A couple who already had two investment property’s made an appointment with me as they wanted to purchase another investment property. They had found a property for $400,000 and had $60,000 in cash that they wanted to use as a 10% deposit as well as to cover costs such as stamp duty and settlement fees.
After assessing their situation I suggested we have their owner occupied property and the existing investment property’s revalued as it had been 18 months since this was last done. They had purchased in a down market and both properties had since had a turn around. Valuations came back and we had managed to gain $151,000 in equity without having to pay LMI (lenders mortgage insurance) as the total borrowings, including the extra $151,000 had remained at an LVR (loan to value ratio) of 80%.
The end result was that they had preserved their cash of $60,000 which was left in the offset account against their owner occupied property mortgage saving them in interest payments allowing them to pay down the “bad debt” or non-tax deductible debt faster. We then used $90,000 from the new borrowings of $151,000 as a 20% deposit and to cover costs for the new investment property and borrowed the remaining 80% from another lender to avoid cross collateralise also known as fire-walling.
This debt was therefore “good debt” or tax deductible debt as it was borrowed for an investment property and saved them utilising the $60,000 cash. As a bonus they had $61,000 left in the kitty that they are know intending to use for the next investment property purchase.I also renegotiated the existing loans with their current bank adding further value and savings to them as well as attaining a better rate on the new property purchase with the other bank than what they would have received by going directly to a branch.