Advice - Best way to obtain 2nd Investment Property?

Hi guys I'm just looking for some advice on buying my 2nd investment property. I recently just settled on my first IP, paid 295k with 80% LVR. Which is Currently neutrally geared.

My question here is this, what would be my best option to get another IP worth 300k within the next year? Can I use the 20% equity in the first IP to Borrow money for a 2nd IP? Or is that 20% stuck there as security for the first loan? I currently save $1500 weekly so I was thinking save a whole new deposit but wanted some professional advice from you people thanks in advance!

 

Very limited information to give advice so that this loosely but I would have preferred with a higher LVR loan so that you have more deposit to use towards the next purchase.

From a lending perspective the equity isnt calculated in the way you are calculating. The equity is calculated by taking the value so lets say $295,000 at a certain LVR either 80% or 90%. So at 80% LVR you have no equity. At 90% (plus LMI capped) the equity would be $29,500.

Now if you went to 90% (either plus or including LMI capped) it would be much easier to pull out the equity at 90% rather than doing the purchase at 80% and going back and doing 90%. Doable but you have made your life a little more difficult.

Also you need to hope that the lender you have used has a good cash out policy as there is a clear distinction between lenders with decent cash out policy and lenders with terrible cash out policies.

Did you consider a higher LVR? Did someone recommend you go 80% instead of something higher?

 

Hey man, I can't quite grasp what your saying there so I'm not quite following. But in regards to the LVR I used 20% deposit to avoid LMI and to have lower weekly repayments to get me on neutral gearing/positive gearing. You think i should have just used 10% deposit?

 

Yep dont understand why you went 80% lvr especially if your aggressively trying to build your base.

I would have gone the sweet spot around 88% loan and chuck the rest of the equity in more asset, especially considering your in the acquisition phase.

Be careful with being too obsessed with neutral and positive gearing. $15 a week cf for most ppl wont amount to squat.

You need to find the right mix for your situation and your goals.

 

Not necessarily.

but the issue now is that you don't have any deposit for the next one. So you could have 4 choices
a) borrow against the first one further taking the overall LVR up to 90% - which is more difficult that starting at 90%, or
b) save up another deposit, or
c) wait for some capital growth, or
d) a combination of the above


if you had gone for 90% LVR to beging with you would still have about 10% left for another property

 

Hmm okay a good lesson to take away from this, so for further investments it's better to stick around the 90% LVR mark? In order to keep growing my portfolio. Even if that lands me negative $100 weekly or so?

 

It could be the case, up to a specific point.
But see
Strategy: Avoid LMI where your Servicing is Limited (and you have the cash) https://www.propertychat.com.au/community/threads/strategy-avoid-lmi-where-your-servicing-is-limited.18960/

 

Just had a read of that, thanks for link it definitely cleared up the questions I had! And I will now know that for any future loans how do I delete this thread since my question has been answered? Thanks

 

Why delete? _ It may help others in the future.

 

If the person had gone for 90% LVR to begin with, would you have put the 10% in the offset account while the person finds the 2nd IP?

 

Yes, that would be the best place to keep it.

 

@Terry_w thanks for the tip above.

If a person buys a property worth 300k with 20% deposit i.e. $60,000, he won't have to pay LMI. However if he instead pays a deposit of 10% and puts the other 10% i.e. $30,000 in the offset account, the savings over the life of the loan is much higher than the $3,500 LMI that he would incur. Did I get this right?

Also you're better off having money in your offset account to use in case of emergencies rather than giving it to the bank. The LMI could be a small price to pay for this security.

 

88% LVR seems to be a bit of a sweet spot for some people then put the rest in an offset and keep building it up. The more in the offset the less interest you pay, which means more to save.

Then you can buy your next place at 88%, do the same thing etc. As @Leo2413 says though, you need to find what works for you.

 

Your best bet is to chat with your broker about your next steps. It might be worth bringing this property up to 90% lvr to speed up your deposit. Depending on your current lender you may be best to refinance for this as not all lenders will allow this.

 

The first part can't be right because the interest on the loan would be the same in either case.
$300,000 property at 80% = $240,000
$300,000 at 90% = $270,000 with $30,000 in offset means interest payable on $240,000

Where the LMI is borrowed the interest would be payable on the extra loan for this over a 30 year period.

 

My bad, you're right.