Hello everyone
I have lurked around this forums for a bit, and I can see there are seasoned investors here that I can learn alot from as I continue my property investment journey. I hope to instigate some opinions and feedback for the above topic.
This thread is derived from the thread below, but I felt it warranted its own topic:
http://somersoft.com/forums/showthread.php?t=82343
to provide some background info relevant to this situation:
1) assume that I infact have 20% deposit for every purchase
2) have excellent grasp of cashflow position and appreciate cash buffer
3) assume tax rate of a generic 40%
4) don't take bank's position on overall LVR in respects to future funding into account
My financing strategy for all properties (both ppor or IP) is to be funded 90% and pay the LMI, and the reasons being:
- minimal investment cost (10%), to minimise opportunity cost, and increase ROI
- maximise tax reduction on interest for tax-deductible properties, and maintaining flexibility to convert ppor to ip if required
- low net asset position (exclude cash, which is unsecured asset) for asset protection and risk exposure
- instant cash buffer as the other 10% cash isn't used as deposit, but as a cash balance
- use of offset accounts means the running interest costs is in fact is charged lower than the mortgage amount (and more cash to shift to ppor offset account)
- LMI is really 60% of the cost as it is tax deductible if IP.
Have I missed anything or are there any major holes in my reasoning?
The reason I ask is that I have numerous friends who have 20%-30%+ deposits and are looking to get into property. these people are from the old school of thought, of paying down the mortgage (via P&I repayment) and build equity. they don't understand why they should only put in 10% and get hit with LMI when they have the capability to put in 20%+ deposit. they dont understand cashflow, they are shocked about keeping the loan at IO and using offset.....they don't understand my proposed structure does not increase their risk profile (assuming the cash reserve doesnt get blown)....
Thus, before i give my opinion to them, I want to make sure my own philosophy on this is sound and has no flaws, for the situation described.
Cheers
Chris
I have lurked around this forums for a bit, and I can see there are seasoned investors here that I can learn alot from as I continue my property investment journey. I hope to instigate some opinions and feedback for the above topic.
This thread is derived from the thread below, but I felt it warranted its own topic:
http://somersoft.com/forums/showthread.php?t=82343
to provide some background info relevant to this situation:
1) assume that I infact have 20% deposit for every purchase
2) have excellent grasp of cashflow position and appreciate cash buffer
3) assume tax rate of a generic 40%
4) don't take bank's position on overall LVR in respects to future funding into account
My financing strategy for all properties (both ppor or IP) is to be funded 90% and pay the LMI, and the reasons being:
- minimal investment cost (10%), to minimise opportunity cost, and increase ROI
- maximise tax reduction on interest for tax-deductible properties, and maintaining flexibility to convert ppor to ip if required
- low net asset position (exclude cash, which is unsecured asset) for asset protection and risk exposure
- instant cash buffer as the other 10% cash isn't used as deposit, but as a cash balance
- use of offset accounts means the running interest costs is in fact is charged lower than the mortgage amount (and more cash to shift to ppor offset account)
- LMI is really 60% of the cost as it is tax deductible if IP.
Have I missed anything or are there any major holes in my reasoning?
The reason I ask is that I have numerous friends who have 20%-30%+ deposits and are looking to get into property. these people are from the old school of thought, of paying down the mortgage (via P&I repayment) and build equity. they don't understand why they should only put in 10% and get hit with LMI when they have the capability to put in 20%+ deposit. they dont understand cashflow, they are shocked about keeping the loan at IO and using offset.....they don't understand my proposed structure does not increase their risk profile (assuming the cash reserve doesnt get blown)....
Thus, before i give my opinion to them, I want to make sure my own philosophy on this is sound and has no flaws, for the situation described.
Cheers
Chris
