Hi we have recently started building our first IP. We used the equity in our own home valued at $400k and we have just under $80k left to pay off it with $25-30k or abouts in the 100% offset account at any time, We were given a loan off $375k though still in the drawdown process and may not use all of it. The new property land $99900 and house to full turnkey standards $269000 so all up $368900 fixed price no hidden extra's. We went to our own bank and had both mortgages registered over one another so that we could sell either property at any time, is this what you professionals call cross Collataral or not? Also we have been offered more land through the same developer though deposit won't be required till at least 4 months and house would be at least 10 months down the track as the land is in the very early stages of developement. We have one income of $87k coming in do you think it possible to get another investment loan in that space of time, or should we wait a bit longer before adding no 2. Our daughter is out of school and our son is in his last year so we are late starting on the investment trail. Any help or adise would be much appreciated.
What is Cross Collateral and how soon to go to no 2 IP
- Thread starter JPS25
- Start date
Cross collateral is simply having more than one asset secured against finance.
So, if you wanted one loan of 375k and the IP would only be held as 90% of the security by the lender & the other 10% security was held against the PPOR.
The alternative is to have two loans. One secured by the IP, the other secured by the PPOR for the balance. This is definitely MY preferred option.
I hope this helps.
So, if you wanted one loan of 375k and the IP would only be held as 90% of the security by the lender & the other 10% security was held against the PPOR.
The alternative is to have two loans. One secured by the IP, the other secured by the PPOR for the balance. This is definitely MY preferred option.
I hope this helps.
I am NOT trying to give you financial advice. Please seek professional financial advice for your circumstances.
The reason 'I' do not like cross-collateral is because I have done it before, with all the right intentions, but when my circumstances changed, it meant I now had to 'unwind' the cross-collateralisation in order to sell one of the properties. This required a bit of loan establishing/adjusts, which cost me $$$ in the end.
When you don't have cash as a deposit, then you need to take the deposit from somewhere, such as the equity in your home. There are many ways in which this can be done, and IMO, cross-collateral of PPOR & IP secured against a single loan, is my least preferred. Actually, I doubt I will ever do this again.
Please seek professional advice, it will be worth the effort and potential expense depending on how you access the advice. Just find a 'good' Mortgage Broker, and you will be off to a great start as they can explain all this in detail, with consideration for YOUR circumstances.
The best option is to use loan splits and finding a lender with no monthly fees on each account.
I try to keep one lender for PPOR and often another for the investment property. If you sell the investment your loan against PPOR can be used again as another deposit. ( or payout ) There will only be break costs on the one investment loan.
I think if you talk to your accountant he will recommend you keep PPOR loans separate from Investment. Or a broker will generally have a couple of accountant alliances who are up to date with property investment structure and tax. The broker can then pre-calculate you buying several properties under the recommended structure.
With regards to when to buy another investment property. That choice is yours however my only advise is to make sure there is enough money to finish your current construction project. Too many investors and developers try to do too much at once. They see a bargain and get excited. I had one client building 5 houses I got him finance for. He had a call direct from the Bank who promptly organized finance for another home. He then comes back to me for more money to finish his properties. So now that stupid bank has 5 properties under mortgage that are not in a condition to rent/sell.All because he used his LOC as a deposit for "that bargain" thinking he could get more money.
I try to keep one lender for PPOR and often another for the investment property. If you sell the investment your loan against PPOR can be used again as another deposit. ( or payout ) There will only be break costs on the one investment loan.
I think if you talk to your accountant he will recommend you keep PPOR loans separate from Investment. Or a broker will generally have a couple of accountant alliances who are up to date with property investment structure and tax. The broker can then pre-calculate you buying several properties under the recommended structure.
With regards to when to buy another investment property. That choice is yours however my only advise is to make sure there is enough money to finish your current construction project. Too many investors and developers try to do too much at once. They see a bargain and get excited. I had one client building 5 houses I got him finance for. He had a call direct from the Bank who promptly organized finance for another home. He then comes back to me for more money to finish his properties. So now that stupid bank has 5 properties under mortgage that are not in a condition to rent/sell.All because he used his LOC as a deposit for "that bargain" thinking he could get more money.
