Was wondering if anyone could clarify for me the issue of avoiding cross collaterising securities when building a property portfolio. It is my understanding that this should be avoided if possible… is this true?
If i own a property worth approx $700K with no mortgage and wanted to start building wealth through investment properties, is there any way i am able to do this without a current cash deposit ? Basically if i want to buy a 1st investment property and then subsequent properties, is there any way around the fact that the lender for which i get a loan with would hold security over both properties.
I realise there is probably a simple solution – i am just struggling to see it.Thanks
I can't see another way around unless you have a large cash deposit.
Matt
It is all in the manner in which the loan is structured.
Normal course of events would be as follows:
1) Establish a Line of Credit against your PPOR to a level of say 80% of the property value.
2) Draw down 20% of the IP purchase price from the LOC plus acquisition costs.
3) Take out separate uncrossed loan against the security of the IP only for the 80% balance. Usually interest only loan.
Where you have no non tax deductible debt a 100% offset account can be linked to IP loan to save further interest.
A good mortgage broker will be able to structure this correctly for you.Richard Taylor | Australia's leading private lender
Hi Richard
Your comments are greatly appreciated. I was about to setup a St George Portfolio Loan
with our PPOR and IP (both are currently under separate loans with SGB), which I suspect would have been x-collateralised under the Portfolio Loan. I now see that strategy as flawed.
We are hoping to buy several IP's over the years and want to set up the correct loan structure from the start.With regards to the scenario you have described above, would you recommend that a different bank/lender be approached for each subsequent IP? (to avoid one bank having all the loans and then raising servicing issue).
Also, would the bank require either the PPOR or an IP as security when applying for loans for subsequent IP purchases? (and therefore x-collateralise)
regards
RanjitHi Ranjit
There is no real need to approach a separate Bank to finance each IP but what i would suggest is that you get your broker to structure the loans in a manner i have set out so that that are no crossed.
Unfortunately, SGB are great lovers of X collaralising loans so with them it might be a tough exercise.
Drop me a line if we can be of help.
Richard Taylor | Australia's leading private lender
Hi – I'm confused about why cross collateralising is bad. Can someone please explain it for me?
Thankssdem
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