Hi there
Looking at the age of some of the young investors, I feel somewhat ashamed of not turning my mind to this earlier.
I’m 33 and am a tax accountant (which comes in handy since I know all the tax side of property investment). I own an apartment in Brisbane (well, the bank owns a large chunk of it!) and have equity of only about $80K. The loan on the property is about $190K.
I would really like to do something with the equity. Financial planners keep telling me to put any extra cash I have into the home loan, which is understandable because the interest is not tax-deductible. But I wonder if I can achieve a better return by investing the equity. Given my age, I’m looking at capital gains and holding the property long term.
Based on the numbers, I think I can handle an interest only loan of say $250K.
Any pointers from the wealth of experience here? Thanks!
Ed
Hi Ed,
Consider a split loan with an offset attached to the non deductible portion of the split, place the equity in the offset until such time as required for deposits on separate loans.Regards
Steven
Mortgage Broker
Mobile Mortgage Market[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Also, you can keep pumping all your income into the non-deductible portion of the loan (the offset account) until you need so you will be reducing your non-deductible debt fairly quickly. Using a credit card may also help.
Check this out and let me know what you think:
http://www.mortgagepackaging.com.au/index_files/professional_pack.htmYour new loan would be stand alone to the structure outlined in the link. Of course, the investment portion would be fully deductible if used for investment purposes.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Thanks for that!
What about actually finding a property? Any help on that? Also, I contacted my personal banker at the NAB. They seem a bit reserved in saying outright that they will give me the loan.
My gross salary is about $80K. Is that normal of the bank to be hesitant?
Ed
Finding a property is not my area of expertise. You should get a lot of response on here from that question.
It is hard to say yes over the phone without submitting an application. They also need to do a credit check. I don’t know what your other liabilities are like, but this might also be an issue. With an 80k income, you should have no problems borrowing 250k unless your expenses are high elsewhere (like rent, car repayments, lifestyle, etc)
Regarding NAB, there are cheaper products available. The only great thing about NAB that I find is the fact they have personal bankers giving good service. If you don’t need someone to hold your hand, I would suggest looking around.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
I’m actually not terribly impressed by my personal banker and the bank for that matter. My finances are all with them though, so I naturally turn to them.
I have a credit card debt of $2K. Apart from the mortgage, I don’t have any other commitments. Given that my banker knows what my assets and liabilities are like, I’m surprised by the seemingly lack of enthusiasm.
Ed
Hi Ed,
Regarding credit providers and products, contact a couple of Mortgage Brokers, who have access to a wide range of lenders,
I doubt serviceability will even be an issue,Regards
Steven
Mortgage Broker
Mobile Mortgage Market[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Thanks. I think I just need to kick start myself. I’ve been too content with just living but not investing. I guess the first step is to find an appropriate property. Guess I’m a bit risk averse as well, especially considering we just had a big up cycle in the property market. I wonder how long it would take for me to kick myself in the butt and do something.
Hey Ed,
It is not often I hear someone complain about the NAB personal banking service. WOW!
Anyway, you could also speak to a mortgage adviser before finding a property. It does not cost you anything to organise a pre-approval to your limit. It will also give you an indication of what price range you can look for.
Regrding your existing property, there is no need to wait for that one as it can be done straight away and the extra funds will be sitting there costing you nothing until you need them and use them.
A tip – DO NOT CROSS-COLLATERALISE (secure the loans with the properties together). Do the loan seperately with the same lender.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
If you have a redraw loan (rather than an off-set account) you can always dump all your spare cash into the loan and redraw it later whan you need it.
I agree with the others here. Shop around for finance options before applying for finance. Just like youwould shop around for properties before putting your first offer in. Investigate but don’t sign anything. Be aware that each time you apply for finance, there will be a notation on your credit report. Do your homework before you sign so there will be only one or 2 notations.
Margaret Wilson
[email protected]Hi Ed,
Be aware of the tax implications when using a redraw for the purpose of investment,
Private funds intermingled with investment funds can cause implications on the interest deductions on investment finance,Regards
Steven
Mortgage Broker
Mobile Mortgage Market[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hi Ed
Further to my earlier post, some redraw loans can be structured to clearly delineate between the personal part and the investment part. As long as you keep the personal for personal and the investment for investment, then the ATO is satisfied. There are some schemes that ATO no longer allow but structured properly you can redraw for investment in a tax effective manner. My loan on my PPOR was like this (it is now fully investment).
Margaret Wilson
[email protected]Hi Eddie,
I certainly recommend you get linked up with a broker for your financial needs. They will be able to align you with the bank that has the best product and range of products for your short and long term needs.
We were a bit like you and were very focussed on paying off our home loan before embarking an investments for our future. Did some maths and realised that we were due to pay off the PPOR loan about the same time we were due to retire.
Some research and located a number of properties that suited our investment goals and have purchased these, while at the same time maintaining an aggresive approach to paying off the PPOR loan.
In effect, we have been able to achieve both parts of our overall goal well ahead of schedule. In some respects the first steps are the hardest and then the snowballing effect kicks in and momentum is maintained.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping.
This article from the SMH dated 14.8.04 highlights the perils of mixing private and investment funds in a redraw,
http://www.smh.com.au/articles/2004/08/13/1092340458713.html?from=storylhs&oneclick=true
Regards
Steven
Mortgage Broker
Mobile Mortgage Market[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Ed,
Where did you wish to invest?
Cheers [baaa]Hi Eddiec,
Where to invest comes down to your goal, strategy and plan. I am Just begining my investing career but my advice is to read as much as you can then sit down and set some goals (think big), choose a strategy and plan how you will acheive your goal. But the most important thing is to TAKE ACTION!!!! you can always change your plan and strategy later. Look around on this site for recomended books to read. Get on this site each night also to keep abreast of the advice going around. Stick with it you just don’t know when the next deal will prestent itself.All the best
Thanks for all the contributions so far. They have been invaluable.
I think I’m pretty much ready, so I will:
1. Start looking for a property (I have no idea WHERE to start though … thought I might just flip through the paper on the weekend).
2. Start talking to mortgage brokers to obtain a pre-approved loan.
Sounds like a reasonable move?
Steven
Thanks for the article. It reiterates what I said – keep the investment and personal parts of the loan clear (either separated or good records – the former is preferable) and redraw loans are fine. Keeping the parts separate makes it easy at tax time for you and for ATO to understand what you are doing.
Margaret Wilson
[email protected]Eddie, sounds good… get a pre-approval and start looking. At least you will be ready when you find something you like especially if you need to move quickly.
GOOD LUCK.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auComments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Originally posted by eddiec:I think I’m pretty much ready, so I will:
1. Start looking for a property (I have no idea WHERE to start though … thought I might just flip through the paper on the weekend).
2. Start talking to mortgage brokers to obtain a pre-approved loan.
Sounds like a reasonable move?
Hi Eddie,
I would reverse these two steps – no point looking at stuff at $300K if you can only borrow $200K.
In addition I suggest that finding a good property requires considerable more than just ‘looking through papers’.
You indicated you were a growth orientated, long term investor and as such you will need to initially identify some of the macro features that will generate growth in a local area.
Once you have identifed the macro factors then start looking for properties in the identified area that have other features making them ‘good investments’
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping.
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