First investment loan questions

Discussion in 'Loans & Mortgage Brokers' started by jogo90, 11th Jan, 2022.

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  1. jogo90

    jogo90 Member

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    11th Jan, 2022
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    Sydney
    Hi all,

    I need a little help deciding what loan to get for my first investment property and it would be great to hear your opinions.

    I'm looking at buying a property in the hunter region on an 800 square metre block with subdivision and development potential. It should cost ~$500k to buy the property. My plan is to subdivide and develop a second dwelling and then use the increase in equity to buy my next property. My current borrowing capacity is ~$740k on a $150k salary.

    I have 3 questions:
    - I have $120k in savings and undecided if I'm better off using the $120k for a 20% deposit and then saving for a construction loan deposit ~ 12 months (estimate construction costs for the second dwelling is $300k) or if I use a 90% LVR and then use the $60k for the construction loan almost immediately. Are there any long term benefits for having a full 20% deposit initially and would having a higher leverage potentially impact my ability to buy a second or third property?

    - IO or P&I? I plan on using this development as leverage for my next property but am unsure if I should take out an interest only loan to speed up the saving process or if i use this property as a safer investment and then use a higher LVR for my next property?

    - Are there any benefits of using a 1st tier lender over a 2nd tier lender for your first investment property?

    Thanks to all the knowledgeable members on the forum it's much appreciated!!
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Couple things - subdividing is expensive, and you'll need to pay cash for it so make sure you hold enough back to cover.
    Second, if you're not building straight away it's best to avoid LMI if possible, just in case the construction vals come in crap. If you've avoided paying LMI you can shop around other lenders but it's very expensive to move once a LMI premium has been paid.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    AS your goal seems to be a portfolio, its hard to work out whats "best" here.

    Typically youd want to exhaust your lower servicing lenders before going to second and third tier lenders.

    You may be well served by having someone do an acqusition plan for you, which will make some of the questions become very obvious answers.

    ta
    rolf
     
  4. jogo90

    jogo90 Member

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    Thanks, that's good advice. Especially with the rising construction costs.
     
  5. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    1- having a higher leverage property doesn't rally affect the limitations for you to borrow more as borrowing capacity all depends on income

    You should get a broker to run the numbers for to see if you could build ASAP instead of waiting 12 months then build if your goal is to build ASAP.

    2- IO may be a good option

    3- generally you only go to a second tier lender to get a larger loan, if a tier 1 lender is able to lend you the money you need then you'd just stay with them
     
  6. jogo90

    jogo90 Member

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    Location:
    Sydney
    Thanks Tony.

    I think where I'm heading is an IO loan with 90% LVR - this should enable me to use the unused money for a construction loan and build quickly to increase equity.

    When applying for a construction loan is there any benefits of staying with the same lender and can it be combined with the mortgage?
     
  7. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Location:
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    The land loan and construction has to be with the same lender.
     
    Terry_w likes this.

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