Using Equity & loan structure

Discussion in 'Loans & Mortgage Brokers' started by fufu, 1st Jun, 2020.

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  1. fufu

    fufu New Member

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    1st Jun, 2020
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    Sydney
    Hi first time posting,

    So we are a couple with 1 child, and currently have 3 properties all have mortgages ( one is our residence), wanting to get started with a 3rd IP.

    We’ve never used equity before and want to use it wisely, Bank has told us we have enough equity across all properties..mostly in our primary residence. Is it best to use primary residence or other IP?
    Can I have some suggestions from experienced investors on how to set up the accounts and make sure the bank doesn’t cross collateralise everything?
    Also do I need to find a house first or they can approve it and then I go find the house?(CBA)
    I’m supposing the IP has to be in my name for tax? - wife not currently working..
    Only our primary residence is under both our names so not sure if we can use that equity from it in this case.
    - I want to use equity as deposit on IP as we have no savings right now, hopefully it can be done.

    Thanks
     
    fritzsticker likes this.
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Avoiding cross collateralisation is fairly simple. You take an equity loan against one property, turning your equity into cash. You then use that cash to fund the deposit & costs on the next purchase. You get a loan for the remaining amount needed for the new purchase, solely against that property.

    If there's not enough equity in a single property, you can get several smaller equity loans, one against each property. This starts to get a bit messy and this is often where lenders will simply default to the idea that cross collateralisation is easier. Granted, it might be easier, but it will probably hurt you more in the long run.

    How to structure this specifically for your circumstances would require a detailed understanding of your existing portfolio.
     
    fufu likes this.
  3. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Hey Fufu, welcome to the forum :)

    If you’re looking to build a portfolio - and clearly you are - I would not rely on your bank to give you the kind of advice you need to set yourself up correctly.

    They’ll be able to give you a loan, but highly unlikely that they’ll structure you correctly, or give you advice that could help you long term.

    There’s loads of great brokers on the forum who will be able to make sure it’s all set up in a way that’s going to reduce your risk, maximise your tax benefits and help you continue to build your portfolio, if that’s what you want to do.

    If you’re buying at auction, a pre-approval is a good idea.
     
    fufu likes this.
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hi Fufu

    How much nod deductible debt do you have left pls ?

    ta
    rolf
     
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  5. fufu

    fufu New Member

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    Sydney
    Hi,

    Is that my principle mortgage? If so it’s 177K, the property is worth 650-700K probably in current market, & have no other debts apart from the IP debts,
    Thx
     
  6. fufu

    fufu New Member

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    Sydney
    Thank you for your reply,

    The problem is now my bank has refused my loan application, well not completely refused but the lender said I can only get up to 150K - total capacity - he said the equity doesn’t matter and the reason is due to my wife not working...I’m very disappointed by this as I have a relatively good income and also 2 IP already so I find it a bit odd...
    I am interested in advice from a good broker thing is it would have to be local as I am in southwest Sydney and don’t really want to go to the city at the moment.
     
  7. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Location:
    Perth WA
    Most brokers can work online these days, so no travel required! :) We have clients all over Australia.