20% deposit or two properties utilising LMI?
- Thread starter Taku
- Start date
Cash on Cash Return
I like to think of it in terms of Cash on Cash return..
If you had purchased a 3 bed house in Western Sydney 12 months ago for $240,000 on a 5% loan ($12,000 deposit) and paid the LMI, you would be sitting on $100k capital gain.
Compare that to a 20% deposit ($48,000)..
Of course, you take the risk that the market may go down..
I like to think of it in terms of Cash on Cash return..
If you had purchased a 3 bed house in Western Sydney 12 months ago for $240,000 on a 5% loan ($12,000 deposit) and paid the LMI, you would be sitting on $100k capital gain.
Compare that to a 20% deposit ($48,000)..
Of course, you take the risk that the market may go down..
Accident, I meant to say 2001 not 2011Bought first property in 2001..
As for 08-09, I purchased in 2008 1 house for 820k with no mortgage insurance, it's now worth 1.35m.. I still wish I had used mortgage insurance and purchased additional properties
Also don't forget at that time it was very hard to get LMI on bigger loans.
Was a bit like me saying to my equities broker mate in the height of the market crash circa 2009 that I wanted to get a margin loan as now was the time to investment in shares. His response.... I wont let you! Their company stopped doing them as they were getting margin calls all day every day. Lesson is maybe when the money is hard to get that's when you should borrow!
I dint go ahead with a margin BTW damn it.
I dint go ahead with a margin BTW damn it.
I agree with the general sentiment that acquiring more properties will lead you to wealth sooner. There's lots of good arguments for this.
Just be aware that going from 80% LVR to 90% LVR does not automatically double your purchasing power. You still need to factor in stamp duty as a minimum. What this means is that your $110k needs to fund either 25% or 15% of the property values.
As an example of the quick and dirty rule of thumb math, assuming $110k available for your contribution and borrowing either 80% or 90% of the remaining property(s)...
*** At 80%, $110k is the 20% deposit and 5% purchase costs for properties valued at up to $440,000.
*** At 90%, $110 is the 10% deposit and 5% purchase costs for properties valued at up to $733,000.
The basic rule of thumb is divide the funds available ($110k) by the deposit and stamp duty you'd put in. This is:
$110k / 25% = $440k
$110k / 15% = $733k
It's rough, but gets you in the ballpark
Overall my point is don't assume that going from 80% to 90% will double your purchasing power. It's close, but not quite and you don't want to be short on funds at settlement because a simple math error.
Just be aware that going from 80% LVR to 90% LVR does not automatically double your purchasing power. You still need to factor in stamp duty as a minimum. What this means is that your $110k needs to fund either 25% or 15% of the property values.
As an example of the quick and dirty rule of thumb math, assuming $110k available for your contribution and borrowing either 80% or 90% of the remaining property(s)...
*** At 80%, $110k is the 20% deposit and 5% purchase costs for properties valued at up to $440,000.
*** At 90%, $110 is the 10% deposit and 5% purchase costs for properties valued at up to $733,000.
The basic rule of thumb is divide the funds available ($110k) by the deposit and stamp duty you'd put in. This is:
$110k / 25% = $440k
$110k / 15% = $733k
It's rough, but gets you in the ballpark
Overall my point is don't assume that going from 80% to 90% will double your purchasing power. It's close, but not quite and you don't want to be short on funds at settlement because a simple math error.
Last edited:
Paralysis
Taku, I like your thought process, but I must caution you at the outset. You walk before you run in the investment game as the outcome can be paralysis.
As a Financial Strategist (Credit Advisor, Financial Adviser & Investment Coach), I have seen too many people try to pick up tons of information from every source they can. Attend weekends trying to understand everything before the get started.
Ten years later, they are very well informed, they have friends who have made a lot of money and others who will constantly come to them for advice. But they have not invested themselves and have probably missed out on the most important truth about property investment.
It is Time in the Market not Timing the Market.
You need a strategy based on where you are and what you want in life. All the other answers here are great, but are they going to help you invest...?
Taku, I like your thought process, but I must caution you at the outset. You walk before you run in the investment game as the outcome can be paralysis.
As a Financial Strategist (Credit Advisor, Financial Adviser & Investment Coach), I have seen too many people try to pick up tons of information from every source they can. Attend weekends trying to understand everything before the get started.
Ten years later, they are very well informed, they have friends who have made a lot of money and others who will constantly come to them for advice. But they have not invested themselves and have probably missed out on the most important truth about property investment.
It is Time in the Market not Timing the Market.
You need a strategy based on where you are and what you want in life. All the other answers here are great, but are they going to help you invest...?
We started off with 2x single bedroom apartments, rather than one two-bed apartment, in 2008. We borrowed to our absolute maximum capacity, and used LMI. Six years later, we've sold the original two apartments and now have a mix of two bed apartments and three bed villas (total of seven IPs) as well as our own house. It was definitely the right decision for us.
