Loan structuring 101: How to finance a property portfolio

Borrowing to invest in property is a popular and highly effective wealth accumulation strategy if it’s implemented correctly. However, loan structuring can often be an afterthought. The reality is that loan structuring and maximising your borrowing capacity is almost just as important as buying the right property. This blog sets out how to structure your loans to build a property portfolio.
A step-by-step exampleThe video below takes you through an example of how to structure your loans.
See video here.
Step one: access equity (deposit loan)You will need to pay a deposit (usually 10%) when you purchase a property. Therefore, you need to arrange access to these borrowed funds. Even if you have access to cash savings, I still recommend that you establish a new loan. This blog explains why this is important.
I recommend arranging a loan sufficient to fund 20% of the property’s value plus all costs in addition to a buffer. This loan will be secured by an existing property e.g. your home.
Step two: arrange an 80% loanYou will be able to fund 20% plus all costs from the deposit loan. Therefore, you need to arrange a second investment loan to fund the remaining 80%. This loan will be secured by the investment property only. This loan should be pre-approved before you purchase.
Step three: consolidate loansWhen your investment property’s value has risen by 35% to 40% above the purchase price, which could take 5 to 7 years, you should be able to consolidate the deposit loan with the 80% loan so that all the debt is in one loan solely secured by the investment property. In this case, your home is no longer required as security.
This structure avoids cross-securitisation which is important as explained in this blog.
Additional investment propertiesIf you plan to invest in multiple properties, you can repeat the steps above. For simplicity,

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