X-Coll and building large property portfolio

Don't think thats required, I'm about to uncross loans from NAB on 5 properties.
Although they are structured poorly it hasnt stopped us from purchasing lots of properties since these first NAB loans
Didn't know any better at the time and are fixing it now

thanks for sharing... yeah I don't want the hassle later on... didn't realise there were so many negatives with cross coll...
 
After a quick look, Is line of credit the best option to purchase investment properties so that you avoid LMI? I assume LOC is better that cross coll yeah?
 
You shouldn't have problems now fixing it up, the valuations would be current. Perfect time to fix it up. The issue is in the future, if multiple properties are crossed when you want to make a change on just one all will be looked at. One property could increase in value, the other decrease in value therefor no equity gain. Whereas if wasnt crossed and standalone could extract equity from the one property that's increased in value.

There's a whole lot more reasons to not have crossed. The benefits aren't there IMO.
 
You shouldn't have problems now fixing it up, the valuations would be current. Perfect time to fix it up. The issue is in the future, if multiple properties are crossed when you want to make a change on just one all will be looked at. One property could increase in value, the other decrease in value therefor no equity gain. Whereas if wasnt crossed and standalone could extract equity from the one property that's increased in value.

There's a whole lot more reasons to not have crossed. The benefits aren't there IMO.

Thanks Brady... See this is what I mean... Surely the broker should be telling me this not me hunting for information
 
After a quick look, Is line of credit the best option to purchase investment properties so that you avoid LMI? I assume LOC is better that cross coll yeah?

You need a structural solution. A LOC is just a product. It can be used to implement a solution that is or is not cross collateralised, so it makes no difference to the outcome. The selection of product makes no difference to the LMI.
 
Ok the broker got back to me with this option... Does this sound like a better approach and something you would choose?

Your current loans are set up like this:

? Loan 1 for property 1 $255K secured by your home and the property 1
? Loan 2 for property 2 $255K secured by your home and the property 2

You can keep going like this and buying as many properties as you can afford. You will not need to pay LMI as long as the total debt against the total combined value of your properties is under 80%.

Otherwise you can change the structure as follows:

? Set up a loan against your home only to raise the deposit for your investment property purchases. Maximum you can do is $80% of the value of your home
? Since you have got the money to cover the deposit, you can just borrow 80% of each of your new purchased property and all your loans and properties will be completely separate.
? You can buy as many properties as you can afford until you run out the money your raise from your home property.
 
You need a structural solution. A LOC is just a product. It can be used to implement a solution that is or is not cross collateralised, so it makes no difference to the outcome. The selection of product makes no difference to the LMI.

Can you please give me an example of a structural solution so I can further understand what you mean?
 
Not very well explained, but the second half is how it should have been done. The first part is a mess.

If your broker doesn't know why there's a difference between the two structures, then they're not suitable to be helping you build an investment portfolio. If they do know the difference, they would have done it properly in the first place.
 
Not very well explained, but the second half is how it should have been done. The first part is a mess.

If your broker doesn't know why there's a difference between the two structures, then they're not suitable to be helping you build an investment portfolio. If they do know the difference, they would have done it properly in the first place.

So if I was to go with the 2nd option, in your opinion should I borrow the complete 80% and leave it there so that I can draw on it when I find other properties? Does the 80% sit in an offset account?
 
Ok the broker got back to me with this option... Does this sound like a better approach and something you would choose?

Your current loans are set up like this:

? Loan 1 for property 1 $255K secured by your home and the property 1
? Loan 2 for property 2 $255K secured by your home and the property 2

You can keep going like this and buying as many properties as you can afford. You will not need to pay LMI as long as the total debt against the total combined value of your properties is under 80%.

Otherwise you can change the structure as follows:

? Set up a loan against your home only to raise the deposit for your investment property purchases. Maximum you can do is $80% of the value of your home
? Since you have got the money to cover the deposit, you can just borrow 80% of each of your new purchased property and all your loans and properties will be completely separate.
? You can buy as many properties as you can afford until you run out the money your raise from your home property.

Option 2 is much much better. Tell him to do it like that.

Cheers,
Redom
 
So if I was to go with the 2nd option, in your opinion should I borrow the complete 80% and leave it there so that I can draw on it when I find other properties? Does the 80% sit in an offset account?

Yes, I think its a good idea. Can put the excess funds into the offset or back into the separate split investment loan and redraw it out when necessary.

Cheers,
Redom
 
Can you please give me an example of a structural solution so I can further understand what you mean?

Your problem isn't the loan products, it's the way the products are being structured. A LOC is a product, just like a variable or a fixed loan is a product. Cross collateralisation is not about a loan product, it's about setting up loans in a particular structure.

As an example, a hammer, nails and timber are all products you can buy of the shelf at Bunnings. You can arrange these products in a structure to build a house. How well that house is built depends on the way it's put together. So far your house hasn't been built very well.
 
Your problem isn't the loan products, it's the way the products are being structured. A LOC is a product, just like a variable or a fixed loan is a product. Cross collateralisation is not about a loan product, it's about setting up loans in a particular structure.

As an example, a hammer, nails and timber are all products you can buy of the shelf at Bunnings. You can arrange these products in a structure to build a house. How well that house is built depends on the way it's put together. So far your house hasn't been built very well.

Cool makes sense thanks Peter
 
Going with option 2 can I have the 80% in an offset account and claim the interest on tax when I use it to purchase investment properties?
 
Going with option 2 can I have the 80% in an offset account and claim the interest on tax when I use it to purchase investment properties?

If its solely for investment use, then use. :)

Deductibility is based on the purpose of those funds.

Cheers,
Redom
 
If its solely for investment use, then use. :)

Deductibility is based on the purpose of those funds.

Cheers,
Redom

Sweet thanks... I've advised him to make the change...

Thanks again everyone for taking the time to help me prevent future headaches
 
Second option is definitely the way.

Borrow 80% against existing property now, it's always better to take the funds when you don't need them (best time to get money from a bank). Ensure when you do use any of these funds that you split the loan later one. 1 loan 1 purpose. 1 security per loan.

If you feel some loyality to him, I would continue with him to set this up but wouldn't be rushing back for him to help you. By the sounds he doesn't either know enough about banking or doesn't have the ability to articulate it in a manner that makes you need.

It should be up to you to show him how, he should be the professional showing you different options and explaining them.
 
I also would be moving on as soon as he's sorted you out - if he can't structure a loan for investment use this early on, he will invariably mess it up later as well - x-coll is one thing, but you need to be sure your set-up is tax-efficient too and my guess is that he won't have a clue about that either.
 
You shouldn't be so concerned on using a local broker! I've done it your way and quickly learnt that its not always the best way.I've been using a broker off here and he gets things done 10x quicker and sets everything up properly!
 
Ok I just got off the phone with my broker... He seems a little frustrated with my, I don't know why as clearly I don't know exactly what steps I should take but I don't want it X coll... he's saying it makes no differnce if I do or don't... he's asking me what I want to do when I really don;t know what's the best option and he's confusing me even more...

What should I tell him? how can I proceed to best suit my stratgy as he's not giving me the answers I need and really lack of information from his part.

Do I go with line of credit? He said that cost more. so I have no idea what I should tell him


^ You need a different broker whos going to work with your best interest at hand...You can SWITCH broker now...the new broker can either stay with Suncorp and NOT CROSS>...OR go to a new bank and Not cross.


The option is yours...BUT you need to act sooner rather than later.,
It's not to late.
 
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