Forums / Property Investing / Creative Investing / Financing 2nd IP – how does it work?

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  • Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 37

    Hi All

    I am planning to buy 2nd investment property in the new year 2012 around Feb/March.

    How would i finance the 2nd investment property and which property should I use as security my house or 1st Investment property

    Combined income gross – $ 190,000/yr

    Current Mortgage Owe – $300k
    Valuation came at – $485k

    1st Investment Property Owe $568k (Brand new townhouse, Interest only and tenanted at $480/wk)
    Just bought this property about 2 weeks ago.
    Was originally selling at $650k but I bought it at $517k + Stampduty and LMI =$568k (Borrow 100%)
    Value estimated at $600k-650k around Feb/March Next year 2012. Lets just say for now that it will be worth $600k in Feb/March.

    Based on the above figures, I would like to know how I would finance my 2nd investment property and which property to use as security?

    I am just going to put it out there and wait for some answers/ideas/strategies/finance options from bank or broker etc…..

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi new2invest

    It looks like you've crossed your PPOR with IP1.

    I'd look to tidy up that structure first before moving onto the next one.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Yes, I agree with Jamie. Fix it now before getting more tangled. Or fix it at the time you go for the new loan.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Agree with the boys comments above.

    As it stands you wont have a choice of what property you use as security as the loans are crossed all properties will be used.

    Not a great way to go forward.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 37

    Hi Guys

    Interestingly the same day I posted this post i was considering 90% or even 95% cause I didnt want to use my PPOR as security, I call my mobile lender to work out on some figures/options that I had. Settlement is still 3 weeks away. I have already put down my 10% deposit ($51700) and decided to go 95% and not use PPOR as security.

    New loans will be:

    Current Hm Loan has been increased to 377k
    Investment Loan will be around $502k after settlement. (Estimated value range is ($600-650k))

    So this is now resolved. now I can focused on No.2 in the coming year.
    Now till Feb next year I can save about $20-25k to put on my current mortgage.

    Looks like I can now go 100% and use the 1st IP as security to buy No.2. But I dont think I have enough equity in No.1 IP to buy No.2 IP

    Anyway just would like to know how I could proceed on financing the 2nd IP?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Sorry New2Invest why in the world would you pay a Cash deposit when you have a PPOR loan.

    By doing this you have now lost the interest deduction on the 10% deposit and also have contaminated the interest deductibility
    by just increasing the PPOR loan. I hope you have set up a split loan instead.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of NaniNani
    Participant
    @nani
    Join Date: 2003
    Post Count: 38

    Hi Richard

    We have also done similar thing to New2Invest.  We had to redraw from our offset a/ct to put in 20% deposit for an IP, because the bank is only willing to loan us 80% or we'll be subject to mortgage insurance.

    Sounds like we've done a big No No as well?

    Nani
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    The road to success is always under construction

    Profile photo of gettinitgettinit
    Member
    @gettinit
    Join Date: 2011
    Post Count: 9

    i am so confused I have a current PPOR with $123000 left on mortgage house will be worth about 200,000 investment property is around 300,000 what is the best solution?
    Pay the 10%deposit from what i have paid off mortgage on PPOR as I doubt I will be able to get 100%.
    My plan is to let the investment property pay itself off (interest only) while still paying principal and interest on my PPOR is this the right strategy?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Hi Gettinit

    Your situation certainly needs careful handling as redrawing the deposit on your PPOR will mean you will contaminate the interest.

    On the basis you will be staying in your PPOR for a while i would get your Mortgage Broker to split the loans in order to maximise the deductions.

    Cheers

    Yours iin Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of miikemiike
    Participant
    @miike
    Join Date: 2008
    Post Count: 111

    Hi Guys,

    I’m no expert in this area, however considering the sounds of your strategy is buy, hold, lease, wouldn’t the following be applicable:

    As an example:

    PPOR (Valued at 450k):
    Loan 1 (IO) – 300k
    Offset Account attached to Loan 1 (All Savings) – 20k
    Loan 2 (IO) – Equity from Loan 1 (based on 80% LVI) – 60k

    IP1 (Valued at 400k):
    Deposit/Closing Costs – Obtained from Loan 2 – 40k
    Loan 3 (IO) – (based on 95% LVI) – 380k

    IP2: (Valued at 350k):
    Deposit/Closing Costs – Obtained from a new equity loan on IP1, or Loan 2 (if no equity in IP1) – 40k
    Loan 4 (IO) – (based on 95% LVI) – 333k

    Note:
    Due to having IO loans and using the equity for first IP purchase, the PPOR is not crossed, thus no interest contamination.
    The IP Loans are seperated from the PPOR.

    Can anyone comment please.

    Cheers,
    Miike

    Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 37

    I heard from people at work
    According to the ATO, if you can provide proof of any cost you incur towards your investment property, should be fine to claim.

    In otherwords i should be able to claim 100% even if I have deposited 10% (redraw from PPOR) and bank lend me 90%
    Investment loan + deposit = 100% clamaible for as long as you can provide proof.
    Is this true? can you do that?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173
    new2invest wrote:
    I heard from people at work According to the ATO, if you can provide proof of any cost you incur towards your investment property, should be fine to claim. In otherwords i should be able to claim 100% even if I have deposited 10% (redraw from PPOR) and bank lend me 90% Investment loan + deposit = 100% clamaible for as long as you can provide proof. Is this true? can you do that?

    Hi New

    This is not really so. The full interest on 100% of purchase price won't be claimable because the 10% came from the offset account which is savings. If the 10% was taken from the offset and put into the loan and then reborrowed then the 100% of the interest would be claimable – but this would also contaminate the loan so a better way would be to make a new split on the existing loan and borrow the 10% from that.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    As Terry has clearly explained your assumption is incorrect.

    Maybe people at work are not the best for obtaining Tax advice from.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 37

    Thank You all.
    Loan has now been Split.
    Got depreciation report done as well and came at 14700.
    Loan structured to claim 100%.
    Tax Variation form 2011-2012 all completed waiting to be lodged after settlement.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Good work!

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    new2invest wrote:
    Thank You all. Loan has now been Split. Got depreciation report done as well and came at 14700. Loan structured to claim 100%. Tax Variation form 2011-2012 all completed waiting to be lodged after settlement.

    It's great to hear it all worked out for you.

    All the best in the future.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

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