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How should loan(s) be structured

Discussion in 'Accounting & Tax' started by P.M.G., 2nd Feb, 2016.

  1. P.M.G.

    P.M.G. Member

    Joined:
    2nd Feb, 2016
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    Location:
    Melbourne
    Hi everyone

    This is my first post but I have read many posts on both this site and somersoft but I am still learning. There is a wealth of information here.

    We got married in 2015, second time for both of us and we each bring a property into the marriage.

    PPOR: solely in my name, valued at $750k which will be paid off fully within the next few months after receipt of an inheritance of approx. $105k.
    IP1: solely in husband's name, valued at $1.25 mil and currently rented out, nearly cash positive on a P/I loan.
    LOC: solely in husband's name secured by IP1 with $50k limit which has $45k used presently to buy shares. Expected to be paid off in full at the end of Feb 2016.
    Salaries are relatively the same totaling approx. $225k p.a.
    Current LVR about 22%

    We realise we are in a very good position financially and are looking at buying our first IP together in joint names, let's call it IP2. I understand we shouldn't use redraw on either the PPOR or IP1 to pay the deposit on IP2 as that would result in a mixed purpose loan.

    I've read Terryw's Ideal Loan Structure but because we won't have any debt on the PPOR it's left me a little confused as to how to structure our loan(s), particularly in regard to obtaining the deposit for IP2. Also, unsure whether the PPOR and IP1 being in different names to IP2 has any impact?

    Would appreciate advice on best way to structure loan(s) and obtain deposit for IP2. Taking into consideration we will be looking at buying IP3 probably within the next 6 to 12 months and continuing on to buy more IP's in the future.
     
  2. kierank

    kierank Well-Known Member

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    If I was in your situation, I would table my current situation and your future investment plans to a good/smart mortgage broker (plenty on this Forum) and, with them, develop a finance strategy that will support your investment journey.

    You are in a good position; you don't want to stuff it up by making the wrong decision with IP2, IP3, etc.

    BTW, welcome to PC
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would suggest you plan ahead carefully. Consider not buying in joint names, especially with no non deductible debt.

    You could buy properties in alternate names. One in your name one in spouse's name. Have these as IO or PI with an offset account attached to each. While your incomes are the same you will have no tax differences, but if one of you stops work you can pour all the cash into that person's offset account so that they will save the most interest and therefore pay the least tax.

    Get a LOC on your home.

    Borrow 105% for each property. husband can borrow from his LOC or you, via the LOC, for the deposit and cost and the remaining 80% from a bank.

    You can also do the same.
     
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  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I would suggest the same - borrow against one of your properties for the deposit, and the balance secured solely against the new IP. Make sure nothing is cross secured, you want all your properties separate.
     
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  5. York

    York Finance Broker Business Member

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    Hi there and welcome to the forum.

    Since you have both already one property each in your individual names have you thought about continuing to purchase in your own names? This can avoid any issues in the future as lenders will assess your debt as the whole debt as oppose to your share of the debt if you buy together then want to buy seperate again. Your income's both seem strong.

    Regarding the deposit funds, you could use IP1. Split the loan to cover purchase costs plus deposit. Get a loan for IP2 at 80% LVR.
     
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  6. P.M.G.

    P.M.G. Member

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    Thanks kierank for the welcome.

    How do we find the good/smart mortgage brokers on this site?
     
  7. P.M.G.

    P.M.G. Member

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    Thanks Terry_w. We hadn't considered not buying in joint names but what you are suggesting does make sense, we will have to give it some thought.
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Read my legal tips and tax tips, as I think I have written further about this.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Read the posts they made and you will get a feel for their style and then choose one.
     
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  10. kierank

    kierank Well-Known Member

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    1. Read the threads in the Property Finance sub-Forum.

    2. Note the posts written by Mortgage Brokers where others agree with them. If someone writes BS, they are soon put in their place. I have posted stuff that I thought was right but I was was wrong and quickly corrected.

    3. Shortlist a couple of these Mortgage Brokers and make contact with them, either by PM or phone. I have a preference to meet face-to-face. While it is nice to have one in the same location as yourself, I don't believe that this is mandatory. I believe that it is far more important that you relate to each other. For example, I live in Brisbane and my accountant is in Sydney.

    4. Make your choice and get underway. Once you have your strategy, if you are still unsure, post the main points on PC. You will soon know what other investors think of it.

    I hope this helps.
     
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