Hi All,
Can someone please give me advise on the best way to setup my loans for further investing. I want to buy my 2nd IP but having problems in borrowing in that I can only get more money if I CC my PPOR with the second IP. They say our combined income isn’t enough to have it as a stand alone – hence I can borrow more if I CC both properties than without. Having read people’s view and other brokers comments on CC I would like to stay away from it if possible. But is this my only choice I have at the moment???
My situation is like this I currently have 2 loans:
Home Loan
IP Loan
My PPOR is valued at 700,000 I currently owe 14,000 (clearing this amount is no problem)
I have an investment property which is commercial which I owe 300,000. The commercial property is kept in a unit trust with another partner and I own 30% of it. Currently there is no income at the moment coming in but if there was 30% would come to me.
Having spoken to brokers and banks they like to stay away from the commercial property as it’s keep in a unit trust. I’ve tried to use it as security instead of my PPOR but they tell me that the other partners will need to go guarantor and the loan will become a business loan hence paying higher rates.
If anyone can I advise me on what I should do or how I should structure my loans as I’m looking a refinancing. My goal is to start a property portfolio and I’m intending on keeping these properties for income but having the option to sell if needed without the issue of CC the loans.
Carlito
Cross collaterlising relates to security rather than debt servicing. If the debt levels are the same either way you shouldn’t need to x collateralise to make the deal work. When the banks / brokers lodge the deal on their computer the system will automatically link the security. If they are lodged seperatly You get no cross collaterisation. E.g. One lender – two applications.
Ask your broker if you can set up a Line of Credit account (Loan) against the PPOR for the required security deposit for the next IP
With a $700,000 with 14,000 owing LVR of 80% for LOC is $546,000 you should be able to borrow however the income limitation will lower this but a 20% deposit should be enough. As an example a $700,000 IP required on next property purchase then $140,000 line of credit loan against PPOR and $560,000 loan against next IP.
Some lenders take into account the rental income you will get from the $700,000 new IP , some lenders may take a percentage of this expected rental income into account.
Your Mortgage broker should know which lenders on their accredited lenders panel might accept future rental income into the loan approval process.
This may not be able to be done if you can't service the $140,000 Line of Credit , $300,000 loan commercial and the new IP mortgage with another lender ( make sure it is not the same bank as PPOR Loan) !Another point I just thought about is if you can get the loan needed by CC you have to borrow the same amount of money so servicability shouldn't be a problem via a LOC
Hope this sheds some light on the loan structure.
.Thankyou for your advice guys.
Duckster I understand what your saying but shouldn't you take of the $300,000 loan also into account which is still owing?
Like your comments above 700,000 LVR of 80% = $560,000 but then should you deduct the $314,000?? (14,000 & $300,000) which leaves a LOC of 246,000??
Sorry but i'm just trying to get a better understanding as it's all new to me.
Your comments would be much appreciated
Carlito
Banker wrote:Cross collaterlising relates to security rather than debt servicing. If the debt levels are the same either way you shouldn't need to x collateralise to make the deal work. When the banks / brokers lodge the deal on their computer the system will automatically link the security. If they are lodged seperatly You get no cross collaterisation. E.g. One lender – two applications.Exactly as I was going to write – except you can still do one applications and still avoid CC.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Carlito
You wouldn't deduct the loan owing on the Commercial property if the PPOR is not being used as security.
Debt servicing maybe an issue from what you have written so Lodoc option maybe a consideration depending on your current position.
Must admit i cant really see the problem but admitedly we are not armed with all of the facts.
Dozens of clients all in a similar boat and not had issues with them going forward.
Richard Taylor | Australia's leading private lender
Hi Terryw,
What would you do in my situation? Am I correct in saying that the most i can get for a LOC is $246,000?
I would like to borrow about 350,000 for my next IP but can I do this without CC my loans? LOC is only at $246,000 (if that's correct)
I just want my loan structure correct going forward.
Carlito
Carlito
Sorry i think you are missing the point of correct structure.
The LOC secured against your own PPOR will be used to draw down a 20% deposit and acquisition costs on your new IP.
Separately a standalone loan of 80% of the purchase price will be taken on the IP security.
Hope this makes sense now.
Richard Taylor | Australia's leading private lender
Thanks Richard.
That makes more sence.
If I'm using my PPOR as security for the commerical property is this a problem? Or should I've done it a different way?
Carlito
Yes you should have done it differently however may have been reasons for doing so.
Still not too late to correct structure so you can go forward.
Richard Taylor | Australia's leading private lender
Carlito wrote:Hi Terryw,What would you do in my situation? Am I correct in saying that the most i can get for a LOC is $246,000?
I would like to borrow about 350,000 for my next IP but can I do this without CC my loans? LOC is only at $246,000 (if that's correct)
I just want my loan structure correct going forward.
Carlito
I would try to get a LOC on the PPOR.
$700,000 x 80% = $560,000Less current loans and subject to servicing.
Then buy the new place using a 80% loan and 20% from the LOC. No crossing of securities
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If you are using the PPOR as security for the commercial you would have to reduce the LOC by this amount. Longer term I would look at getting the commercial property to secure itself.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You could always look at taking out a Nodoc Commercial loan in the name of the Unit Trust and freeing up the respective PPOR securities.
Richard Taylor | Australia's leading private lender
Thanks Richard & Terryw
Can you explain to me what a Nodoc Commerical Loan is and how I would go about taking one out? I've never heard of it before
And how can I get my commerical property to sercure itself? Can this be done now or further down the track.
Carlito
Thankyou guys once again for your assistance
A no doc loan is one in which you do not need to prove your income or declare an income.
Loans don't unsecure themselves, unfortunately, you will need to apply to your lender to vary their security. If the loan is less than 80% of the value of the remaining property securing the loan is usually possible.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Can I stick to this method and keep buying IP's without hitting a brick wall in the future? The LOC I'll obtain from my current bank but with the 80% new loan I will source from another lender.Is this ok? Or should I stick to one lender? Should I have an offset account and to which one? (LOC or New Loan). Lastly, should the LOC have the ability to be split or is there no need for this? eg buying 2 properties at differenct times from the one LOC – should this be split.
Thanks guys for your input.
I've learnt alot from your comments.
Your thoughts
Carlito
How far you can go will depend on your incomes and rents.
You don't have to take the new loan from the same bank as the LOC.
However you may get a bigger discount by staying with one bank.
You should use an offset account for all incomes and rents and this should be on your PPOR loan. If you odn't have one then on an IP loan. You cannot have an offset on a LOC.
Splitting is not necessary as you should only be using the LOC for deposits and costs for IPs – no personal stuff.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
From what you have written you will use up your equity fairly quickly so if you intend to keep on going I would look at restructuring the deal and starting a fresh.
Course may not be possible depending on how you are holding the Com property but it would certainly be cleaner for you.
Richard Taylor | Australia's leading private lender
Thanks Terryw for your response.
Can I ask why would you put your rent into an offset account instead of putting it directly onto the IP loan? Lets say the IP loan had redraw facility. Any reason for this?
Thanks
Carlito
Qlds007 wrote:From what you have written you will use up your equity fairly quickly so if you intend to keep on going I would look at restructuring the deal and starting a fresh.
Course may not be possible depending on how you are holding the Com property but it would certainly be cleaner for you
Richard,
Can i ask you how would you restruture the deal/deals going forward?
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