The Right Way Forward

[Theodore]

Hello everyone my first post after a lot of research and searches !!

I have a few questions and would welcome the input of any one interested in doing so !

I will firstly start with my goals!!

To expand my IP portfolio to 10 IP by 30 years old ( 21 currently )
I figure with minimum 10 IP I will have enough equity to by a CIP unencumbered to fund my lifestyle without the need to work ( financially Free )

My current figures Hi


I have two IP loans currenty fixed for 2 years BANK CBA

Please not I have been formally approved for 3IP using cash as a deposit ( no equity ) loan $197500 lmi capped purchase price $208000

IP1 loan 170k value 230k purchase price 205k ( vals are based on research)
IP2 loan 236k value 225K purchase price 216k

They are x coll ( broker said it was in my best interest ) i now know this is not the best way to do business


I believe that i have some equity in both props as i have done some renos and bought well!

How is the best way to access the equity in both props to fund another IP ? ( stand alone from now on)

Will it matter that they are fixed ? ( cba said 1k break out per loan )
Will it matter that they are crossed ?
should and how will i uncross ?

I paid LMI on the both loans aggregated so yes i did end up paying more lmi than i should have it was also capped on IP 2

I appreciate any comments and advice

Theodore

 

[j_p]

Get yourself a good (independent) broker that has an understanding of investing and will listen to your goals and help you work towards them. Did your last one work for the bank or something? A quick search of the forums should help you find one.

Based on your numbers you can't uncross those properties - you have negative equity in IP2 (value 225k, loan 236k)! I believe banks usually want both props under 80% to uncross. A broker will help here.

If you have a cash deposit then a broker should be able to find you a loan assuming there are no other problems such as serviceability. A broker will help here.

10 properties is a good goal, I would revisit your goal however to make it more specific and base it on how much equity you need to dollar value to execute your plan on getting a CIP and work towards that. i.e. get a rough idea of how expensive the CIP is going to be and ask your broker what kind of deposit etc you will require (CIP loans aren't as generous in terms of leverage, I know you said unencumbered but you might decide otherwise post research). A broker will help here (along with a lot of research).

Good luck!

 

[D.T.]

Hello everyone my first post after a lot of research and searches !!

I have a few questions and would welcome the input of any one interested in doing so !

I will firstly start with my goals!!

To expand my IP portfolio to 10 IP by 30 years old ( 21 currently )
I figure with minimum 10 IP I will have enough equity to by a CIP unencumbered to fund my lifestyle without the need to work ( financially Free )

Nice goals, quite achievable

My current figures Hi


I have two IP loans currenty fixed for 2 years BANK CBA

Please not I have been formally approved for 3IP using cash as a deposit ( no equity ) loan $197500 lmi capped purchase price $208000

IP1 loan 170k value 230k purchase price 205k ( vals are based on research)
IP2 loan 236k value 225K purchase price 216k

They are x coll ( broker said it was in my best interest ) i now know this is not the best way to do business Find a new broker IMMEDIATELY


I believe that i have some equity in both props as i have done some renos and bought well!

How is the best way to access the equity in both props to fund another IP ? ( stand alone from now on)

Will it matter that they are fixed ? ( cba said 1k break out per loan ) Not really, could do as a seperate loan account on the properties (though being crossed ruins this, hence not 'in your best interest')
Will it matter that they are crossed ? Yes
should and how will i uncross ? Have a broker fix it

I paid LMI on the both loans aggregated so yes i did end up paying more lmi than i should have it was also capped on IP 2

I appreciate any comments and advice

Theodore

My comments in red.

 

[danwatto]

If you want to grow fast, finance is critical.

Peter Tersteeg is a great broker I can recommend from this forum with good knowledge of maximising things in a long term manner. For example he helped my girlfriend and I expand in a huge way this last year.

Since you have paid LMI already you might be able to get more equity out up to 90%, by only paying LMI on the increase amount.

This will maximise your deposit but you should also keep some funds for emergency purposes and a buffer of at least couple months expenses in case of vacancy or major repairs.

 

[Redom]

Heya,

Well done, incredible achievements and goals for someone so young. Love hearing stories like this.

As you grow, its very important to have a finance plan to matches your goals.

Sit down with someone and talk through how to get from 0-10 over a certain time period. Obviously you'll need to make future assumptions, but if you get to understand and appreciate the ins and outs you'll be better equipped to make the right decisions to get you where you want to be (and with minimal transaction costs). The more info you're armed with the better. It'll guide you to where you want to go (eg add income, etc).

I'm obviously biased, but i'm with Dave on your situation. There are next to no legitimate reasons for why your broker should advise to xcoll your loans (unless there was a guarantor relationship in place). It works contrary to your goals and unfortunately hamstrings you a little right now. It may have meant that you've paid more LMI than you needed to.

To uncross, you'll need to refinance your current loans out. The upside here is that this will allow you to withdraw the equity you've got.

Mapping it out for you, you'll need a couple refinances (internal preferably or external). Get IP1 revalued (do a couple valuations to maximise). If you get a 230k val, take out a loan for ~205k (~90%). Use the 35k in equity separately for IP2. Uncross loans. You may (depending on vals) have 10-15k in equity available to use.

Recommend purchasing via equity - allows for interest deductions.

