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Hi,
Not sure why your untrusting of the broker whose opinion is that a LOC would be appropriate, other than to say he didnt elaborate as to why he is suggesting it sufficiently for you, for mine this is problematicIn virtually all circumstances nowadays as a broker and qualified non practising FP i suggest LOC. Here are some key reasons why
1. Keeps your investment loans separated and easier to track for accounting purposes.
2. You absolutely wont pay interest on the LOC until such time as you utilise the balance, ill elaborate as to why im saying this later on
3. The alternate method of setting up a secondary loan is an issue from my perspective, and not only for the mixed purpose problem, but because its finite. Id much rather the LOC as the limit can be more readily increased as time goes by as opposed to releasing constantly for further investment (meaning i have to reapply in full each and every time im looking to release equity, yes you can say the same of the LOC to a degree, however by increasing a LOC you only have the one account not 2 3 4 5 6 as time goes by and your reaching back into the initial property to fund further purchases).Point 2 i make because different banks have different ways of operating accounts. Even if you have a io loan with the full balance offset, you can be forced into making payment, odd i know, however i have seen it.
The biggest reason however is the changing landscape of the marketplace induced by regulatory change. You will be aware (if your not you should be) that banks have had imposed on them 2 significant brakes in terms of investment lending via our regulators.
1. No more than 10% of all new business they write can be for investment purposes.
2. No more than 30% of ALL loans they write can be on an interest only basis.The 30% rule i actually see as a bigger problem, because it could make 80-90% of the property most investors buy significantly less attractive. Why because most people buy negatively geared property and should they lose the ability to gain an interest only loan it would make it much more difficult to buy and hold. Now, virtually all banks will at some point push to these limits and have already for point 1, a matter of time for point 2.
The way they have responded has been to either decrease max LVR or by increasing price, or a combo of both, simply put, releasing equity is going to become more and more difficult and costly, particularly once the bigger banks start pushing the 30%. The way to avoid this is to take a product from the bank that inherently has the exact characteristics you desire. Some would argue yes thats a solution but a more costly solution (rate), to that i say the IO rates are already high and likely to continue rising, however, if that bothers you considering where the rates are at the moment, then perhaps investing is not for you. The interest rate you pay on an investment loan in my opinion is somewhat irrelevant, as long as its market competitive, of far more concern is the right asset in the right market at an appropriate time for you personally.Basically, LOC is the way id set it up for all the reasons above.
Cheers
I was attracted to this site through a facebook ad for Mark Rolton which I have serious misgivings about but that’s another story. A bit of background, im an ex bank employee and ran one of the Big 4s credit operations in Sydney before moving into mortgage broking and am also a qualified financial planner, ive spent all my working career in finance which is just about 20 years.
The short answer to your question Jaryd is – Yes apartments are a sound investment. Though there are many things you need to consider in terms of your personal circumstances and what you hope to achieve medium to long term. Property or any investment should not be considered a short term investment in my view. The mantra here is Time in the market, not timing the market.Couple of quick ones Richard is correct LMI is tax deductible over 5 years in equal instalments. Why is that important, well if your looking at neg gearing the higher the borrowings the better the tax deduction available though I recommend a max 90% lvr as LMI premiums are ok at that level, above 90% and you paying greater than 2% in LMI which can become exhorbitant in my view. Plus it also gives plenty of options on a lender front
Ians comment rings true, however the main reason you don’t want to be too far from a CBD is the reduced appreciation rate of the property. As it is your first investment I would assume your looking for it to appreciate in value as quickly as possible and the further your away from the city the more likely the growth takes longer. Sure there are exceptions to this but from a safety perspective the closer you are the more saleable a property will be in the future.
Nigel, well im sorry but I totally disagree with your comments, off plan can work no problem, and there are massive advantages, not limited too tax and depreciation savings, but predominantly due to the rent you can command and the quality of tenant, “A GRADE” tenants are what you want and new property gets the pick of these everytime. With any property purchase the research needs to have been done, that is why I recommend a property research house to my clientele, simply these people are professional, have skilled staff who access information that the general public cannot access from sources that most wouldn’t know about. They have key metrics around the state, city, suburb, street and property itself must meet for any buy recommendation, they have a research model that’s independently audited, negotiate price and provide their IP for free but only to clients who are referred to them. They don’t deal with the general public and they are sought for comment in most leading property magazines, tv and radio.
A stat for everyone, Melbourne currently boasts the highest single dwelling household rate in the country at nearly 50%. That’s right approx. 50% of Melbournians reside on their own. Clearly its important to understand market dynamics in an area your considering investing in and unfortunately the public struggle to obtain sufficient info to make informed decisions. Sure people make money out of property or shares everyday, but unless your at the coalface of the industry its very difficult to know exactly whats going on. My analogy here is if im sick I don’t go to the butcher for health advice, I go to the doctor because he is the expert. Investment is no different.
All in all Jaryd my basic advice is this, real estate has 3 interlocking keys, price, type and location. Your price point affects where you can buy and what you can buy which in turn affects the location. You cant buy a 5 bed home in port Melbourne overlooking the bay if your price point is $350k, so what you should do is seek advice from a specialist (just be sure to check their methodology and credentials first). If your ready go for it.
Cheers
