Frankston has definitely had a lot of ongoing interest for a number of years now – with a major run up over the last 24 months.

The trend follows most of metro Melbourne – I would be looking at similar priced arounds in the Western suburbs to compare against, as Frankston does have a bit of variability in medians. (there was a slight drop in the last decade at certain points, particularly 2011-12)

Hi Pollyanna,

This is something that many investment focussed brokers are working on daily to assist clients from falling off a cliff with their effective cash flow.

The main issue itself isn’t so much interest only renewals – but that the lenders borrowing capacities for investors in the last 18 months have dropped significantly, so those who were previously approved with IO periods no longer qualify, so they cannot easily refinance with their existing lenders for a new IO period.

If you’ve only spoken with the big 4 banks re; IO extensions, it would be worth speaking with an investment focussed finance strategist who can look at your options. There’s a number of lenders who work specifically with investors in this space who have substantially higher borrowing capacity calculators which enable refinance and extension of IO periods beyond what you may be receiving.

In the end however it’s only possible to kick the can down the road so far, there is a point at which everyone will need to plan what their retirement strategy is – whether this is through debt reduction, partial sale to reduce debts, rolling over to P&I with a substantial cash flow to mitigate the repayments etc. Those in the 55-65 yr old space are the ones most likely to be affected by this, as lenders new servicing + age policies can trap people into P&I repayments which they were not factoring for 10+ years.

Poor advice, poor structure (cross collateralised), poor results. Your banker has really done a dousy on you.

As noted above, the ATO looks at the purpose of the funds, not what they’re attached to. Simply shuffling the money around will not increase deductions, but will potentially pollute your loans and make your ability to claim deductions become more difficult.

If I were you I would be getting my situation looked at it to see about removing that cross collateralisation and any other mistakes the banker has likely done while you can, before it becomes a problem in the future.

Hey Symo,

To be honest, I’d probably avoid all of the options you’ve suggested. Apartments in Adelaide aren’t up for a good track record of growth over the coming years with the considerable supply coming on stifling any chance of growth.

We actually ran a webinar speaking about the Adelaide market, statistics etc last last year – here’s a vid which might help in terms of ideas for types of investments: https://www.youtube.com/watch?v=63TAuulMW9c&t

You’ll find that it won’t be in the ballmark however – as FYI some of those variables can be tweaked slightly between lenders which will change your capacity by upwards of 2-300%. Basically trying to just do an excel function calculation is going to give you something which is guaranteed to be unreliable to the point of useless.

It won’t increase your borrowing capacity – it’ll more often than not *decrease* your borrowing capacity as lenders will then exclude any taxation benefits from the investment debt contained within the structure.

Not disclosing that you’re a guarantor for other loans is nonsense and a great way to get in trouble with the lender if caught.

Tasteful renovations to remove ‘problems’ – ie people wanting a functioning house from day 1, not something which requires repairs. Balancing cost vs value increase is essential that you don’t overcapitalise as theres no point burning money.

David raises good point, once you have a respectable home having well staged home can help entice buyers by giving them a visual view of the best the property can be in.

Consider that generally lower socio-economic areas have higher rental property ownership than other areas – generally you will find more investors there!

Yields are usually higher and as you’ve noted – lower entry costs which keeps a steady stream of people looking at them as investments. My entire portfolio would fall into the lower socio/working class areas as the numbers stacked up for each purchase, haven’t had any troubles with this.

Azanatta91 has mentioned a good point – you may not want to limit yourself just to metro Melbourne if you feel your budget is constrained. In the 300-400k range that puts you near median capital city prices in some other markets, so you can balance entry price vs perceived risk of an area if you feel low socio-economic areas are ‘risky’.

It’s generally very unlikely that you will have a term deposit at a higher interest rate than the interest rate of your home loan – so best to stick with parking the funds in your offset account.

Anglene wrote:

Thanks terry.
This is very helpful. I am trying to set up an entity to get my first loan.
My affordability is a proble for me so i am thinking of setting up a pty ltd toincrease my affordability with my lender.
Thanks.

If affordability is a problem it’s likely that adding the trust in will reduce it even further. The scenarios Terry has given above largely shows fringe scenarios which a trust could provide niche benefit (and in quite a number of those scenarios a trust is not required to use those benefits).

You’re more likely to hinder than help your borrowing capacity to increase your borrowing capacity by utilising a trust for any vanilla non credit impairment/change in circumstances deal.