Hey, i know im very new at this (18 y/o currently purchasing 1st IP), but I have an idea id like to run through by everyone just for everyone to point out the obvious flaws in my plan.
Instead of taking out P&I loans for IP’s, where eventually you will own the house + land and make profit on the subsequent gain, if you just wanted a positive cashflow, without a real estate empire would this work:
Taking out IO loans on multiple IP’s, where there would be an increase in cashflow attained as there is no principal to be paid off, in essence simply getting money weekly for years for original effort. The obvious downside is you will never own the house, but if you’re just wanting cashflow would this be a viable idea? You would need significantly less investment properties to attain a passive income from real estate rather than the “standard” buy and hold strategies or otherwise.
Flaws? I know this idea can’t be as easy as I think it is,.. or is it?
Well done on starting so young.
You can have IO s if you wan’t. It is good to have investment properties on IO and your house on p + I. As your investments get a tax deduction on the interest.
Some people like to use the positive cashflow to pay more off the principal as this reduces the debt and further increases the positive cashflow.
Also a good way to hang on to capital appreciating props.
Good on you :0}
Live, Learn and GrowLifexperience
Most investors have IO on investment loans – it is standard practice, especially if you still have non-deductible loans.
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
(forgive the typing if things are typoefd – im quite pissed – uni o week @ crown!@#@ pissed!@# woohoo@#$@)
so if im to understand correctly, most people do this as standard practice? i thought a b+h with p+i was standard practice as they will eventually own the home after the term of the lease, increasing their CF+ after the term of the loan. if say for example i have PI’s as IO loans and they appreciate over 5 years (they reach their climax and boom back down), if I sell that property, do I have to pay anything extra back to the bank, or do I stand to reap the rewards of the capital gain made? in which case, its simply a matter of “why wait 25 years to gain a tiny bit extra than what you can now with an IO loan on all your IP’s?”
too easy, isn;tm it all?
any side issues i should realise?Hi Andy,
Understanding the different range of finance options available to you will be a very valuable tool as your portfolio grows.
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Some of the mortgage brokers out there might be able to help you with this. I wont mention the bank (institution) but there are fixed IO loans with a redraw facility. The rates are very competitive as well.
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The only reason I mention this is that you could have the best of both worlds. If you were in the situation were you did not have a PPOR and just the one ip you could make extra repayments when you have the available cash. Or just make the minimum when you were running short or making a new investment.
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Good Luck.Hi andy, ur like me im 16
, as for IO loans i think that if your going to have a plan to get in debt, you need to have a plan to get out of debt.Brendan
Wise words, someone once told me..
If your gonna have debt…
Have small debt, which you can afford and pay yourself, and if your gonna have big debt, make sure you have someone else paying it off for you.
Cheers,
sisHi Andy
Starting out at 18. Smart man
The only other issue is that I/O loans are usually for a limited time.5-7 years. Nothing to stop you re-negotiating at that time but it is something to bear in mind.
markk
Happy Hunting
http://www.kentscollections.comis there any restrictions when negotiating for a renewal? obviously credit history would be present but its not an issue for me, but do banks only allow a limited number of renewals?
i suppose if there wasnt a chance of renewal i could always sell and make a small profit from capital gains – closing costs, nonetheless it would be more benefitial for a renewal, especially if the area is booming. that and i could always re-finance with a different bank
Andy
Most loans just rollover into PI loans at the end of the IO term. No new credit checks are usually done, unless if you want to increase the loan amount.
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
Andy good stuff for getting involved! and looking after your future wished I was thinking along your line when I was 18.
With i/o just to add my input, there are instutions where you take i/o for 3 yr term, then you have the decision to go p/i or remain i/o.
But bare in mind when the three years is up, one thing you need to take into account is the interest rate of the day. Damn just imagine if they went back to the old days 19% what a killer.
Keep striving, plan what u want to do / achieve.
And last go through the different posts here, there’s a lot to learn. [biggrin]
AuzzieLad
, as for IO loans i think that if your going to have a plan to get in debt, you need to have a plan to get out of debt.
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