Should I Split My Existing LOC for 2nd Property ?

[velohead]

Hi All,

I have one negatively geared property, that has $75,000 outstanding on a Line of Credit (LOC). As well as a separate investment loan of $350,000

I am in the process of buying a second property, this one will be marginally cashflow positive, only to the tune of plus $5 per week.
I need to pay $40,000 very soon, which I have available in my LOC.
I will also get a separate investment loan for the balance in due course.

So, the question is.....
a) do I keep one LOC, and make payments for both properties from this one account.
...OR...
b) do I split the one line of credit into two (ie two bank accounts), so that each property has a separate and distinct LOC.

NB - there is never any mixing of personal debt with investment debt, and there never will be.

 

[Aaron_C]

I always find it best to self-contain each loan to one property only. You may pay an extra split fee but it makes things much easier for accounting purposes.

 

[Rolf Latham]

What Aaron says makes VERY good sense where it is possible.

Many of my clients with 10 + Ips dont do that process but keep a spreadsheet which allocates what falls due to what property.

Minor hassle to start out, but sometimes its not poss to split loans for whatever reason.

ta
rolf

 

[velohead]

Technically, my bank is able to do that, but my gripe is that instead of charging me 1x $400 = $400 pa, they want to charge me 2x $400 = $800 pa.
And that is without extending the amount I can borrow on said LOC.

 

[Rolf Latham]

Technically, my bank is able to do that, but my gripe is that instead of charging me 1x $400 = $400 pa, they want to charge me 2x $400 = $800 pa.
And that is without extending the amount I can borrow on said LOC.

Could U move ?

ta
rolf

 

[velohead]

I can probably move banks quite easily, something I should consider.
Might be able to reduce the interest rate too.

 

[Rolf Latham]

In almost every challenge there lies significant opportunity !

ta
rolf

 

[Terryw]

From a tax perspective it shouldn't matter much if the owners of the loan and both properties are the same and if you are paying IO.

You will have to apportion the interest between the properties, but this should be a simple percentage. Both are investment properties so even if you get this wrong you will be claiming the same amount of interest overall.

It would only be necessary to have a separate LOC if you are using part of the money for private expenses or maybe if you are paying down the principle.

 

[velohead]

Thanks for your replies everyone - informative as always.

 

[Bradsdad]

From a tax perspective it shouldn't matter much if the owners of the loan and both properties are the same and if you are paying IO.

You will have to apportion the interest between the properties, but this should be a simple percentage. Both are investment properties so even if you get this wrong you will be claiming the same amount of interest overall.

It would only be necessary to have a separate LOC if you are using part of the money for private expenses or maybe if you are paying down the principle.

My thoughts too. The only small hassle though is working the initial % out at the start between properties and remember that if you utilise any additional funds for repairs/improvements to adjust the percentages pro rata for the tax year.
The same said also if you sell a property but don't reduce the LOC down by the original outlay. A bit of organisation required but not too challenging.