Help starting out

[jonrah]

Hi there,

Myself and my partner are looking to buy our first investment property and were jut wanting some advice from other investors if they were starting out in this day and age how they would go about things.

A little about us..we have a mortgage with Kiwibank of $280K on our personal home which has a GV of $365k (but independent valuation closer to 400k)

The investment property we want to purchase would be as a long term rental rather than a quick flick-off to purchase at around about $200k - $250k in Hamilton with weekly rent of between $265 to $300 per week.

Would you bother purchasing the investment property in a LTC and if so why?
Would you get the second mortgage as an interest-only mortgage and if so why?

ANY tips or general advice would be much appreciated.

[Craig Pope Mortgages]

Hi Jonrah, I recommend you speak to an accountant re the pro's and con's of an LTC specific to your situation.
I would recommend your rental loan being on interest only as this debt(interest) is tax deductible. Any spare income should reduce your personal mortgage first(as its not tax deductible). I would recommend you get a registered valuation (if you haven't already) on your home as your LVR (loan to value ratio) is getting up around 80%. You need to squeeze out as much equity as possible so you can keep the LVR across both properties on or below that 80% mark. This will then mean its less likely the bank will want a valuation on your new property. Being on or under that 80% borrowing will also avoid any possible low equity fees and put you in a better position to negotiate rates.

Depending on whether your current mortgage is on floating or fixed, I would also look at another bank to quote for your over all business which will be nearly doubling with the rental purchase.

Cheers CP

[Tan]

I would ask Kiwibank now how much you can extend your mortgage, ie a line of credit to the maximum. Get it if you can and don't spend it!

I advise going to a different bank for your new place as I have lost a house before due to Kiwibanks terrible approval process and have had & heard about many other problems. If you have a good Kiwibank person, fine, but stay flexible by having the line of credit to take elsewhere if necessary (perhaps at the last minute).
I have found that having different banks also helps keep your personal house (PPOR) seperate and makes accounting simpler.

Do the rental 100% interest only as you can claim on interest but not principal. Pay your own mortgage principal back as you are paying full price for that money (even if the interest rate is lower).

Go to a mortgage broker who knows about rentals (perhaps the above guy?) to get free advice.

Once you get a place, keep it's expenses totally seperate from yours with a different bank account for cheaper accountant bills - but that's another story. Pays to set it up that way to start with though.

I would get it under my personal name unless there was a good reason not to - less cost for compliance which can be several thousand per year + start up. Most structures are exposed to tax hunters now, and trusts lock in tax refunds as tax credits.

[jonrah]

Thanks for your advise so far guys, we are thinking of getting the rental on interest only mortgage and getting our home mortgage changed onto a revolving line of credit. Can i ask why to get the line of credit at maximum available, (we have worked out can get up to $850k). Seems rather excessive.. shouldnt we just get the amount of our home mortgage on revolving line of credit so can clear quicker and pay less in interesst?