Forum Replies Created
Hi Streaker
An offset account would only be recommended on an investment property if:
1) You have no non deductible debt on your on your PPOR.
2) The cost of the offset account makes it still worthwhile.Reason you would not redraw funds on an PPOR is that interest on the redraw where the original purpose was to buy your own dwelling would not be deductible. You want to maximise your deductible expenses and reduce your non deductible expenses.
In regards to cross collateralising your securities the list is endless.
I wrote an article 10 years ago about the 10 reasons why you should not cross your loans. Whilst the abolishment of Mortgage stamp duty in some states one or two of the points are not relevant today with the advent of the GFC there are probably another 3 or 4 that can be added to the list.
Rather than write for pages drop me an email and i will send you over the reasons.
Already had 2 forum members approach me this week alone who had crossed their loans and then gone back to buy another IP with the same lender only be to be told "NO we cant help you, but sorry you cant do anything else because your loans are crossed".
Spend most of my time sorting out the mess caused by brokers or lenders who have crossed clients securities and this is only done either through laziness or in the case of a lender so maximise their security position and not to benefit the client.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Tiger
You can insert any condition into any contract however whether the vendor will accept it is a different matter.
If you intend to make application to obtain a DA you would want a very patient vendor or would want to be prepared to release part or all of you deposit to him irrespective of whether you proceeded or not.
As far as removing a load bearing wall or restumping a house to make a contract subject to you get getting confirmation from your surveyor, engineer etc or a price from a re-stumper then i wouldnt have thought this was particularly onerous on the vendor as long as time is of the essence.
Again depending on which State the property is located in 14-21 days would be the norm for a standard residential finance condition.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Victoria
Firstly welcome to the forum and I hope you enjoy your time with us.
I have to say your situation is one we come across oh so regularly with clients and especially under the new Credit Act needs some careful structuring.
Yes lenders will take into consideration your potential rental income but not if you intend to buy and sell the property as this would be deemed as a development business and be fairly hard to obtain finance at all at sensible rates.
With your current cash savings there are a couple of options but if you seriously want to start structuring a business of buying and selling property i think i would establishing the facility now to enable you to go forward when you need to.
Certainly a line of credit might be an option however lenders dont like lump sum "cash out" so need to be fairly careful of choice of lender. Can think of a couple of lenders who would meet your requirements.
As i say everything is possible just needs to be careful set up in the first place.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi David
Yes assuming the original purpose was for investment.
Although you would have to asking why you took out a P & I loan in the first place.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Simon
The question of whether is has to be an LLC is NO.
The question of whether is should be an LLC is totally different and would depend on your risk aversion and whether you wanted to protect the balance of the Assets in the fund and be personally liable for any potential litigation.
I now what i would prefer.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Patrick
Firstly welcome to the forum and I hope you enjoy your time with us.
For a non broker Derek has done an excellent job of illustrating the suggested structure we would implement if you were a client of ours.
Only suggestion I would make is that normally i always try and work backwards for a client to see how we stand.
Let us assume you are looking to purchase a new property for say $750,000 and could borrow 80% without mortgage insurance being applied. This would mean an amount of $150,000 would need to be raised as deposit. (We will assume your $60K savings can be used to cover the acqusition costs).
If we look to refinance your current PPOR and add the existing loan of $300,000 onto the additional amount required of $150,000 this gives us $450,000 against a current market value of $520,000 so just on 86% lvr. LMI would then be charged on this loan and would not be Tax deductible.
Given these numbers you might be better off looking at taking out an 85% lvr without mortgage insurance on the new PPOR loan which would certainly reduce your costs.
The other consideration would be (and we will assume that serviceability can be evidenced to support the new loan) to looking at reducing some of your risk and maybe fixing part of the over lending.
Definately do not cross collateralise the 2 securities as this could cause problems in the future.
Hope this helps. Let us know if you need further information.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Wobbly
On a small development such as that you will find a few lenders open to the idea but what residential lenders do not like is multi properties on the 1 single title.
