A split loan structure involves dividing loans across multiple properties and lenders. Instead of relying on a single lender and risking cross-collateralisation, this approach allocates loans strategically to protect individual assets and optimise financial outcomes.

Here’s an example:

• Bank 1: Provides a 60% Loan-to-Value Ratio (LVR) loan secured against Property A, including a cash-out facility to cover the 20% deposit and purchasing costs for Property B.
• Bank 2: Provides an 80% LVR loan secured solely against Property B, avoiding any ties to Property A.

By using this strategy, you can keep the properties financially independent, reducing risk while maximising borrowing capacity.

---

What Are Purchasing Costs?

When acquiring a property, purchasing costs go beyond the property’s price. These additional expenses are essential to factor into your budget to avoid surprises. Here’s a breakdown:

1. Stamp Duty

Stamp duty is a state government tax calculated based on the property’s purchase price and location. It is one of the most significant upfront costs.

• Example: In Queensland, stamp duty for a $500,000 investment property is approximately $15,925 (as of 2024).

2. Legal Fees

Legal costs for conveyancing and settlement typically range from $1,500 to $3,000. These ensure the property title is correctly transferred and all legal obligations are met.

3. Loan Establishment Fees

These include application fees, valuation fees, and other administrative charges, usually costing $500 to $1,000.

4. Building & Pest Inspections

Pre-purchase inspections are crucial for identifying potential issues with the property. These inspections cost around $400 to $800 but can save you thousands in the long run.

5. Lender’s Mortgage Insurance (LMI)

If your LVR exceeds 80%, you may need to pay LMI. This insurance protects the lender, not the borrower, and can add thousands of dollars to your purchasing costs.

6. Buyer’s Agent Fee

If you engage a buyer’s agent to help you secure the right property, their fees typically range from $10,000 to $20,000, depending on the property value and service provided. This cost is often offset by their ability to negotiate better deals and uncover off-market opportunities.

7. Miscellaneous Costs

Additional expenses like moving costs, utilities setup, council rates, and insurances should also be considered when calculating purchasing costs.

---

Why Use a Split Loan Structure?

The split loan strategy offers several advantages that make it a preferred choice for savvy property investors. Here’s why:

1. Protects Equity in Property A

By securing loans separately, Property A remains independent of the debt on Property B. This isolation protects your equity in Property A and ensures that financial issues with Property B won’t impact your original asset.

2. Maximises Borrowing Power

Using multiple lenders optimises financing terms by leveraging different lending policies. For example:

• Bank 1 might allow a higher cash-out for deposits, while
• Bank 2 may offer competitive rates for the primary loan.

This approach avoids restrictions that one lender might impose if both properties were financed together.

3. Flexibility

A split loan structure allows greater flexibility. You can:

• Refinance: Easily refinance one property without impacting the other.
• Sell: Sell one property without triggering the need to restructure loans across your portfolio.

This flexibility is particularly valuable for investors looking to expand their portfolio while minimising administrative complexity.

---

Who Benefits From a Split Loan Strategy?

This strategy is ideal for:

• Investors Building a Portfolio: It enables strategic expansion while managing risk.
• Owners Leveraging Equity: Protects equity in existing properties while funding new purchases.
• Buyers Avoiding Cross-Collateralisation: Maintains independence between properties for greater financial security.

---

How to Implement a Split Loan Strategy

1. Engage an Expert: Work with a finance broker or property advisor who understands the nuances of split loans and can tailor the strategy to your needs.
2. Understand Lender Policies: Research lenders’ terms and conditions to ensure compatibility with your investment goals.
3. Plan Purchasing Costs: Budget for all associated costs, including stamp duty, LMI, and buyer’s agent fees.

---

Conclusion

A split loan strategy tied to assets is a powerful tool for property investors seeking to maximise borrowing capacity, protect equity, and maintain flexibility. By separating loans across properties and lenders, you reduce risk, avoid cross-collateralisation, and create a more adaptable financial structure.

When paired with careful planning of purchasing costs, this strategy allows investors to expand their portfolios with confidence and precision. For tailored advice, consult a property expert or finance professional to ensure your approach aligns with your long-term goals.