Hi,
Just looking for some guidance on appropriate loan “structures”? I read a lot about the importance of having this all done correctly at the start, so that one can grow their asset base.
So I guess I am asking for a very basic idea of how these structures are set up, or look like? Apologies if this is a stupid question….
Hi hrjmck
Welcome to the forum and hope you enjoy your time with us.
Certainly isn’t a stupid question and in fact it has to be the most common question i get from forum investors.
I have seen so many investors chase the cheapest interest rate or cross collateralise their loans on the recommendations of their broker / banker only to find their investing days are over very quickly.
Normally recommend a client look to have each loan as a standalone loan and use a lender based on a combination of feature requirements v cost, servicing, interest rates etc etc.
Not all lenders are the same and no point in paying for features you will never need.
Cheers
Richard
Richard Taylor | Australia's leading private lender
Thanks for the reply Richard,
I will give you a basic look at our situation, we have our PPOR which is at 50% LVR (with one lender) these days after diligent extra repayments over the last 5 years. We have our first investment loan which was set up as 2 smaller loans across 2 lenders – 150K on one loan to secure the land, and 285K on the other for the build and “buffer” (buffer is in an offset account).
Does the above strategy appear sound in your opinion? or is it over-complicating things? Finally, will this initial setup of loans hold us back and limit our strategy for growing a portfolio?
I really appreciate your feedback on this Richard, thanks!
Hi again hrjmck
Not sure how you have 2 separate loans on the current investment property unless one of the lenders is the same lender as you used on your PPOR and if so this means the current IP is only geared to circa 65%.
Without actual numbers, IP Lvr’s, rates etc it is hard to say.
Never hurts to have a regular 3 yearly loan review to make sure you can move forward when you need to.
Cheers
Richard
Richard Taylor | Australia's leading private lender
Thanks again Richard,
Correct the 150K loan on the IP is with the same lender as the PPOR mortgage.
So we hopefully haven’t ruined our investment plans so far with this setup, but should definitely look to secure stand alone loans on any other future purchases?
Cheers!
Ok concept is right but now would be the time to restructure the IP loan and take the debt to 80% / 90% lvr of the market valuation.
Then look to set up an equity loan on your PPOR so you can repeat the process.
LVR will depend on your future goals, ability / desire to carry on purchasing IP’s and 101 other factors.
Cheers
Richard
Richard Taylor | Australia's leading private lender
Thanks for your insight Richard, unfortunately the broker we used this time around didn’t really fully explain it that well to us.
No hate to say most don’t.
Spend a lot of time trying to correct structures where a previous banker or broker has set up the loans incorrectly for a client however as i say i usually recommend we carry out a loan review of a clients set up every 3 years or so.
Ideal time to see what else is out there and get it done properly.
Cheers
Richard
Richard Taylor | Australia's leading private lender
Having the appropriate structure will allow you to achieve a few different things:
*minimise lender policy risk/structure risk
*increase your borrowing capacity
*due to the above, grow your portfolio sooner and further than otherwise.The major points are to avoid cross collateralisation, respect tax laws/accountant preferences, diversify lending with the right lenders at the right time – this isn’t a case of just spreading your lending with multiple lenders, but with the appropriate lenders which have the back end policy to help investors grow, not hinder them.
I’ve written about how an appropriate investment debt structure can significantly increase your borrowing capacity here: http://www.precisionfunding.com.au/diversified-lending-structure/
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks guys, very helpful information!
Don’t forget to get your tax advisor to check your loan structure for tax issues.
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
1. Dont cross collaterlise
2. Dont chase rate as its one aspect of many to consider
3. Dont DIY – get an investment savvy broker to do it for you – this is a specialist area even though all brokers say they can do it!
4. Be respectful of a brokers time and acumen as they are working for you for free until a deal actually settles – sounds like you are already aware of this.
5. Read forums like this to self educate so you can spot bad advice.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Hi hrjmck
I can’t add a lot to what’s already been said – except, if you’re in doubt and you don’t feel that your other broker is doing a good job then hit up one of the pros on here. You’ve had some awesome brokers respond above.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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