Simple reason being that if you dont complete the property and they take possession and they get left with the project re-sale is a lot harder given the number of potential buyers.
Some lenders wont allow anything more than 1 property on 1 Title whilst others will go upto a maximum of 4.
Dont get me wrong over and above this is doable however is normallly classified as a development deal where the lvr's are a lot lower and the application, ongoing fees and interest rate applied is higher.
There are a couple of little tricks to get a deal over the line on a resi basis.
Would need a little more info to provide you with a couple of options.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Warren
Nice idea but hate to say it wont work in SMSF.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Jacksy
Arent too many cons although not offered by many lenders and those that do may charge a monthly fee (We usually work it out for clients to ensure it is the way forward given their anticipated spending and savings patterns).
if you depend on the taxable interest you receive on your bank account to live on then i guess it is not for you.
Also going forward lenders will calculate the repayments on the Gross amount owning and not the net amount so for serviceability might be a bit of a balancing act.
On the plus front the net interest charged is exactly the same as if you had paid the debt down (with most lenders) although you have the flexibility that the cash is "on call". If you ever decided in the future to move into the property you can do so and then move out again later down the track and you preserve the deductibility of the interest.
If you want to pay the loan down in the future nothing to stop you doing so by way of a lump sum repayment.
Course you have to weigh your serviceability up depending on the property you are wishing to purchase and the impact of the high initial loan balance.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Kris
I will let those with experience in Vic in undertaking such a project comment on the possible pitfalls however i would advice
that you be very wary with the choice of lender as many lenders will not allow 3 units on a single title.Given that you probably cant Strata Title the land until the project has been completed you want to make sure the funding is in place.
Still a few lenders who will do such a project on a residential basis but the terms and conditions do vary considerably.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Personally Yes i believe they will next Tuesday.
Now do i believe lenders will pass the full cut on …..thats a different matter.
Whilst we havent necessarilly reached the bottom of the interest rate cycle by some way we might have seen a bottoming in the mortgage rates being offered. If not now certainly in the next few months.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Jacksy
Firstly welcome to the forum and I hope you enjoy your time with us.
Congratulations on taking the first step to acquire an IP.
Structure is one of the keys ways to ensure that you maximise your own cash resources and keep the funds flexible in case circumstances should change in the future.
Whilst certainly a principal & interest loan could be appropriate an interest only loan with a 100% offset account might serve you better. Certainly where possible i agree that you should look to purchase cash flow postive IP's although you are going to be limited by your income and the potential rent when it comes to determining your ability to service future loans.
Further data is needed to give you an indication as to your likely serviceability as this can vary considerably amongst lenders.
Getting it right from the start will prove invaluable along the investing journey.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Michael has done an excellent job of answer your points but just to clarify on the only point he wasnt 100% sure.
1. No your SMSF cannot buy a residential property and you rent it from the fund irrespective of the purchase price / market value etc.
Course if the property was a Commercial property and the Company then rent it off the fund that is different.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Just ask him or her why they recommended such lenders and post it here and we can comment for you.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Sorry to hear about your current position JackDi.
Maybe Erin will come back to answer this one or maybe it is a matter of the valuers being more conservative than they used to be.
I think i would be getting independant legal advice as quickly as possible.
Why not contact TerryW and ask his opinion.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
As Michael has mentioned both lenders have their pluses and minuses but it all depends on what you are after.
Citibank have an excellent Fixed rate but if you go interest only there is a 0.15% loading so not ideal for an investment loan.
Rather than fix the entire loan you might look at fixing part of the loan and if this is the case there are some excellent deals out there with Nil application, valuation costs.
Very difficult to comment without knowing more pertinant data but i have to say neither lender would be at the top of my list for an investor.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Dont forget to deduct any Capital Allowances she has claimed on the property from the Cost Base as you would be suprised how many people dont realise this.
May not be a great deal depending on how long she has owned the property.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Josh, totally agree with you and this is exactly what we are finding.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Really a Bank being difficult now thats a first at the moment.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Michael, private family lender with private family terms and ways of calculating everything hence my answer.
2 + 2 doesnt always = 4.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
