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Time for PPoR. How best to finance and structure?

Discussion in 'Property Finance' started by SupaRex, 27th Apr, 2016.

  1. SupaRex

    SupaRex Member

    Joined:
    2nd Jul, 2015
    Posts:
    10
    Location:
    Mornington Peninsula, Victoria.
    Hello,

    The time has come for me to buy a PPoR. Here is a summary of my situation:

    Four IPs in total. Value ~ 1.6M, loans = 1.2M. Each loan is secured by one IP.

    I'm after some help/advice on how best to finance and structure my affairs going forward.

    Assuming I have $400k in equity, how best can I used that to buy my PPoR?

    I think I'd like a P/I loan. I don't know if this property will one day become an IP. Probably not.

    I'm sorry if I'm not including some vital information, but I'm happy to address that as required.

    Thanks in advance!

    SupaRex
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    Basically, you'll increase all your IP loans up to their max - usually 80% but can go higher if you've already paid LMI.

    These additional funds will be in their own split so not mixed into the IP loans. You'll then use these funds to complete the PPOR purchase.

    You won't have $400k equity, best case $240k if you can take all your IP loans up to 90% or $80k if you're taking them to 80% lvr.

    If you've got cash in an offset, you're best off using this rather than debt for a PPOR.
     
  3. SupaRex

    SupaRex Member

    Joined:
    2nd Jul, 2015
    Posts:
    10
    Location:
    Mornington Peninsula, Victoria.
    Thanks for the response Jess.

    I do have cash in an offset account, but I need to keep this (at least some) for maintenance etc of the IPs (and some costs with the PPoR)... Don't I?
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
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    Location:
    Perth WA
    You can do it that way, and offset your PPOR loan with the cash.

    I'd set up a LOC for IP expenses though, so when you pay for them the interest is deductible rather than increasing non-ded interest on your PPOR.

    For eg, instead of borrowing $250k for PPOR, offsetting $100k and using cash to pay for IP expenses, set up a $50k LOC which is undrawn and to be used for IP costs, borrow $200k for PPOR, use $50k cash and offset $50k.

    Or similar. I hope that makes sense...
     
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  5. SupaRex

    SupaRex Member

    Joined:
    2nd Jul, 2015
    Posts:
    10
    Location:
    Mornington Peninsula, Victoria.
    Thank you again for taking the time to help Jess. I understand what you are saying (I think).

    As it stands, I get the impression I should be using a LOC to pay IP expenses anyway, rather than using the cash in my offset account (which is against another loan that does NOT have deductible interest).
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,169
    Location:
    Gold Coast
    Hiya

    id start with a valuer shop assuming your serviceability allows same.

    Select your new product with debt recycle capacity in mind (ie ideally a global limit -or a simplified version of similar outcomes)

    ta
    rolf
     
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  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Posts:
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    Location:
    Adelaide, SA
    Definitely try get a facility which is amenable to debt recycles (not requiring assessment to split and restructure tied loans), as it will be prudent for you to run any IP non interest costs through a LOC - using the freed up capital to erode your PPOR debt at an accelerated rate.

    Outside of this dependent on serviceability, it can be prudent to place the PPOR lend with a lender which is flexible with future equity release/servicing policy so you can easily access any built up equity for expanding your portfolio further.
     
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