Loan Increase on PPOR (becoming a rental) to buy new PPOR?

Hi guys,

I'm after a bit of advice about an investment strategy. I currently own a 2 bedroom miner's cottage in Ipswich CBD (QLD). I purchased it less than 5 years ago for under 300, 000 and have 230, 000 still owing on the mortgage. Over that time, based on other houses in the area, if I sold it today I think it would fetch in the 340, 000 - 350, 000 range. It's in a great location, walking distance to shops, uni, hospital, train, schools - you name it.

We were initially planning on selling this and moving to a more desirable suburb. However, when we phoned the bank, the loan specialist recommended we keep it and rent it out. This excited me, as it was something that I wanted to do, I just didn't think it was feasible to keep, based on the prices we're looking to spend on our new property.

I have reliable government job, making $115, 000 a year. My wife is self-employed, but is currently working retail part time while her business picks up steam.

We were given pre-approval for a loan at 535, 000, taking into account we keep our current mortgage. However, we don't have much capital at the moment for a down payment. The loan specialist suggested a loan increase on our current PPOR. He said if we get it valuated and it comes in where we think it is, (340-350) they can do a loan increase and we can use that as our down payment & stamp duty.

I just want to know what the general consensus on using a loan increase for an investment strategy is?

Does anyone know a good independent financial advisor in the Brisbane area that I'd be able to sit down and go through some numbers with?

Thanks.

 

If you are not saving now, how will you make the repayments on a 500k+ loan

 

We are saving. The saving is just starting now. We just paid off a large wedding debt in less than a year.

At the moment we've got about $1000 each fortnight that is unallocated, and as my wife's business grows that will only go up.

I appreciate your concern, though.

 

That is how you can avoid cross collateralising securities.
Borrow against the existing property, under a separate split, and use this as deposit and costs on the new property. You should seek a separate split as the interest on this will not be deductible whereas the interest on the existing loan might be.

Seek tax advice, no need for financial advice.

 

I think what he means is you will have a $500k PPOR debt + $350k IP debt = ~$850k debt in total... that's around $4K per month just in repayments, with no savings and no equity.

Don't stretch yourself too far without having something to fall back on.