Equity to invest but worried about cash flow

Hi Bella

Firstly welcome to the forum and I hope you enjoy your time with us.

Certainly never put yourself in a position where you do not feel you will be able to service the ongoing debt however correctly structured you maybe able to have your cake any eat it.

You could look at buying the property as either Tenants in Common or in your husbands sole name so he claims all or the majority of the deductions. Of course not every property is negatively geared and if you look at the cheaper end of the market in order to dip your toe into the water you might find little difference between the net rent and the interest repayments.

Get your mortgage broker to look at options such as prepayment of interest for a year especially if you feel the following year your income may be reduced. Also you might want to thing about splitting up the loan between fixed and variable in order to remove any concerns that interest rates may rise.

I never suggest to clients they cross collateralise the 2 securities so limit the exposure your PPOR has and look to gear against the IP just in case. Flexibility is key and remember the loan should work for you and not your Bank / lender.

Cheers

Yours in Finance

Hi bella,
 
Hard to make further comment without the actual numbers but remember if LMI is charged on the IP loan then it becomes a loan cost and is Tax deductible.

Cheers

Yours in Finance

Hi bella84,

It’s good that your thinking and planning for each buy…i see alot of people these days; especially young couples who just buy a whole bunch of IP in a short period of time and get stuck with a massive debt and when the wife gets pregnant instead of celebrating, they are grieving.

My suggestion;
Release some equity to buy your IP, as a safe buffer try to release enough so you do NOT have to use your own “cash”, so it should pay for the 10- 20% deposit + stamp duty etc…(IMPORTANT- if you do a Equity release, it must be done as a split loan, so the IP part can be tax deducible).

Keep your hard earned “already tax” cash in your PPOR offset account, try to minise the use of your own cash for this IP purchase.
This strategy allows you to have a “cash” buffer in case you lose your job, the IP becomes vacant or need the money for emergencies etc…
Also the new IP, set it up as an I/o for the first 5 years.

So in summary:
1. You gain the IP you want
2. Still have a cash buffer
3. All loans are set up with the right structure for the tax part.
4. Better cash flow

Where you buy, or what you buy is a different story, for a different day

Lastly the above loan structure is general advice only, so without knowing your situation and financial numbers, it may not be right for you.

Regards
Michael

Hi bella

Yes you are are on the right track but dont let Bank West tell you they dont do equity loans as i have done dozens of them with BW and never had a problem.

Then use the equity loan as deposit and use a separate lender for the new IP loan.

Drop us an email if you need further assistance and i can advise you further.

Cheers

Yours in Finance

bella84 – It’s untrue what the branch staff is telling you.
1. BW allows equity release
2. You are free to take the IP loan with any another lender as you wish, with the above equity release.

The advice you have gotten is a standard response i hear ALL the time. it’s a way to “make the sale” because at the end of the day BW wants that new Business…Only give them the business if they give you a reason to ie are they willing to offer you a competitive overall package compared to the market place and most importantly the right loan structure for you to move forward in the future.

Regards
Michael