a newbie trying to get in the IP game

Greetings,

I have a quick query in what is the process (time wise and any other things to take into account) in erring my 1st IP.

Currently have a fully paid off PPOR worth around 350k and redraw ONLY on top of savings of 120k and shares worth around 120k also.

If I was to set up an equity release that covers 20% deposit plus costs again my current home and then borrow the remaining 80% against the new property (say 270k IP) against the new property what is the process seeing I'm with CBA.

I also don't want to use funds would therefore set up a P+I investment loan with full offset and park the savings in there!
Any thing else I should be looking out for?
Sorry if it seems elementary to some of you I guess this is why I'm on the forum for a few different opinions so I can go back to the drawing board.

Cheers

 

Hi there

It might not be the case that staying with CBA is what is best for you. What not remove the headaches and have a mortgage broker handle things for you? There are some great brokers here on the forums. Take a peek at the service provider directory here; Service Provider Directory

Going direct to the bank you often won't notice the bank has sneakily cross-collateralized your loans - taking two properties as security for the one loan rather than just one property.

 

I would get a broker to do this for you to make sure that it's done correctly. They can also have a chat about your longer term plans and create a finance strategy for you to make your deposit go as far as possible.

 

Hi @pippen

Is this the only investment property you will be purchasing? Or do you intend on buying more? Best to speak to a broker who can look at the big picture, work through your goals to determine the best course of action, including whether only releasing enough equity for one Investment Property is a good idea.

Once you have purchased this investment property, depending on your resources, you may or may not be able to access the remaining equity in your home - it can be difficult to go back and do this, so better to extract the equity up front, and then decide on next lender for your IP. Even if there are funds left over from the equity top up, you will have the option to buy more IPs (if you wish to) or invest in other asset classes.

 

Thanks for the reply!
Yes ideally in the future would possibly like to own 1 or 2 investment properties if possible as well as building up a passive dividend income stream from old school lics which is well under way at the moment as I'm adding around 25k per annum to these lics at the present stage as well as around 25 to 30k as additional savings which are just building up as cash at bank savings.

European family background and have been brought up with the idea of owning properties outright ASAP Without shares! So bit of a culture shock at the moment and im the black sheep of the family as ive ventured into lics as well as a couple so called blue chip shares and trying to get my bearings organised for the long long term!

Ta!

 

Based on this, I think it is worthwhile considering the full equity pull with a top tier lender, and mapping out strategy on next lender(s) you could purchase the two IPs with. Better have the equity locked in upfront - you can then decide how you want to work through the two IP purchases, and other investments.

I understand what you mean by paying off ASAP. However, you get out what you put in (of course in line with your risk profile and risk mitigation). Need different input to get the output you want - ie if you go down the 'traditional' route, how will the output compare to going down the investing route?

 

Thank you! Would anyone care to explain the process of walking in to a mortgage broker for instance and how does it go from there? Do I need to provide any info bank details payslips proof of ownership etc etc?

Very new to this as I got my ppor and payed it off within the first year (should of read this forum before I got my loan and structured differently) but at least I've got the ball rolling at a youngish age 33!

 

Have a look on PC - there are a number of property investment savvy brokers, see who you connect with best, and get in touch with them.

They would get to know you and work through your goals, have you fill out a fact find, evaluate the data, and present options that are best suited to what you are trying to achieve.

 

In most cases these days you don't even need to meet the broker face to face. It's all done via email and phone. Select one and give them a call or drop them an email

 

The process is relatively straight forward & your on the ball with how to set it up generally. You can do this via your existing CBA banker or a new broker.

There's a few things to consider first:
1. what are you looking to do medium term? You have a fair bit of equity available and a paid off PPOR, great starting position which means options to grow a portfolio are available (should you choose to & borrowing power/credit history are fine).
2. risk appetite - this framework will help anchor decisions like P&I or IO

For example, if your risk appetite means you want to stay on P&I terms with mainstream lenders (healthy risk balance, not looking to be very aggressive) - then CBA will be your best shout for later purchases. They treat P&I debts with other institutions more favourably than most of their competitors, meaning they'll offer you greater access to funds later down the road.

Another example is if your seeking to grow as fast as possible (i wouldn't recommend this in most cases & given your sharp savings profile). Here it may make sense to go IO instead of P&I, as you'll have greater access to funds overall & build a larger (while riskier) portfolio.

Essentially having answers to those two questions will allow someone to work with you and ascertain the right type of loan, lender, repayment structure & come up with a plan tailored to your risk appetite & medium term goals.

 

Cheers for the detailed response! After I complete a fact find for example what are the associated costs in going down this path in working with a lender in trying to find the best solution for my short medium and long term plans? Any ideas or is it personalised for each case?

Cheers again!

 

Usually brokers/lenders don't charge a fee for service, they get paid by the lender. This is the advice & planning stage.

At loan application/settlement stage, theres some costs with obtaining finance. Re costs of getting a loan - there's usually a mortgage registration fee (state tax) (~$150 x 2), potentially an annual fee for the bank (~$395 p.a), and some legal settlement costs (~$200-400).

 

Normally this would be part of the service, but don't expect the average branchie (or broker) to have the investment knowledge required to do this in a meaningful way. Also bear in mind if you go to the branch for this, they can not really give a balanced approach as they are very limited in what they can offer you.

 

Will have a chat to the branch and see what cards they want to deal me and then I will go from there however I think looking up some professionals on this forum will be the conclusion to ensure a positive long term result and outcome!

 

I've capped my borrowing so I'm planning to switch to P&I for a few years and let time do its thing. My plan was to switch back to IO, consolidate my loans and draw more equity out for a deposit. As I want maximise my cashflow, should I be showing to CBA that my other debts are P&I then switch them over to P&I or should I switch everything to IO first for cashflow then ask CBA for another loan? (Not exactly my plan but interested to know how CBA view this)

 

This will depend on your borrowing capacity. IO will be treated more harshly.

 

how would I go about buying a second IP property in say 2 or 3 years down the line or say top up and buy into beaten down listed investment companies (LIC's) if doing an equity release in the first instance for the initial IP?

In other words how do I get the deposit for the 2nd IP and or how do I use funds for the lics (offset attached to the IP 1? I assume not using own funds or redraw as this would impact interest deductibility!!!

 

Get a new valuation done on your first IP, and borrow against the increased value. Basically you'll set up a new loan to use as the deposit/funds for the LIC's.

 

I take it funds would then be tight to go P+I on this loan then? And if it was for lics would a preferred loan be chosen? I.e. IO or P+I with dividends used to pay down debt?
Many thanks

 

This requires some specific advice and more knowledge of your income/liabilities and so on.

Generally I'd prefer to go IO for Lic's as cashflow is a bit more clunky - 6 monthly rather than monthly like rent. Also good if you've got non-deductible debt to pay off. But depends on the spread between IO and P&I rates.