Tax Tip 36: Consolidating Loans for investment properties

Don't think I said there were problems, but it can get messy the more properties you get. You will end up with multiple loans per property which is a bit of an administrative hassle.

One potential problem would be when selling. You would have to discharge mortgages when selling the land securing the loan and if these loans relate to other properties you will have some shuffling to do.

 

Hi terry

Apologies if this has been covered already in this thread.

But for property 2 to absorb both loans, does the new val just need to at least match the total of both loans? Therefore would remain 100% LVR?
Do banks allow this with no equity in property?

Cheers
Jeremy

 

Jeremy the loan must not exceed 80% lvr generally

 

Hi terry

Can’t recall what thread I read this but are there any advantages to going with a second lender for the second property?
Or OK to stay with one lender if they are willing to lend, just comes down to who has best rates/terms etc.

 

Yes - safety.

This thread might assist:

Legal Tip 242: Why is it safer to get all loans with a different lenders? Legal Tip 242: Why is it safer to get all loans with a different lenders?

 

Hey Terri,
im just starting to look at consolidating my loans for each property

I have PPOR split called Loan A - 79k as deposit for IP1
IP1 has got some equity so I have drawn out as much as I could back to an 80%LVR
but the equity release is only going to be 70k

How do I consolidate it?
or do I use the new Loan B - 70K as a deposit for another property and let it get more mixed up?

With loan B the money will be put against itself in an offset until I go to use it. Reading above I shouldn't do that? or is it ok?

 

you would have to refinance the loan to keep the interest deductible. Increase the IP loan and deposit it into Loan A for example.

Using Loan B means you now have an additional loan and if you use it for something else you are no consolidating. Pay off Loan A, but keep it open and then reuse that for something else.

 

Generally consolidation will pose a issue if each property LVR after refinance is not 80% or less. The problem can be a property with high LVR with one lender and another with low LVR. These two loans may need to be with same lender for an average 80%LVR or less....But be wary of crossed loans.

You may need to leave that split and if and when value of IP1 rises or the debt falls from from $79K to $70K refinance then

 

Not necessarily

Here is an example

Homer had a few properties with little bits of equity and he borrowed $20,000 under 5 loan separate loans secured by 5 other properties.
The $100,000 was used as a deposit to buy a $500,000 property.
Now this property is worth $400,000 as it has dropped in value.

conveniently one of Homer's other has increased in value and he can borrow another $80,000 against it.
Homer could use this $80,000 to pay off 4 of the loans that were used to buy the investment that dropped in value. Previously 6 loans had been used to buy this property, by consolidating it down to 3 it tidies things up. It also don't matter than the value has dropped. The loans associated with it are still $500,000 even though it is valued at $400,000 and the deductibility of interest hasn't been affected, if done right.
Homer can now loan recycle and use those other 4 x $20,000 loans to buy something else.