first IP loan

Hi All,

I need bit help as I was recently referred to a very good broker I mean via references and many years in the industry.

I shared my updates with him.
purchased one property worth 1.4 mill in Jan 2016
I really believe it should be around 1.55 - 1.6 million today based on comparables. but even conservative would be 1.5 million

have two loans on it totalling 980k
in the offset deposit accounts i have 630k

i earn 120 k fulltime job.
mrs earns 100k fulltime job.
we have 2 kids.

i thought we should be able to borrow sizeable amount for our first IP. but this broker mentioned no we do not have equity and we will have to cross collateralise and that is best way forward only.
this initial loan was not via him.

if there something I am missing or he was pushing cross loans perhaps its easier for him or gets him more money not to sure...
just have one 5k credit card between us and need some general guidance.

 

Loan amount on current IP is $980k, right?

If bank valuation came back at 1.5million, at 80% lvr, loan amount is $1.2 million. $1.2mill - 980k = 220k equity without triggering LMI..

Unless bank valuation came at lower amount, looks like equity is available to release. I'll avoid crossing unless absolutely required!..

 

yes loan amount on current home loan is 980k...
so if valuation comes for 1.5 million then usuable 220k equity.
i can utilise that equity amount to use as a deposit for my first IP right.
also this should be enough not to trigger LMI on IP purchase of say 650k - 700k purchase price. also that they do not do cross loans right.

 

Going by the figures given above, you have more than enough equity for a ~700k purchase.
Keep in mind that you can use some of your offset to pay down a sizeable amount of PPOR mortgage, then redraw and use as deposit for the IP. The loan would be fully tax deductable and you wouldn't need to do a new valuation or pay any extra fees.

I would suggest that you find another mortgage broker, somebody who is themselves a property investor

 

I would:
1 Try and avoid cross collatoralisation if you can
2 Get a second opinion (honestly the brokers who post regularly on this forum are some of the sharpest investor brokers in Au)

Whilst I am not suggesting this for structuring/tax purposes... unless I misunderstood this part of your post "in the offset deposit accounts i have 630k" you could proceed to an investment on a cash purchase couldn't you?

 

Seems strange.

You have some equity in your owner occ - so that shouldn't be an issue.

I don't understand why he/she would recommend crossing your loans when it's not necessary.

As for your borrowing capacity - it's hard to know what your max for an IP is without doing an in-depth analysis of your current/future financial situation.

Cheers

Jamie

 

Most accountants will advise to keep the properties separate if at all possible - I would definitely double check with them first before you go and cross anything. Equity doesn't appear to be an issue as calculated above ie $1.5M x 0.8 deducting what you owe on the property - but in saying this - you could have more equity available if you used some of your offset to pay down the loan and potentially reamortise the loan repayment with the view of reducing the repayment over the same loan term. This would also assist in increasing borrowing power.

Good luck!

 

As suggested already - avoid Cross Coll - there is no need.

If for whatever reason you are unable to access equity, you could recycle debt, and use some of your savings toward your first IP.

 

Perhaps there may be some confusion around what cross securing properties actually is.

To purchase again, (if you dont have cash that you want to use), you may want to use the equity in your existing property. This involves an equity release and drawing it out. For the next purchase, obtain an 80% loan. This is generally how non crossed properties are setup.

Cross securitising doesn't magically create new equity - so perhaps will need to clarify whats going on/misunderstanding.