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Best way to finance $20k reno on each 'new' IP

Discussion in 'Property Finance' started by SirDingo, 2nd May, 2016.

  1. SirDingo

    SirDingo Well-Known Member

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    When looking at future IP purchases, we usually look to buy an older established IP, and budget a standard $20k for a reno to increase both equity and rental price.

    Assuming we have more than enough equity, if we use equity from a current IP to pay the deposit on the new IP, what is the best structure for us to access $20k for a reno each time we purchase a new IP?

    For example, if we have 150k equity, and we purchase another IP costing $250k. We use $65k equity for the deposit/costs with an 80% LVR. Is it better to take another $20k from equity to reno the new purchase, or set up a $20k LOC - or does it not make a difference as it's all borrowed capital anyway?

    Would either option affect serviceability or tax in a particular negative way?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Set up a separate LOC for each property. This could be secured against the main residence or another property with equity.

    Once the reno has been done get a valuation done and if enough equity increase the original loan and pay back the LOC that was used for that property.

    And then that LOC can be used for something else.

    Accessing equity means borrowing.
     
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  3. SirDingo

    SirDingo Well-Known Member

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    So, if property 'A' has $150k equity, I could
    • use $65k of that to purchase IP 'B'.
    • Then I set up a LOC of $20k on IP 'A' to fund the Reno on IP 'B'.
    • Get a reval on IP 'B' and use the equity increase to repay the LOC on IP 'A'.
    I hope I'm understanding that correctly?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep, thats it.

    Then use the LOC to reno property C etc
     
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  5. SirDingo

    SirDingo Well-Known Member

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    Thanks Terry - you're a champ ;)