac family (i,e St george), NAB or Firstmac however they lend only up to 80% and this will not leave me anything behind. Hence the reason for the preference to St George as it seemed to suit subsqeunt borrowings.

Second intended property would be a regional property less than 150K in NSW, same with the 3rd. Intend to have 20% deposit for purchase of these of these.

All properties would be cash positive.

IP 1 loan amount- 225K approx (90% LVR)
IP 2 loan amount- 125k approx (80% LVR)
IP 3 loan amount- 125k approx (80% LVR)

2013

IP 4 loan amount- 150K approx (90% LVR)
IP 5 loan amount- 150k approx (80% LVR)
PPOR (convert to be IP after 12mnths) loan amount- 300k approx (90% LVR)


2014

IP 7 loan amount- 250K approx (80% LVR)
IP 8 loan amount- 250k approx (80% LVR)
IP 9 loan amount- 250k approx (80% LVR)


Currently earning 120K +

Thanks
 
What does your broker say to the plan ?

My primary concern isnt a financing one per se,

Any plan is better than no plan.

Have you worked the numbers on the LVRS backwards to see if your equity growth and cash savings are achievable ?

I suspect you will be a lot more reliant on LMI than you believe, unless you buy sensationally, or value add over organic growth.

On that basis alone, I believe you need to revisit your numbers and resit with your broker to run the models going fwd.

On the NRAS, dont depend on that puppy for much ACCESSIBLE growth in the middle term, also hope that your val comes in ok, many valuers still think they are a form of "public housing" which they arent .

ta

rolf


PS I think .......Resimac will go to 90 % for some NRAS consorts.
 
I would have to second Rolf's postion - the Portfolio won't be suitable for you for 2 reasons:
1. It is a LOC so you would be making a tax mess to deposit money into it on an ongoing basis.
2. Cross collateralisation of subsequent properties.

Go for IO with 100% offset acount for the first. Second onwards there is no need for a new offset.
 
Thanks Rolf - yes broker is on board - I think their push to STG was more that they were a NRAS lender and then this would fit with my portfolio plan as well by using their product. However not warning me that this would involve xcoll was I guess my concern but then thats up to me to research as well. Anyway will look to a competitive IO offering instead

Agree it may be needed to rerun the numbers and lower the LVR where possible. I actually meant 80% for everything else going forward (not 90%) including the PPOR but this may mean a lower purchase/loan value.

Incidently on the NRAS the bank valuation (by yes St George...) on the identical property next door was as per price so that was good news and yes don't expect this to grow wildly - rather just generate reliable rental returns.

Thanks for the Resimac link - will look at that as well
 
I would have to second Rolf's postion - the Portfolio won't be suitable for you for 2 reasons:
1. It is a LOC so you would be making a tax mess to deposit money into it on an ongoing basis.
2. Cross collateralisation of subsequent properties.

Go for IO with 100% offset acount for the first. Second onwards there is no need for a new offset.

Thanks Terry - yes that is cleaner. I guess my only other query around structure with multiple IO loans is if these any total equity growth be tapped into going forward without combining these? I.e Equity from IP 1 + Equity form IP 2 etc
 
Thanks Terry - yes that is cleaner. I guess my only other query around structure with multiple IO loans is if these any total equity growth be tapped into going forward without combining these? I.e Equity from IP 1 + Equity form IP 2 etc

One problem may be if you had multiple properties with only a little equity each. eg. 10 properties with $10,000 additional borrowable equity. You could cross collateralise them all and get a $100k LOC or separate LOCs (actually there may be minimum loan sizes!). I would still avoid the crossing in this instance.
 
One problem may be if you had multiple properties with only a little equity each. eg. 10 properties with $10,000 additional borrowable equity. You could cross collateralise them all and get a $100k LOC or separate LOCs (actually there may be minimum loan sizes!). I would still avoid the crossing in this instance.

It can be a BIG problem..........but accessing equity is always a good problem to have since you have equity.

WHen a portfolio consists if many weeny props, one may have to consider crossing................ouch yes I know.......

Did he just say that...........yes he did.

10 enquiries for 100 ks of loans will fry the credit score..............esp for a 90 % lend, so we may need to do some small sub bundles of cross to balance the cross coll pain vs the NO money at all pain.

Often with weany props and loans you can stick 3 together and still end up below the 300 k loan threshold and so get decent priced LMI


ta
rolf
 
Very good point rolf. Which is why I would always, as part of my own investment strategy, stick to the bigger end of town.

Have to agree with this, Aaron. The leap frogging strategy outlined above works very well when you have significant equity to draw on to fund the deposit of the next IP. After the last rise in prices in Melb, we experienced significant growth in our IP's and were able to use the equity gain in our more expensive IP's to release the title of one of our cheaper ones. Now we have a LOC set up against the cheaper IP to be used as a deposit on further investment properties. (Probably a com).

The other alternative is to save cash deposits for the subsequent IP's, which I guess is also possible given that the props above are not very expensive, and Christos has a reasonable salary.

Regards Jason.
 
The other alternative is to save cash deposits for the subsequent IP's, which I guess is also possible given that the props above are not very expensive, and Christos has a reasonable salary.

Regards Jason.

