Hi callum,

‘Normally’ when you split a block, the front house does drop but the new block is usually worth a good amount more than the drop in hte first property.

The two properties will be both securing the existing loan so unlikely to need LMI. That said, once the new titles come through it’s a good idea to create new loans for the properties so they’re both securing one loan each. You still should not need to pay LMI if this is structured correctly.

brizziegirl wrote:

I’m sorry to enter this conversation in a way that may demonstrate my ignorance and may be a silly question, however I interpreted your first post as saying changing all his loans to P&I to increase lending. How does a move to P&I improve lending? If you could explain that, it would be most appreciated because it’s somethings I’m not aware of :-) Thanks

It depends on lender. With CBA, they will look at IO loans as P&I over 25 years, where they’ll look at P&I loans over their actual term.

For other lenders it’s different, so don’t follow that advice unless it’s specific to your circumstances. There are other effects to having P&I on investment loans that can cost you a fortune in deductions over the long term so specific advice is very important.

The other broker was prob a noob who didn’t change the repayments to P&I over 25 yrs in the calc :)

Hi Matt,

As mentioned, on a $350k property you’ll need a larger deposit. The stamp duty in WA will be $11125 if you’re going to rent it out, but is only $390 if you use your FHB, so that will make it worthwhile to look at.

Buying costs can be around $3000 for legals and inspections so you’ll need to budget for that too.

You’ll need a minimum of 5% of the purchase price as well, but I would recommend saving at least 7% as it opens up many more lenders. At 5% you have a choice of 2 lenders and you’ll need everything to be perfect to qualify.

Also, make sure you look at all the other costs involved with apartments (and houses too for that matter), like body corporate, insurances, rates etc. These things can add a huge cost and ruin what you thought was good cashflow.

Is it actually negative geared?

If you have reason to assume better capital growth in the future, you could hang onto it and either access some of the equity to put toward something else, or just hang onto it and let it do its thing.

If rates went up and it did become negative, would you still be happy holding it? Will it need any major work in the next few years?

I like to go through a few scenarios when deciding whether to hold or sell, b/c what seems right now might not seem so right in a different interest rate environment, or in a few years when the plumbing needs replacing etc.

No it’s not, assuming the lender doesn’t take Prop 1 as security by default. Always check your loan documents before you sign them!