Farm cross securitisation
Question from Jacki updated on 3rd August 2015:
We currently have a farm and two rental properties with the same bank. The bank holds securities over all properties for all loans. We originally used the equity in the farm to purchase the rentals. Someone told me we shouldn't have it set up this way. Is this correct? If so, can you tell me why?
Our expert Kris Pedersen responded:
We generally recommend that your family home be kept with a different lender to rental properties to avoid cross security. You can look to pay down the debt on the family home over time which helps to keep it safe. It is also worth taking further asset protection advice around entities like trusts. This is probably even more important with a farm as if any issues with the rental properties it effectively could put not just where you live at risk but also your primary income producing asset. As you may be paying higher interest rates on farm debt than standard residential investment properties, a full analysis on the best set up would be ideal. Also, take into consideration any further investment you are planning.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz