Hello everyone,
Sorry to be asking silly questions. But i need to know.
What, in your opinion, is a good percentage to place down as a deposit?
Doing the numbers, it seems like taking out a home loan and laying down a minimal deposit makes things very hard to gain a positive geared investment.
But on the other hand is it better to have a large deposit so that the loan is minimal and repayments lower per month making it a much easier way to gain positive cashflow.
Your opinions will be much appreciated.
Thanks
It all depends upon your own situation. If you consider that a property trust generally works with 60% borrowings vs 40% deposit, it means that there is a positive return under most circumstances. The one thing it doesn't consider is the opportunity cost of that deposit.
If however, you have sufficient income to justify a high level of gearing so that expenses exceed income, then it may be worthwhile to use the losses as an offset agent your higher wages in order to reduce your tax burden.
You must weigh up your propensity for risk – ie if you lose your job, your spouse is out of work, the property is vacant, someone has time off work for a child/looking after a family member – are you going to survive or struggle?
You can get the best of both worlds by putting down a smaller deposit ( 20% to avoid LMI ) and having an offset account coupled to your loan which houses the rest of the funds you could have used as a deposit.
You pay the same amount of interest in both scenarios and you have more flexibility.
It even gives you more security as in the situations sketched out by Scott you use these funds to finance your loan until you get back to normal.Hope this helps
ElkaAlso as your LVR decreases over time you can borrow more funds if needed.
I have thought about this previously and I will be aiming myself to have any future property loan I take out to be paid down as quickly as possible to a point where it doesn't cost me money to own the investment. (cash flow neutral)
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