Hi,
I’m a newbie to this property investing thing and I was just wondering if anybody knew as a ‘rule of thumb’ how much I should borrow from the bank as a percentage of the final sale price of the property.Assume that the property is cash flow positive. And coming up with the deposit amount is not a problem. Is less borrowing better (more cash flow) or more better (more tax deductions)?
If anyone can give some insight, that would be great.
Cheers!
Angie,
I suggest borrowing not more that 80% to avoid mortgage insurance. Also gives you more in the property & greater cashflow.
A further consideration is whether you’re planning on using this as a buy/hold or wrap property. Either way, you’ve automatically got 20% equity in the property. You’ll own the propety sooner if you re-invest the dividends & don’t get cashed out.
Michael [
]Hi Angie,
If you can avoid mortage insurance and can afford 80% LVR, with left over money to do more with, do so. It will lower repayments and in hard times make it easier for you to sleep at night.
Cheers
Sooshie [
]It’s all our imperfections that make us perfect!
Angie
the flip side of this is that (depending entirely on your numbers) you may well make a better % cash on cash return with less money in the deal. e.g. loan at 90% LVR
So better return, but, trade off is more exposure to interest rate changes as you have borrowed more from the bank.
Basically you need to do your sums and think over your strategy/s to achieve the best result for YOU.
cheerio
the Bruce [
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