Setting up IP $ properly

[laurieload]

Hi Guys and Gals,

Just about to sign on for another IP and wanted to run past my proposed loan/borrowing scheme as haven't done it 100% right in the past for maximising tax/refinance purposes. Its a 3bed house that I want to put a GF out the back of (finally eh Brazen)!

These are the details:
IP purchase - 366k
Renos - 30k
GF max total cost - 100k

Aiming to live in short term whilst reno and build GF, and hopefully revalue in less than the normal 6 month period so can get something else. 5bed/2bath houses in area currently selling for 570k, but think average 6mth sales on these is more like 600k.

Have 70k LOC from refinanced IP's from WPac, 80k cash in bank and was approved for up to 600k through WPac.

Was initally planning to pay 10% deposit for house + 20% deposit for GF + purchase costs + buffer from cash deposit and renos from LOC. But would it be better for tax purposes to use up LOC first if we are not going to live in it for 12 months?

Also how would I get around the <6 month revalue thing? Put up 20% deposit for the house perhaps?

Very grateful for your words of wisdom, as always!

 

[Terryw]

Without knowing your full situation it is hard to be sure.

But basically you will want to borrow as much as possible without using your cash or cross collateralising.

So borrow as high an LVR as possible to buy the property. THen use your LOC for closing costs. If you have other equity then set up a further LOC for the rest.

If you don't have other equity then maybe consider gifting the cash to a discretionary trust and then borrowing it back. This will help you with tax in the future plus some asset protection.

 

[Aaron_C]

Hmm I'd rather not use the LoC to purchase the new property unless I really had to. It won't make a difference from an accounting/tax perspective but it's best to get the maximum leverage off EACH asset you have, not just one that has the LoC on it. But if for some reason you can't get a 90%+ leverage on the new property then the LoC will be the 2nd best option since the money is already available.

 

[laurieload]

Thanks so much Aaron and Terry,
I have heard that if I go 90% on this IP it will be hard to get a reval done under 6mths. Have you had any experience with this?

 

[Rolf Latham]

Hi LL

I would not use Worstpac for that type of deal unless I was forced to for whatever reason

Unless your GF is ATTACHED, you are toast.

Either your banker or broker hasnt asked the right qustions, or you havent volunteered the right data.........4

WBC LMI will NOT cover a property with 2 dwellings unless they are attached, meaning you are stuck with 80 % (unless there has been a very recent change to WBCLMI policy)

The problem with you is that you wont find that out till u have paid your first bunch of lmi on the purchase...........then when wanting to build, you may have to move lenders, thus burning no only the LMI premium, but also ANOTHER credit hit on your file.

In this finance game with LMI, one should never assume that Lenders are selling whitegoods, and loan x is similar from Harvey Norman to the one at the Good GUys. It doesnt work that way

ta

rolf

 

[laurieload]

Ohh Holly Sheets Rolf!

Yes did tell Broker of our intentions up front several times in different ways...think you will be getting some new customers very soon

The problem is we have now entered a bidding war with another new party, and I am trying my darndest to get the vendors to sign very soon (Thanks for the advice Terry and JWR!). We have finance approved with Worstpac as you say and so a bit reluctant to try and change this late in the game incase it holds up .. is it possible?

 

[Aaron_C]

Laurie - Westpac hasn't approved anything...your 'pre-approval' doesn't mean diddly-squat. You can change lenders at any time.

 

[laurieload]

Ok, just heard back from my broker who says hes just finished a 90% sep GF buy and build with Westpac! Maybe the rules have just changed Rolf?

 

[Rolf Latham]

Ok, just heard back from my broker who says hes just finished a 90% sep GF buy and build with Westpac! Maybe the rules have just changed Rolf?

Other lenders will generally do such a deal under "standard policy" so there may be some oportunities, but pls dont rely on my blurb, I know nothing of you specifics


Rules changeperhaps, I cant see evidence of same though,will confirm monday. My last enquiry was declined in Dec 11.


Note that separate in WBC speak in the old days was ok.

SEPARATE doesnt necc mean detached.

If the GF is under the same roof line, OR has an attached wall u are ok under the old rules, a separate discrete dwelling , then no.


ta
rolf

 

[laurieload]

Thanks Rolf, I appreciate your comment either way as its much better to be safe than sorry. Your reply has potentially saved us $$$$

 

[Rolf Latham]

No change to policy

Attach
and separate is ok

Detached and separate is mqx 80%

Ta

Rolf

 

[laurieload]

Thanks Rolf!
You are a star. Talk to you in the near future!