All Topics / Help Needed! / Finance maximisation by unencumbering a property?

Viewing 8 posts - 1 through 8 (of 8 total)
  • Profile photo of Richard MRichard M
    Participant
    @z3252165
    Join Date: 2008
    Post Count: 3

    Hi All,

    I have got 2 properties currently cross collateralised into one loan. I have had this loan for 3 years and a significant amount of debt has been paid off leaving me with about $100k of equity. Moving forward I am looking to do a few property trades with some capital i have saved up to help reduce my remaining debt to zero. My question lies in the following. I want to maximise my finance position to ensure that i can proceed with the property trades (reno’s and subdivisions). The two options are as follows:
    1. Leave the two properties cross collatoralised and borrow against the equity built up, use my cash reserves ($30k) to fund the property trade
    2. Pay $17k into the loan (leaving $13k cash reserves), unembcumber 1 property security leaving the remaining debt on only one property at 80% LVR. Now use the unencumbered property as a single security to draw down equity for a loan to complete the property trades, or
    3. Anything else that you bright people can think of beyond my knowledge

    All help is greatly appreciated. Though i like the idea of owning my first investment property outright it will defeat the purpose of unencumbering if i cannot maximise finance to move forward.

    • This topic was modified 3 years, 10 months ago by Profile photo of Richard M Richard M.
    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi there

    No sure exactly sure what you mean by doing a “Few Property Trades” but assume you are referring to flipping (buying renovating and onselling the property).

    If this is the case you may find that your Bank consider it as a development style loan.

    Utilising equity is often the best way forward however without full details of your personal circumstances it is difficult to comment further.

    Cheers

    Yours in Finance

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

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Hi All,
    I have got 2 properties currently cross collateralised into one loan. I have had this loan for 3 years and a significant amount of debt has been paid off leaving me with about $100k of equity. Moving forward I am looking to do a few property trades with some capital i have saved up to help reduce my remaining debt to zero. My question lies in the following. I want to maximise my finance position to ensure that i can proceed with the property trades (reno’s and subdivisions). The two options are as follows:1. Leave the two properties cross collatoralised and borrow against the equity built up, use my cash reserves ($30k) to fund the property trade2. Pay $17k into the loan (leaving $13k cash reserves), unembcumber 1 property security leaving the remaining debt on only one property at 80% LVR. Now use the unencumbered property as a single security to draw down equity for a loan to complete the property trades, or3. Anything else that you bright people can think of beyond my knowledge
    All help is greatly appreciated. Though i like the idea of owning my first investment property outright it will defeat the purpose of unencumbering if i cannot maximise finance to move forward.

    Generally speaking, I prefer my loans as ‘stand alone’ for maximum flexibility. That said, some lenders provide better terms if you cross with them so in your case, I would probably sit with a great broker and run the numbers in various scenarios. Then you should be able to make an informed decision 👍😎

    Hope this helps?

    Cheers,
    Ethan

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Richard MRichard M
    Participant
    @z3252165
    Join Date: 2008
    Post Count: 3

    Hi Richard,

    Apologies for the poorly written piece earlier. In clarification, I have 2 positively geared properties currently cross collatoralised. The original loan was $200k. I have been putting the excess positive cashflow plus additional funds back into the loan such that the current loan remaining is at $100k. The properties has been valued by the bank at $125k and $115k respectively.

    I would like to reduce the debt to 0 within 3 years. My strategy is to utilise renovations and subdivisions to achieve this. As i understand it there is an amount of equity that can be drawn upon on the current loan structure that can be used to finance a property flip deal. I guess my question revolves around the benefits/disadvantages around putting the remaining $100k loan solely onto the $125k property (80% LVR) and removing the $115k property into my own name. At which point i draw down on the equity in the $115k property to finance the flip deal, versus keeping the properties cross collatoralised and drawing down on the current loan equity.

    Any help here would be appreciated.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Uncrossing is good, but it won’t help you pay off a loan any earlier.

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

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

    Profile photo of Richard MRichard M
    Participant
    @z3252165
    Join Date: 2008
    Post Count: 3

    If i uncross the properties will it give me greater access to finance?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I guess it gives you more flexibility to move lenders. But other than that not really.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.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: 12,024

    A debt is a debt is a debt however if the security property is unencumbered you would have greater flexibility and choice.

    Interest rate might also be cheaper depending on the lvr.

    Cheers

    Yours in Finance

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

    100% Investment Finance now available on selected properties. Email us for further information.

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