Yes I don't expect my first planned few to have huge growth - instead they will be good small cash positive ones and yes will mostly fund them with my 20% cash deposits
 
This is how I structured my first investment property loan to maximise and simplify my tax deductions going forward. Might not fit everyones situation and circumstances.

My 1st IP loan was setup via ANZ Breakfree as an Interest Only mortgage. I try and use my credit card for as many of my expenses so as to take advantage of the 100% offset account. The credit card is paid off in full each month, no exceptions. I registered with Pricefinder instead of RPData when I was doing my due diligence on my 1st IP which meant I was able to buy it for what I considered under market value and gained instant equity.

When I had saved up a healthy cash buffer in my offset account for my 2nd IP, I accessed this equity from the 1st IP into an ANZ Equity Line of Credit which was used for the deposit of IP #2. This involved getting a free valuation on the 1st IP which ANZ organised. The ANZ Equity LOC is automatically IO which is nice. When I purchased my 2nd IP, I borrowed 89% of the loan amount including outgoings which did involve some LMI however it wasn't that much for a loan under $300k. This loan is also Interest Only. My 2nd IP had the security setup so it wasn't crossed with the 1st IP to keep things nice and tidy.
 
.

When I had saved up a healthy cash buffer in my offset account for my 2nd IP, I accessed this equity from the 1st IP into an ANZ Equity Line of Credit which was used for the deposit of IP #2. This involved getting a free valuation on the 1st IP which ANZ organised. The ANZ Equity LOC is automatically IO which is nice.

That sounds good - the only thing that's a little unclear is did you convert your ANZ breakfree loan to a ANZ Equity Line of credit on IP #1? And then with the deposit got a new IO loan - that makes sense to me but just wanted to confirm thats what you did.
 
To fund the purchase of the 2nd IP I created two entirely new loans, the first was the Equity LOC which used the 1st IP as security as it was accessing equity sitting in this property. I used this for the deposit. The second new loan was the mortgage for the 2nd IP which used only the 2nd IP as security. The original mortgage I had on the 1st IP before I even considered purchasing my 2nd IP remained completely unchanged. I now have three loans (two mortgages and one Equity LOC). The Equity LOC interest rate is slightly higher than the normal mortgage loans, in my situation it is 0.15% higher which is something to take into consideration on the cash flow.

1st IP: Mortgage using 1st IP as security.
2nd IP: Deposit using Equity LOC using IP#1 as security.
2nd IP: Mortgage using 2nd IP as security.
 
I am about to buy first IP this month and am in the process of formalising a loan and a structure to handle ongoing purchases of properties.

I really want to set this up right from the start as I am getting conflicting views from my broker and from what I am reading and am just looking for a second opinion or recommdations.

Currently I own and owe nothing. I also have a 50K Cash deposit. My long term goal is to buy an IP every 4 months for the next 3 years as well as a PPOR some time next year after hopefully gaining some equity to have a portfolio of approx 12 properties to eventually sit on for 10 years+. Average price would be < 300K, cash positive and across the country (different regions/activities).


The first property is 250K and at the moment looking at Portfolio LOC with ST George. This would allow flexibility for additional purchases and easier management and I guess the original appeal.

My feeling now though is that whilst that product (or a similar LOC) allows this flexibility it will be cross collaterised (unless you request and ensure otherwise) and that is a no-no later on.

On the other hand having ongoing muitple IO loans with an offset/redraw with either a different lender or same will give you more freedom & control but adds the overhead off multiple accounts/fees and lenders etc.

Any thoughts?
My feeling now though is that whilst that product (or a similar LOC) allows this flexibility it will be cross collaterised (unless you request and ensure otherwise) and that is a no-no later on.

On the other hand having a IO loan with an offset

Chris i havn't read the another post yet; but im sure their advice would be the same as mine.

Give the St George LOC a Miss; for what you want to achieve + given it's your 1st property; go for a standard 100% offset with I/O. You will quickly find your biggest problem in achieving the +10 property +ve property goal is "serviceability" and having a LOC so early in your investing life will def kill that dream very very quickly.


Cheers
Michael
 
To fund the purchase of the 2nd IP I created two entirely new loans, the first was the Equity LOC which used the 1st IP as security as it was accessing equity sitting in this property. I used this for the deposit. The second new loan was the mortgage for the 2nd IP which used only the 2nd IP as security. The original mortgage I had on the 1st IP before I even considered purchasing my 2nd IP remained completely unchanged. I now have three loans (two mortgages and one Equity LOC). The Equity LOC interest rate is slightly higher than the normal mortgage loans, in my situation it is 0.15% higher which is something to take into consideration on the cash flow.

1st IP: Mortgage using 1st IP as security.
2nd IP: Deposit using Equity LOC using IP#1 as security.
2nd IP: Mortgage using 2nd IP as security.

I have ended up going down similar path for now - about to settle on first IP (yes long drawn out process)....with LOC with St George on NRAs property as mentioned.

I have also been approved for I/O loan for second regional IP with CBA. The loan on this is quite small (120K - 90% LVR) and will use own cash for deposit.

However going forward, to keep simple and allow other IP purchases was intending to ask to increase LOC (i.e +50K) on IP #1 to use for deposits/small reno's for next properties rather than use my own cash.

Any issues in doing this? I see that this keeps the properties standalone and avoids the x-coll.

Thanks
 
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