lo doc first property

Why an apartment?

Is it for an IP or a PPoR?

Do LOTS of research on the current (and future) climate of apartments in inner-city. It all sounds sexy and exciting; that's how they are always marketed to the masses.

In Melb in 2003, there was a massive over-supply of them, and many people paid too much, there were too many of them – mostly bought by investors. Then, they couldn't get tenants as there were more investors than tenants for them, so the rents dropped, the cashflows became very negaitve, many had to sell quickly and lost in some cases hundreds of thousands of dollars. Unfortunately, the people who held on found that because of the fire sale that was happening, the value of their apartment dropped below their purchase price for a number of years. They are just starting to catch up now.

With apartments there are higher holding costs due to body corp fees, lifts, pools, gyms etc; you pay for all that.

You can't add a lot of value as yours is the same as hundreds of others, you can't subdivide, quite often the new ones are "price loaded" to make the developer rich – not you, and you won't know this unless you do lots of research on prices in the area, or worse; if you have to sell in a hurry and find out you paid too much in the first place.

And so on.

If it's a PPoR and you are staying long term it doesn't really matter as much.

Going over 80% LVR will allow you to use less deposit, but it leaves you more exposed. Very dangerous in my view; especially with interest rate rises looming. Prices may stall later this year as well.

Life happens, and if the market drops, you lose your job, have to sell in a hurry, you could end up still owing more than you get for the sale. I've seen this happen several times, but of course; the people concerned never think it will happen to them.

A bit like people with no seat belts on in car accidents.

I'm not trying to put you off, but SOOO many people are sucked into apartments as an investment and get burned. Be careful.

My advice; buy a nice, well located, moderate house with some land content. But if you must buy an apartment; buy an existing one that has been around for a few years; at least 3. Not off the plan or brand new.

Pat

No dramas in doing the loan as a lodoc however if you intend to try and make it a IP after a while i would suggest that you go for an interest only loan with an 100% offset account attached to it.

Whilst you are living in the the property you can pay as much into the offset account as possible and reduce the non tax deductible interest being charged.

When you move out and rent out the property if you need the funds accrued in the offset account you can take this out and use it and the amount of deductible interest goes back to the original loan amount.

Simple Post – You dont.

You can only offset with the lender that you have your home loan with.

Many clients are looking at offsetting against their fixed rate and there is a limited number of lenders but is still doable.

Unfortunately the CBA Misa  loan is not quiet a true 100% offset.

Jaffasoft,

your correct in assuming the bank's make less profit of this kind of loan. The banks are a business like anyone else and they work for the shareholders. So their number one aim is profit, and they'd like to keep you in debt for as long as possible. If your bank is doing you an injustice i'd consider taking your business somewhere else.

regards,

You are spot on – a loan with 100% offset attached is the lowest profit margin for the banks – by quite a bit. …. a line of credit is the highest. (generally)
While an offset account is a great method for people with surplus cash, or that plan to have proceeds from something to park effectively 'tax free' at home loan rates for a while, it is not necessarily the best loan for many people, and usually not for someone who has no investment plans etc.
The main reason is that the offset loans only go with the 'standard variable' loans as a general rule of thumb, or a discounted rate if you pay an annual fee/package.
While I am not suggesting your bank/banker/broker did the right thing, if you do the sums, someone who is unlikely to ever have more than a few grand sitting in the offset transaction account, is better off with a disounted rate no frills variable loan……they will save more on the lower rate, than a higher rate offset by a few bucks each month.
……..Then again, you might have a few mill tucked away to offset I'm guessing…heh heh.
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