Page 10 - Loan Structure Solutions

Step 3: Repeat the process

When Keith and Joanna are ready they can buy their second
investment property as they have access to enough borrowings (from
the first $300k deposit loan) to fund another 20% deposit. Ignoring any
changes in the home loan balance, their loan structure will look like this
after the second investment property acquisition.

Loan limit Loan Purpose Loan Security Lender Comment
balance name
$370,000 $370,000 Home Joint Home Lender A Offset 1
loan only
$300,000 $285,660 20% Keith only Home Lender A Offset 2
deposit + only
costs
$480,000 $480,000 80% loan Keith only IP 1 only Lender B No offset
$480,000 $480,000 80% loan Keith only IP 2 only Lender C No offset
Note that they still have a small buffer in the deposit loan of $14,340
(difference between balance and limit). This is an important risk
management practice (available money in case of emergencies).

Step 4: Tidy up the loan structure
Since we borrowed 100% of the investment property plus costs we
initially needed to use the equity in Keith and Joanna’s home.
However, a time will come when we accumulate sufficient equity in the
investment property to secure all lending. For example, if the
investment properties increase in value by 8% per year, in 4 years they
will be worth $815,000 each. At this time we could increase the
$480,000 loans (i.e. original 80% loans) by $142,830 to $622,830. We
would use this extra money ($142,830k) to repay the deposit loan.
Essentially, this means that the investment properties are now funded
stand alone and the home is no longer needed. The loan structure
would look like this:

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