Structuring of loans for first investment property

[lila77]

I am about to buy a property for around the $200,000 mark (property not choosen yet - getting all the background stuff done first). The property will be positively geared.
I have $100,000 in equity in my PPOR (without going over 80%LVR). This property is mortgaged with ANZ and is I&P as there is no way it will become an investment property.
I plan to borrow the full $100,000 secured against my PPOR but for the purpose of using about $50,000 for the deposit, fees and charges associated with my first investment property. The 'spare' $50,000 will be left in the kitty for IP2.
The remainder for IP1 will secured against IP1 only ie no cross collaterising. Both loans will be IO.
So my questions are:
What should the 'kitty' be ie. should I leave the spare $50,000 in an offset, or perhaps there is a product that allows for drawing down only what is needed and the rest is waiting for later. Are there any products I should stay away from? ANZ suggested a LOC which from what I've read is a bad idea when it comes to tax time - any comments?
Is it better to use different banks for each of these loans? I was thinking of using ANZ (already has PPOR loan) for the first $100,000 and then perhaps Westpac for the $150,000.
I want my structure to be as flexible and well setup as possible as I don't want it to limit me. I would ideally like to have bought at least 3 properties by the end of 2012 and continue buying another IP every 2 months after that. I am planning to have all my investments positively geared and cost about $200,000.
Thanks for giving me your advice and opinions.

 

[Aaron_C]

ANZ suggested a LOC which from what I've read is a bad idea when it comes to tax time - any comments?

No, ANZ is correct. LOC is fine for tax purposes as long as you use it solely for investment reasons and don't do tricks like capitalising interest. Redraw is the bad idea for tax-time because you have to be extra careful about where the money goes etc.

Is it better to use different banks for each of these loans? I was thinking of using ANZ (already has PPOR loan) for the first $100,000 and then perhaps Westpac for the $150,000.

It all depends on your affordability. Splitting your loans among different banks is usually a good strategy but in your situation the loans are pretty small so the benefit of doing so is a bit limited. Once you have $1m+ then you should really consider spreading your loans as a priority. Nevertheless, spreading your loans may be necessary for you if you hit the serviceability limit with ANZ but I wouldn't know whether that's a problem for you or not.

 

[Rolf Latham]

This property is mortgaged with ANZ and is I&P as there is no way it will become an investment property.

How so ?

ta
rolf

 

[lila77]

/Nevertheless, spreading your loans may be necessary for you if you hit the serviceability limit with ANZ but I wouldn't know whether that's a problem for you or not.

Thanks Aaron. Serviceability should be fine for a while with ANZ for a while. ANZ said I could definitely get 2 but by my third would have trouble (I didn't listen to this negative bank manager). Westpac who has a better understanding of my investment strategy said up to 10 would be easily doable and up to 15 should be fine too.

So perhaps I should just borrow from ANZ initially then move to Westpac?

 

[Jamie M]

Don't park the additional $50k in an offset connected to your IP. If you do that, you'll be reducing your tax deductible debt whilst you have non-deductible debt - effectively throwing money away.

The WBC banker telling you that you should be good for 15 IPs seems ridiculous considering you have $100k in equity to play with. I don't know the specifics of your situation but I wouldn't show any loyalty to the ANZ or WBC banker - I'd speak with a decent, independent broker like Rolf above about the structure of your loans and which lenders to use when.

Cheers

Jamie

 

[Rolf Latham]

Westpac who has a better understanding of my investment strategy said up to 10 would be easily doable and up to 15 should be fine too.

So perhaps I should just borrow from ANZ initially then move to Westpac?

why not move now ? DOnt waste your credit file and the ANZs branch managers time.

but before you do, get the WBC person to take u through a financing plan and get them to show you,on their serviceability model how you can hold 3 mill in loans.

I have found much talk and very little action with many branchies of all lenders, but when put to the simple test of backing their guff with some simple evidence they often fail to deliver ( same with many brokers too )

ta
rolf

 

[lila77]

How so ?

ta
rolf

Rolf I assume you were asking how come my PPOR would not become an IP.
I don't intend to move out of this house any time soon - and yes I understand situations change. However, I could not bare to let a stranger live in my home that I designed, built and landscaped myself. For a start the whole landscape would have to be ripped out and redone to make it a suitable one for tenants (otherwise it would be an overgrown mess in no time at all). I would rather sell it and have someone ruin it without me having to look on.
Rolf there are some decisions that have to be emotional and for me this is the one - the numbers game can be left to any other property I own but not this one. I already love this house and I can't change that.
The Westpac lender that I spoke works with a property expert in Sydney who is a friend of mine. He has given me evidence that I can borrow up to 10 - he does it all the time for clients of my friend. He is unfortunately too busy to write down my loan.

