Structuring your Portfolio

The financial structures underpinning your portfolio are like the structure of a house, get it wrong and the entire thing could collapse.

For investors who already have a home loan, it may be best liquidating equity and moving it on to an offset account or line of credit facility, where funds can be withdrawn as necessary.

Part of this liquefied equity can be used as a deposit for the next investment. In addition, the line of credit can be used to pay bills and deal with other expenses that arise.

While purchases can be funded by extracting equity from existing loans, investors should be warned to avoid “cross-securitisation. This means offering the lender two or more properties against a single loan.

Some investors may find cross-securitisation appealing because all their properties can be held within a single loan facility. However, this may rob investors of the flexibility of grow their holdings faster. For example an investor with six properties, where two have seen strong growth and the other four have held steady. If you’re cross –securitised and want to access equity in high the growth properties, the bank would want to value every property and that would impact on the amount of equity you’re able to release.

In addition banks may also calculate the loan to value ratios (LVR) on the portfolio as a whole rather than each individual property which may leave investors out of pocket. To avoid cross-securitisation investors need to specify that they want their properties to remain separated in their loan documents.

In your loan application it’s important to clearly instruct that you’re going to take a portion of equity out of that existing property and that is going to be the funds you use to purchase this property over here, but you don’t want those crossed.

“Cross-securitisation” gives the bank more power, if something goes wrong, it gives them the power to strip you of all your properties.

# Reference: Smart Property Investment, written with the permission of Sterling Publishing.