Your financing options of the top of my head:
1. Higher LVR loan – LMI works on an exponential like scale at high LVRs, so this will need to be considered.
2. Parental Guarantor if your parents have equity available that your willing to use. This way you could borrow 105% of the property.
3. Gifted funds (parents borrow their equity, gift it to you).
4. If your close and have strong servicing, personal loan the closing costs/down to 80%.
5. Lenders that goes to 85% no LMI.

Interest rates are one of the largest factors that influence prices in the short term. By adjusting rates one way or another, the RBA can effectively manufacture a growth cycle or put a stop to one.

Why? Interest rates are effectively the price you pay for credit.

Because people need credit to buy houses. Without credit, there would be next to no demand (imagine if everyone had to pay cash). Therefore when the interest rate rises, the price of credit rises. When the price of credit rises, the demand for housing falls.

Cheers,
Redom

Yep that’s how to set it up to avoid x-coll. :)

A few tips to maximise the structure your employing – it may make sense to:
a) get a couple vals done on your PPOR – often their are variances in valuations. May make sense to use the highest val.
b) If possible and suits you: turn your PPOR to I/O too – by reducing your contractual repayments, this will increase your borrowing power moving forward.
c) pay your stamp duty/other costs using borrowed funds. Therefore your total new borrowed funds should be 360k + closing costs. Take out 90k from your PPOR (up to 80% LVR), and then take out a loan for 80% of the new Investment. Put remaining ‘borrowed equity’ in the offset for future use.

Cheers,
Redom

3 year fixed reduces banks buffer zone? The buffer zone banks use to assess is the same regardless of what type of rate you have.

When you go and apply for a loan, banks will generally do an income/expenses test and want to see that your income > expenses.

Generally, banks calculate the expense for the new home loan at 7%+, P&I repayments – even if you only pay 4.6% at I/O. However, for existing debts that you already have, some lenders assess this type of debt at what you actually pay (4.6% at I/O). Therefore, if you fix your EXISTING debt at a lower rate, and go to a different lender, your likely to have increased your borrowing capacity.

In terms of whether increasing your income or decreasing your expenses is more powerful as a method to increase your borrowing capacity – this will depend on the type of income/expense it is. For example, increasing your gross salary by $10000 isn’t as powerful (because its taxed) as decreasing your ‘discretionary expenses’ (e.g. foxtel, etc) by $10,000.

The reason why i say increasing income is very powerful – is one can reduce their expenses only so far, whereas income rises are potentially infinite.

Cheers,
Redom

Kinnon – I love that video!!! Watched it plenty of times. Thanks for sharing. :)

To OP – the question you’ve raised is awesome. I find it fascinating, and there’s a deep literature trying to understand it.

As others have said, learning how to make money is likely to yield you more fruit than learning how money works. Nonetheless, it is a very good starting point.

One key takeaway to remember is ‘supply and demand’. With housing, prices will rise over the medium term when demand is greater than the supply of stock. One of the biggest drivers of demand is interest rates. In recent times, in Sydney, on the back of low rates, demand has grown stronger than the supply of properties available – and there has been a price acceleration as a result.

Regarding the exchange rate, it is like any other market, works on supply and demand. It is a little bit complex in understanding what drives supply and demand in this market though. The factors that influence demand and supply are international as well as domestic. As Australia is a ‘small, open economy’, our exchange rate is largely driven by external influences.

Cheers,
Redom

Good to see someone thinking about risk management – very important, particularly in the middle of a boom.

Fixing interest rates on parts of your portfolio is a quick trick. Doing so, allows you to ride out a period and adjust your lifestyle/finances accordingly.

Cheers,
Redom

Alternatively, you could use the equity available (assuming 80% lends, around 160k) to fund your first couple house deposits. Then use your cash to go again, rather than ‘wait’ for equity gains – just because it doesn’t receive the same tax deduction, it doesn’t mean its not still very viable to purchase property.

Realistically, using 100k of borrowed equity to fund deposits to purchase houses will increase your interest deductions by about $5000 per year – in $$$ terms, that’s about a $1500-2500 refund per year. Sure, it does make a difference, but in isolation, its generally not big enough to be a make or break factor in your purchasing decision. Particularly if the market is moving – $2000 is a very small market movement (<1%).

I serve a lot of younger ‘income rich, cash rich’ clients that have pretty decent funds available to invest, without much equity (which is generally built up by time in the market) – they’ve invested with CASH and made significant returns. As their portfolio matures, they probably wont need to use cash anymore. But early on, its helped.

Cheers,
Redom

Cheers,
Redom

Give precium a call – pretty sure his the expert in this region.

Northern Beaches is a tough market to crack and has expanded quite rapidly over the past 24 months – it’s not a bad idea to look elsewhere. Lots of investors are moving up to Brissy in their search.

Cheers,
Redom

Heya,

RPI has quite the rep on investor forums. :)

Personally, I’ve used Rod Johanson recently – Johanson Lawyers. Been excellent for my QLD purchase. :)

Cheers,
Redom