I have just purchased two CF positive properties and am now going through the process of financing these. I am using the equity in my home ( was really unsure whether to do this or sell shares and use cash so i guess that is my first question ). I have been advised that interest only loan is the way to go ( from a property mentoring coach )but as I understand it in steve’s first book he uses P and I loans. Which is best and why? If anyone has a good finance broker/bank/etc in perth who can think outside of the box I would love to get in contact with them!
If you’d done a search you would have found extensive debate on this issue HOWEVER if you still have debt on your PPOR, it’s best to go interest only on investment properties… and direct as much as you can into reducing the non-deductible debt.. once that’s gone, you can reduce debt on your IPs (if that’s what you want) however if you leave your loans interest only, you need less to service them since you’re not paying any principal, which leaves you with more cashflow to buy more IPs.
cheers
rGenki,
There are a lot of mortgae brokers on this site to choose from. I think you will have difficulty finding a good one in WA as the WA Government restricts non-WA residents from operating there resulting in a closed-shop for WA based brokers. As a result, I don’t think they put in as much effort. I found so many investors over there did not even know about deposit-bonds. This is a disgrace!
Regarding your loan structuring, Richmond gave a good outline. Regarding whether to use interest only or principal and interest loans, I would always recommend interest only (unless you are not good at controlling your money).
Take a look at this structure and you might understand why…
The idea is to pay as little as possible to the actual loan but to leave as much as possible available for further investment (if this is what you want to do of course). The money sitting in the offset account will do the same thing as if it was sitting in the loan.
The benefits of interest only far outweigh those of principal and interest, even on your owner occupied home (if you are good with money). The main benefit is that you can pay as much as you want whenever you want without penalty but you cannot reduce your payment when things get tough with principal and interest loans.
From an investors point of view, there is no NEED to pay off the interest as it is deductible and the principal is not. The only reason to pay down the debt is to reduce your liabilities or to purchase further properties. You will have the cash available if you use a professional pack with an offset account properly.
Please note, the credit card in the diagram is only used for those who are really good with money!!!
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdI would agree with Richmond, IO if you still have non deductible debt as it would be better to direct all extra payments to getting rid of this first.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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