Hello all,
This is my first post and hopefully some people can assist with their opinions. My wife and I recently moved to Australia and are fairly new to the concept of property investing but think it might be the right thing for us. Especially cash flow positive properties seem to be a nice way to secure financial independence in the long run.
I suppose we are in a good position as we got some nice windfall a while ago. We now own our PPoR with 100% equity valued at about 500k. We have about the same in cash.
For peace of mind we thought to just keep the PPoR as it is and use the cash for 20% deposits on a number of properties. I suppose this way we could purchase about 6 or 7 properties, with a bit of luck and research even cash flow positive.
I now read about using the equity in our PPoR for investing. Would it be better to do it this way and maybe use the cash to buy shares or other investments? Wouldn’t that mean getting a mortgage on the PPoR in addition to the mortgages for the other potential investment properties which would make it harder to have positive cash flow investments?
We are a bit confused. What would you guys do? Thanks a lot for your input.Regards,
Chris
Hi
It may be wise to keep your cash for personal expenses that may pop up. If you use it all now you may be short later. You may be able to set up a LOC on your home and then use this for the 20% deposits and then borrow 80% of each new property. Get a 100% offset account on one of these and keep your cash in that to offset the interest.
That is one approach. Another is, leave your PPOR unencumbered – keep it safe and then use the cash as deposits.
All depends on how far and fast you want to go I guess
Terryw | 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
I am with Terry wouldnt use all of your cash on deposits as you never now when you might need it.
Set up a line of credit against the home to fund the deposit and acquisition costs and then each of the standalone investment loans can be interest only with a 100% offset account against them.
Alternative is to use your cash as security for a 100% investment loan (combination of property and Term deposit) and keep the PPOR totally unencumbered.
Just make sure if you are buying cash flow positive properties that you structure the ownership correctly to maximise your taxable income.
Richard Taylor | Australia's leading private lender
Sorry for the ignorance, but what is LOC? what is the difference between LOC and putting your house for mortgage? is LOC the same as refinance / re-top up your loan agains your security?
THanks
A Loc = Line of Credit or a revolving secured overdraft facility.
The lender would approve the loan for a given amount and set a credit limit in place.
You are then only charged interest on a daily basis on the amount you have drawn down.Assume you had a $100K limit and drew down $50K to cover the deposit and acqusition costs on the 15th Month then for that month you are charged interest on the number of days to the end of the month and then monthly thereafter on the $50K balance.
Most line of credit facilities have a longer term such as 25 years compared to most interest only loans with a 5 or 10 year interest term before they revert to principal & interestor need to be refinanced.
Richard Taylor | Australia's leading private lender
Thanks for your comments, Terry and Richard
I ceratinly like the idea of an unencumbered PPoR and also would feel uncomfortable to spend all the cash on investment properties. We were thinking about 50 to 60%. The LOC could certainly be an interesting option. We will definetely look into that.
Thanks again for your comments.
Chris
Chris
Also need to shop around as Lines Of Credit are often charged at a higher rate of interest and this varies from lender to lender.
In addition manylenders will not approve an LOC merely for "cash out" purposes of future investment these days.
Again individual policies change from lender.
Richard Taylor | Australia's leading private lender
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