One area we see a lot of investors make a mistake is that they tend to start by purchasing their own personal residence and then go straight back to the same lender to fund their first investment purchase. Often the lenders involved state that they can be 100% financed into this and future investment purchases which is actually achieved by utilizing equity built up in the family home and hooking the loans and securities together.
If something goes wrong this situation is beneficial for the lender as they have complete control however not a position that is good for the borrower as they have very little control.
We recommend adopting a process called split banking where we look to keep the family home with one lender who we won’t look to have any investment properties also secured with.
We then look to get a revolving credit facility (a large overdraft but at mortgage rates so you only pay for what you use) set up against the family home from which you take deposit funds and also renovation funds if part of your strategy is to tidy the properties up.
We then get a preapproval in place with a secondary lender for 80% of a proposed purchase price so that when a potential purchase arrives you have the funding in place to move quickly.
With your investment purchases you should aim to purchase properties either at a discount or where value can be added. Even if you don’t achieve this you should over time get some capital gains and we then look to go back to the secondary lender and top up to 80% of the increased value and then use these funds to reduce the balance on the revolving credit facility.
To find out more if split banking is for you please either contact us for a Finance Strategy Meeting HERE or download our One Bank Trap eBook below.