Structure for increasing investments
Question from Simone updated on 19th October 2012:
We own a house that we currently live in. Our investment plan is to use the equity we have in our house (we are currently renovating it) to purchase an investment property which we will then move into. The house we live in now will then be rented. Eventually the new property will also be rented. What is the best loan structure for this? Should we have both properties in a company as they will be investments long term? Once you have enough equity in one house can you refinance to freehold another? Lastly, would you recommend any books that walk you through the finance, tax and equity solutions for property investment in New Zealand?
Our expert Kris Pedersen responded:
I'd advise seeking taxation and asset planing advise about the best structures to use. Generally from a mortgage structuring side what we would do is take the lending on the current property up to 80% and then approach another funder who will become the funder that you have your new owner occupied property with and take this equity into your new purchase. Generally we would be recommending that the property that is now an investment property goes on interest only while the new purchase goes on principal and interest. In regards to the new property eventually becoming an investment as well, you definitely need tax advise in this area as obviously it is a personal home for a while but in the future the purpose of it changes. If it is only going to be an owner occupied property for a short period of time you may be okay keeping both properties at the one bank. If you look through the "books" section on the landlords.co.nz site there is a good number to choose from.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.propertyfs.co.nz