Page 32 - Smart Money

Chapter 1

Let’s say you fund the purchase price of Property B, plus all the fees
including stamp duty, conveyancing etc., through cross-securitisation,
when you purchase Property B for $400,000. The debt against that
property may be $425,000. When you go to sell Property A, you have
got to reduce your debt, and most banks will want it reduced to 80% so
that there is no lender’s mortgage insurance required. You will have to
reduce the debt of $425,000 to $320,000 which is 80% of $400,000 (the
value of property B). You will have to use your $125,000 in equity from
the sale of Property A, unless you substitute another property in.
Cross-securitisation can be a good thing, but you need to be aware of the
pros and cons when you first do it. Obviously, one of the pros is that you
are buying a new property. But when you buy the second property, you
need to know that, prior to selling any of the properties, you should liaise
again with the broker so that the figures can be worked out to make sure
you can actually do it.

It is all about education and making sure that, prior to doing anything
with your house or investment property, you contact your broker again.
We see this mostly with investments, but people buying second homes
can turn their first home into an investment. When you do something
like this, there is always an element of an investment property in there.

Case Study

One of my clients had her owner-occupied home cross-securitised with

four investment properties, so there were five properties involved. She’d

seen a different broker for the first two properties.

Because of the way they were set up, when she sold her owner-occupied
property, they were all cross-securitised. It was a nightmare, and delayed
her sale. She had put her house on the market without speaking to us
fi rst. The delays cost her thousands of dollars; we had to restructure all
her loans, because her structure was incorrectly set up in the fi rst place.
She had sold her owner-occupier without liaising with us about the
price she needed to sell it for, or getting valuations done on the other

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