Join Australia's most dynamic and respected property investment community

What do you think I should do and how I should structure?

Discussion in 'Property Finance' started by pdp, 27th Jul, 2016.

  1. pdp

    pdp Member

    Joined:
    1st Jul, 2015
    Posts:
    18
    Location:
    Melbourne
    Situation
    - 26y/o
    - Income is around $80k net per year.
    - 5 IP's currently total combined loans of $1,378,217 at 4.3% IO for 5 years and with still around 25-29 years remaining on the loans. $160,000 sitting in offset accounts. Combined LVR is sitting at 75%. Bank has valued my portfolio at $2,278,000.
    - Just purchased IP number 6 which settles Sept 2016 and loan has been approved at 100% (made up of 80% loan + 20% equity from existing 5 IP portfolio) for $438,000. I have to come up with the stamps plus costs. This purchase will bring my combined LVR nudging 80%.

    My question is:

    Option 1: Should I take out the full 100%?

    Option 2: Only take out 80/90% and put in more of a down payment to not put myself in a higher combined 80% LVR position.

    The reason I ask is if I want to purchase IP 7 in a years time lets say. My lender has said I would only be able to get a 80% loan not 100%. Unless I start paying down my debt or put in monthly payments from my offset account to pay down the principal to show that I can service it (which pretty much means P&I however just that I'm only taking out a interest only loan and payment down debt monthly as I go or have the flexibility of whenever I want). Rather than having it sitting in my offset which the bank deems it to be "I can take it out whenever I want and spend it" sort of thing. I want to keep growing my portfolio and not come to a serviceability wall.

    Maybe it's time to Circle The Wagons For A While Stage after this purchase.

    Look forward to hearing what advice you all have to offer.
     
    Last edited: 27th Jul, 2016
    Stoffo likes this.
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    641
    Location:
    Sydney
    Sounds like cross securitisation to me - if so please avoid.

    Why are you not factoring 105% (stamps, closing costs, etc)?

    Why are you also not running the numbers to see if its worthwhile doing the purchase at either 85%, 88%, 90% or 95%?

    I assume you want to avoid LMI put having equity and servicing is like having jet engines on your portfolio. Leveraging is a powerful tool.

    Also don't use any funds from your offset - always use the equity so you can also maximise the ta deductibility of the loans.
     
    TaylorChang likes this.
  3. pdp

    pdp Member

    Joined:
    1st Jul, 2015
    Posts:
    18
    Location:
    Melbourne

    - I have factored in the stamps and closing costs etc. I can cover that no worries.
    - I have ran the numbers, however I don't want to dip into like you said into my offset accounts and use a huge chunk of cash for a bigger deposit.
    - Yes, I'm trying to avoid LMI and more focusing on using equity to service the additional 20% on future loans.
    - My dilemma is for IP 7 I would either have to come up with 20% deposit OR start paying down debt (principle) via monthly down payments. Which I sort of don't want to do at this stage.

    Maybe I have would have to sit for a couple years and wait for the prices to move up again to draw more equity for IP 7.
     
  4. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    641
    Location:
    Sydney
    Why do you "need" to come up with 20% deposit for IP 7? Was the lender or the mortgage insurer told you no more soup?

    Have you got your lending with one lender? I think you may need to strategise your approach - i.e. different lenders or mortgage insurers.

    Re the stamps and closing costs - best to cover that from the equity rather than covering it yourself.

    There are a couple of brokers in Melbourne that post here - my recommendation is to spit ball your situation with them. Never hurts to get a fresh pair of eyes to review your portfolio.
     
  5. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,078
    Location:
    Perth
    Are the loan x-coll? If you are dealing direct with a lender then it is highly likely as this is SOP.

    First port of call would be to get a "home loan health check" to restructure if required as the deeper you go the harder it will be to untangle, especially if you hit the inevitable serviceability ceiling, then it may never be possible unless you sell and / or pay down debt.

    Get a savvy broker to asses before moving forward so it can be salvaged and set you up for future success!
     
  6. York

    York Finance Broker Business Member

    Joined:
    24th Jun, 2015
    Posts:
    1,619
    Location:
    Sydney
    It seems like your portfolio is cross secruritised. It also seems based on your info that you have all your loans with a single lender. Using the right lender at the right time can assist in a strategic way and can possibly extend your ability to borrow more funds to make further purchases. Speak to an investment broker to get a better idea of what is possible for you. Doing this sooner rather than later can minimize any snookering later on as you approach your serviceability wall.
     
    Leo2413 and Colin Rice like this.
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,940
    Location:
    Sydney
    I would suggest you borrow 105% for all purchases and do this without crossing (one loan secured by 1 property only).

    I would avoid putting in any cash

    Also extend all existing loans to 30 years now and renew IO periods if you can.

    It would be best to have cash available for emergency funding rather than use it now. Also better from a tax pov too.

    if you can only borrow a lower amount in the future for the next one you can always have the option of using your cash then (instead of now).

    Avoid LMI too if you don't need it. Only reason to pay LMI would be if you think your deposits (from borrowings) will run out before your serviceability.
     
    Colin Rice likes this.
  8. pdp

    pdp Member

    Joined:
    1st Jul, 2015
    Posts:
    18
    Location:
    Melbourne
    -They are all under one of the major lenders.
    - Yes they are crossed collateralised. My reasoning behind this is that I wouldn't have been able to have accumulated the portfolio I had so quickly if I hadn't set it up this way. My plan would be to un cross them later on once my debt and LVR has lowered.
    - For IP6 I'm paying out of my pocket around $23k on stamps plus associated buying costs and bank is funding the pull purchase price. I'm comfortable in paying this.
    - I'm thinking the case would be for IP7 that I might have to dip into my offset for a bigger down payment.
    - I wouldn't be looking at taking out LMI if I don't have to.
    - Sounds like I should just borrow the full 100% amount rather than dipping into my offset funds now for IP 6 and have note in the back of my mind that I'll be sitting on a combined LVR of 80% and banking on steady growth in thr coming years.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,940
    Location:
    Sydney
    Your plan was misconcevied because you could have done the same thing without crossing.

    My advice as a lawyer would be to uncross everything immediately while you still have the chance.

    You should get some proper advice on this and the loan structuring.
     
    York likes this.
  10. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,078
    Location:
    Perth
    Time to sack your current lender and move onward and upwards.

    You have all the help you need here to get sorted.
     
  11. pdp

    pdp Member

    Joined:
    1st Jul, 2015
    Posts:
    18
    Location:
    Melbourne
    Who would you recommend to engage in Melb for this advice?
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,940
    Location:
    Sydney
    Speak to an experienced broker such as Peter Tersteeg (of the forum)
     
    Colin Rice likes this.
  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

    Joined:
    9th Jul, 2015
    Posts:
    1,078
    Location:
    Perth
    +1 for Peter Tersteeg.
     
  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,756
    Location:
    Perth WA
    Agree - you need to sort out your structure before you do anything else.

    I hope you're not with NAB, or you may find you're already stuck.
     
  15. York

    York Finance Broker Business Member

    Joined:
    24th Jun, 2015
    Posts:
    1,619
    Location:
    Sydney
    Colin Rice likes this.