2nd Investment Property

Hey guys,

First question is whether you guys see any problems with switching my IP to IO for a 5 year term, have the option to change it to a line of credit that I can draw back on but have to pay +0.1% IR for the privilege. Doesn't seem to be any reason to when I can make extra repayments and then redraw as required?

Looking at purchasing my second investment property from equity in the first. House is conservatively bank valued at 560k

Property - $560k
Loan - $480k
Equity - $80k

Bank Manager tells me that 95% + LMI is not a problem on both properties.

95% of property is $532k so looking at accessible equity of $52k. This would mean in theory without stamp duty, LMI etc that I could borrow $1 040 000 in terms of using the 52k as deposit. The property we would be looking at would be around 300-400 mark for serviceability but just wanted to check the figures.

Also wondering about how including the fees goes into working out these numbers.

If I am looking at a 400k property I need 20k for my 5% then I need 8k for stamp duty and ~10k for LMI, + I will need LMI on the initial Invest prop to get it from 485-532k ~2k (Big Guess). So in order to make this work I would be looking at 40k to achieve the necessary result?

Just wanting to get my numbers straight.

I understand I want to avoid cross collatirilaztion (or similar?!) but is there any other common pitfalls here to avoid?

Cheers

Just be careful of over extending yourself when it comes to leveraging the banks money. Interest rates are going up so before purchasing you should take into account at least a 2% interest rate rise over the next 2-3 years. If you can afford it and still remain cash flow positive then you might have a great deal on your hands.

Also make sure you have the borrowing capacity to buy the second property. If you are going to a second bank then they may not take a friendly to you because they can't cross collatirilize your loans.

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away