Cheers,
Red

 

[albanga]

Firstly welcome and congratulations on achieving what you have already at such a young age! I only wish I was as switched on at 21 years old as you seem to be.

I think its fantastic you have a goal but my advice would be too really tighten that up. At the moment its just a bit vague and needs some more direction.

Firstly the term "financially free", what does that mean to you? 50k, 100k, 500k annual income? This is important because a rough calculation is that for 100k annual income (pre tax) then you need to have invested 1.25m into your CIP goal with an 8% return.

So when you look at it like this then really why is 10 properties relevant? Why not 3? There was a great thread on something similar recently discussing this. If your goal is 1.25mil in the next 9 years then your going to need some growth properties to get you there.
Now the issue with that is that growth properties are going to be negatively geared and are going to cost you additional money to hold.

I am guessing since your 21 you may not be on a huge salary right now (could be wrong!) so chances are you cannot really afford to hold many negatively geared properties. So investing in cash flow is going to be your option. Your equity will build very slowly though, maybe enough to reach your goal but probably not.

So then what you can consider doing is perhaps using the cashflow of say 5 properties to offset 1 growth property. There are plenty of options to consider but point I am trying to make is when goal setting be as specific as possible. Saying I want 10 properties is irrelevant to the main end goal, your end goal is "financial freedom" so first thing I would consider is what exactly that is.
This goal can ofcourse change and no doubt will but atleast for now it will get you on the right path as opposed to just buying up properties to hit the mark of 10 but really they do nothing to help you achieve your end goal.

 

[Theodore]

Thank you all for the great advice and responses .

I must admit the goal i have outlined is extremely vague and not specific!

The reason i say 10 IP and not 3 is because I am on a very modest salary and one of the reason i have been able to purchase is because they are significantly cheeper properties which in return I can save the deposit for sooner .

I also understand your theory on the neg gear for growth IP to allow for sooner purchasing . Thus far my first IP is positive $200 P/M this covers most of my 2IP shortfall as I have purchased in a growth areas with low yield .
So thank you albanga with your thoughts on my outlined goal !! I completely agree with you and I am still working on defining my major goal .


Why my broker advised me to Xcoll I have no idea I have also found out he Xcoll my dad poor and IP


Yes you are indeed right that i paid more in LMI because of the Xcoll

Thank You Redom for mapping it out for me !!

when you say i need to refinance my current loans out do you mean away from CBA ?

I have been told by another broker the CBA will do an internal refinance but that it will depend on Vals and since i have only bought IP2 6 months ago and I have done no renos they believe a higher val is unlikely . ( I will be doing a val in a few months though)

Thank you also for your encouragement !!!


Can you please explain this further anyone ?
Since you have paid LMI already you might be able to get more equity out up to 90%, by only paying LMI on the increase amount.

Some great news out of today I have had my P&B cleared and will be signing contracts for IP3 on JAN 5th .
What i believe to be my best buy yet . 6.7% return and a nice little reno of about 5k including holding cost !!

Theodore

 

[Theodore]

I have also just spoken to CBA about uncrossing

They have stated that in order for my IP2 to be uncrossed it will need to be valued at 240K

 

[Jamie M]

Peter Tersteeg is a great broker I can recommend from this forum with good knowledge of maximising things in a long term manner. For example he helped my girlfriend and I expand in a huge way this last year.

+1

Good dude - great broker. Might be 10m under some water in the south pacific right now though.

Cheers

Jamie

 

[Redom]

Thank You Redom for mapping it out for me !!

when you say i need to refinance my current loans out do you mean away from CBA ?

I have been told by another broker the CBA will do an internal refinance but that it will depend on Vals and since i have only bought IP2 6 months ago and I have done no renos they believe a higher val is unlikely . ( I will be doing a val in a few months though)

Thank you also for your encouragement !!!

Theodore - no problem!

Internal refi's are fine. Given you've paid LMI, internal refi is the way to go.

Cheers,
Redom

 

[sanj]

About to have 3 properties at 21? Brilliant effort!

 

[Qlds007]

Totally agree Theodore great attitude to have for someone so young.

Also great part of the world to live in.

Just sold my in-laws house down in Merewether and loved my time back down there in Newie.

My wife was born and bred there and would move back tomorrow.

No crossing your loans going forward is certainly not best for you but certainly good for your Broker and the Bank.

Given the LMI position keep the loan with CBA and uncross them when you can. Internal refi to get you additional funds to use on the next deposit and just make sure you structure the future loans as standalone so that you don't have issues going forward.

With such a positive attitude and desire to succeed you will do well.

Have a beer for me down at the brewery next time you are in the City.

Cheers

 

[Theodore]

What a supportive group there is on here !!

The more I read on somersoft the more I understand just how humble successful people are.


QLDs007
yes Merewether is a beautiful place indeed .
The amount of times I have heard older people comment on how they could have bought in there for next to nothing is amazing .

As for the brewery mate I will definitely have a beer for you when I'm there next.


The main thing that i have gotten out of this thread , is that my major goal was not clear enough !!

over the past few days I have spent many hours thinking about what my major goal is and I will achieve it . So thank you to those that have pointed that out to me .

My goal for the new year is to purchase 3 IPs , maintain a cash buffer of around 15k and to uncross my loans .

Theodore