 

[Rolf Latham]

Rolf I assume you were asking how come my PPOR would not become an IP.
I don't intend to move out of this house any time soon - and yes I understand situations change. However, I could not bare to let a stranger live in my home that I designed, built and landscaped myself. For a start the whole landscape would have to be ripped out and redone to make it a suitable one for tenants (otherwise it would be an overgrown mess in no time at all). I would rather sell it and have someone ruin it without me having to look on.
Rolf there are some decisions that have to be emotional and for me this is the one - the numbers game can be left to any other property I own but not this one. I already love this house and I can't change that.

understand all of that, and makes sense, actually logical too, its only the P&I option that doesnt fit into that

so whats wrong with IO and 100 % offset for the principal ? The ANZ and WBC products are a good fit for that ?

ta
rolf

 

[Aaron_C]

Westpac who has a better understanding of my investment strategy said up to 10 would be easily doable and up to 15 should be fine too.

So perhaps I should just borrow from ANZ initially then move to Westpac?

How did Westpac calculate that? How do they know what your investment strategy is?

You should go with whoever you're most comfortable with and whoever gives you the best product and/or advice. I can't speak for ANZ but personally I don't highly recommend them.

 

[lila77]

understand all of that, and makes sense, actually logical too, its only the P&I option that doesnt fit into that

so whats wrong with IO and 100 % offset for the principal ? The ANZ and WBC products are a good fit for that ?

ta
rolf

I don't understand how this would benefit me when one of my goals is getting my PPOR paid off (or at least the initial loan that is not used for IPs). I already have an offset account with my PPOR mortgage but I find it harder to save when I have easy access to my money. I'm happy with how that loan is setup for now, plus its fixed at a good interest rate until the end of the year. If in the future I have trouble with serviceability then I might consider changing it to IO to reduce my repayments but for now what I'm interested in is getting the right structure for my other loans. Ie.
Should I use a LOC? A line of credit wouldn't be a problem as I wouldn't be tempted to use the money for other purposes than investing but is there a better/alternative product that I may not have heard about?
Recommendations for lenders and why or why not?
Advantages and disadvantages to different structures?

 

[lila77]

How did Westpac calculate that? How do they know what your investment strategy is?

You should go with whoever you're most comfortable with and whoever gives you the best product and/or advice. I can't speak for ANZ but personally I don't highly recommend them.

I'm following in the footsteps of a property expert friend who has not only used Westpac (a particular person at westpac) for many of their 50+ properties but also for some of his clients. My friend asked the Westpac manager how much he thought I could service given my income, equity and strategy and he said 10 easily. He unfortunately hasn't been able to take on any new clients otherwise I would be using him.

 

[Rolf Latham]

I don't understand how this would benefit me when one of my goals is getting my PPOR paid off (or at least the initial loan that is not used for IPs). I already have an offset account with my PPOR mortgage but I find it harder to save when I have easy access to my money. I'm happy with how that loan is setup for now, plus its fixed at a good interest rate until the end of the year.
Advantages and disadvantages to different structures?

Your PPOR mortgage is fixed, well then offset is not an option anyways.

In general, if you had the option of IO with 100% offset, what it provides is flexibility, but that does come with some risk that does need to be weighed up, and if one is not a good steward of cash, PI is usually better, and often even with an accelerated amortisation with say a loan term of 15 years.

For further useful info on lending strategy or structure, please speak with a broker or banker directly, going beyond very general advice is not possible here with the very general information provided.

ta
rolf

 

[Aaron_C]

I'm following in the footsteps of a property expert friend who has not only used Westpac (a particular person at westpac) for many of their 50+ properties but also for some of his clients. My friend asked the Westpac manager how much he thought I could service given my income, equity and strategy and he said 10 easily. He unfortunately hasn't been able to take on any new clients otherwise I would be using him.

Ah yes, you are referring to Nathan Birch then as he uses Westpac for his deals. But without actually doing the loan itself it is quite difficult to estimate your borrowing capacity as numbers change all the time!

 

[lila77]

Your PPOR mortgage is fixed, well then offset is not an option anyways.


ta
rolf

ANZ does a one year fixed with 100% offset, when I fixed it was 6.19% which I was happy with.
Thanks for the advice and challenging my existing decision on loan structure.