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100% LVR vs 80%LVR

Discussion in 'Accounting & Tax' started by Kai41314, 15th Aug, 2015.

  1. Kai41314

    Kai41314 Well-Known Member

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    Hi,

    I am looking to buy an IP. At the moment, I have two options:

    1. $340K budget for 105% LVR (using equality for deposit)

    2. $400K budget for 80% LVR (using equality for deposit and cash for the shortfall)

    Option 1 can give me better tax deductions but option 2 can let me buy closer to CBD. Which option should I choose?

    Thanks,
    Kai
     
    Last edited: 15th Aug, 2015
  2. Be Developer

    Be Developer Property Developer Business Member

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    Go for growth!
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hi Kai

    Will have you much savings left over for a buffer if you go with option 2?

    If you do go with option 2 - could you pay that cash into the principal of a PPOR debt and reborrow?
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It depends- will you need that cash to put toward a ppor at some stage?
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If the other property in which you have some equity has other non-deductible debt against it, you would recycle your cash and make a portion of that non-deductible debt into tax deductible debt.

    This would then allow you to fund either purchase purely using equity, effectively borrowing 105% in either case.

    Incidentally by suggesting that you're going to fund at an LVR of 105% suggests that you're going cross collateralise the two properties. This is generally acknowledged as a bad way to structure your loans. I'd suggest you read the following post:

    https://propertychat.com.au/community/threads/cross-collateralisation-10-reasons-to-avoid.153/
     
  6. Kai41314

    Kai41314 Well-Known Member

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    Option 2 will use about 10% of my savings so I will still have enough buffer. I don't have a PPOR at the moment. Only got one IP and looking to buy the 2nd IP.




     
  7. Kai41314

    Kai41314 Well-Known Member

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    My broker told me:

    If I cross collateralise them, I can get a rate of 4.4%. Otherwise the rate could be 4.7% (Still at 105% LVR). Is that about right?





     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    It's possible that by cross collateralising you might be able to get a better rate, but I wouldn't take that as a given, in fact it's unlikely that it will result in a better rate. I'd only believe this when I saw it in writing from the lender.

    Despite the loan being secured by a PPOR, most lenders are still seeing it as an investment loan and charging investment rates.

    Crossing collateralising can derail a good investment strategy. I'm working on one deal at the moment where the cross collateralising is preventing the client from moving onto the next property. By crossing his loans, he was charged at least $4k in extra LMI and it will take another $7k in LMI to get him out of it. It's also taken weeks to untie.

    But in this case the saving of 0.3% on $600k over 3 years would have been worth about $5,400.
     
    Last edited: 17th Aug, 2015
  9. Azazel

    Azazel Well-Known Member

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    It probably is right, but it's not necessarily good because the property is cross collaterised.
     
  10. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    You don't need to cross to get the rate. Which lender is this?