Hi Michael,

Might be a bit like penguins with the penguins being banks & investors with them both waiting for the other to consider these types of property to be 'norm' and thus looking at them with a more open mind.

I suspect banks and investors see risks in these types of properties which they don't see in something more 'normal'

If you pour excess funds into your IP (as per above suggestion) you should be able to redraw the funds BUT (and its a biggie) the redrawn sum will not be deductible as the funds are being used for private purposes.

On the other hand placing the excess funds in an offset account means you reduce your interest bill by a factor of what is in teh offset account AND when circumstances change you can use the funds in the offset to spend on private & non-deductible items without creating messy tax issues. 

As stated above the number of these properties that make good overall investments have diminished over the years but they are out there.

The key issue for me is the property still needs to be fundamentally solid – even Steve mentioned this in his first book.

While getting cashflow suits a cashflow investor six years ago (or so) there were herds of people buying property here, there and everywhere just because it met the 11sec test.  This led to a number of people buying property in very remote and, what I would call, unsuitable, locations. Remember underlying fundamentals remain important.

Key is you may need to look a little further afield if you want an 'off the shelf' property which is cashflow positive.

PS Just looking at something that looks like meeting both of these criteria at the moment.

I made comments about an offset account to a similar question in another thread. Pasted below FYI

"At this stage and while you work out what you want to do with this property long term I would suggest placing the equivalent of your principle repayment into an offset account linked to the loan.

For example if your interest bill is $800/month and you are currently paying $1000/month then place the difference $200/month into an offset account. Treat it as a tax and you won't notice the difference.

This means that should you move back into the property at a later date you can make a lump sum repayment on the mortgage.

If on the other hand you decide you want to live elsewhere than you will be able to use the cash saved as a deposit. "

Given the property is an inner city apartment – chances are it will not be liable for land tax. But, hey………………………..I tend to do all the advising then I don't have to worry about getting off-side with anyone.

Just adding to Luke's suggestion – at this stage and while you work out what you want to do with this property long term I would suggest placing the equivalent of your principle repayment into an offset account linked to the loan.

For example if your interest bill is $800/month and you are currently paying $1000/month then place the difference $200/month into an offset account. Treat it as a tax and you won't notice the difference.

This means that should you move back into the property at a later date you can make a lump sum repayment on the mortgage.

If on the other hand you decide you want to live elsewhere than you will be able to use the cash saved as a deposit. 

Depends on what stage of the settlement process you were up to.

Best advice is to ring your conveyancer/solicitor and get them to advise you. They have seen the contract and are legally qualified to tell you what your options/obligations are.

Hi Jamie,

I always use a 'gunfight' analogy here.

If at all possible when in a 'gunfight' keep a bullet in the breech – just in case someone else pops their head in.

Using as little of my funds as I possible can is akin to a gunfight.

Keep something up the sleeve for just in case scenarios and if this means paying LMI and retaining more readily available funds then so be it.

I guess we think differently on this

Reading your comments it would seem as if having some debt is an issue for you – not to worry this is not unusual for someone who has paid off their own home.

Have seen it before – so start small. After all it is only one step at a time.

You may wish to look at a combo strategy – that is balancing growth & cashflow properties so the net effect is neutral.

Notwithstanding my earlier comment about 'one step at a time' you can keep your portfolio neutral through this balancing act.

I do agree with your friends about tying up resources paying off your properties.

Some people I know have placed surplus cash in an offset account linked to one of their IP loans. This has the effect of reducing monthly interest bills while at the same time maintaining access to cash resources in times when cash is required. 

If you pay the IP loans down and then need additional cash you can compromise tax deductions by redrawing from an IP loan. At the same time if the cash resides in an offset account it can be used without restriction and maintain any deductibility of the core loan.

At this stage you may not need a lot of spare equity as you have plenty in your own home.

Hi Gips,

Your post has a couple of ambiguities in it. At one stage you indicate you think you're eligible for FHOG and in another part you indicate you don't want to live in a big home. The key issue is do you feel the need or desire to live in your own home at all?

The answer to this question (Step A) can really determine what step B & C etc will be.

We are all different and whereas some will pursue the home option first others will pursue the investment option first.

People like Peter Spann, for example, has suggested in the past buy investment properties first and when the profit is sufficient sell up and use the proceeds to buy your home. My wife (equally proficient in financial matters ) was more a buy the home first and then we'll look at IPs type approach.

Now I am not a broker nor advisor so take what I say with a grain of salt.

Why haven't you considered 10% deposit instead of 20%?

On $400K purchase you will need to find around 5% (20K) for purchasing costs.

With a 20% deposit ($80K) you draw upon available equity by $80K (deposit) + $20K (costs) = $100K total draw.

If you opted for a 10% deposit the numbers change somewhat.

On $400K purchase you will need to find around 5% (20K) for purchasing costs.

With a 10% deposit ($40K) you draw upon available equity by $40K (deposit). We mustn't forget there will be LMI costs to pay. Allow ~2% ($7.5K). N.B LMI costs are approximated and they can be capitalised with some lenders.

Under a 10% deposit scenario you need $40K (deposit) + $20K (costs) + $7.5K(LMI) = ~$68K total draw down.

Now this doesn't constitute advice as I am not qualified to give it but it may be something worth exploring with your broker.