So I've been thinking about this LOE for sometime and I really struggle with the concept that in reality it would work.
Main reasons being servicability. Obviously if you have other income from shares, a job (therefore you're not LOE) etc then that is a different story.
It is all well and good to say; buy a property worth $100k then another and another - after so many years the property is now worth $200k, you go to the good banker and ask 'please sir, may I have some more'. The banker willing obliges and lends you another $100k which you then happily spend on boats, fast cars and groceries. (please don't worry about LVR's etc here - I'm just talking conceptually).
That extra $100k eventually runs out however don't worry, the value has gone up again to $400k (or another property you have has some equity) so you go back to the banker and again, ask for another $100k / $200k.
Therefore, your total debt just keeps increasing and increasing. My main issue is when you originally bought the property for $100k and repayments were, say, $600 pcm (assuming you financed 100% @ 6% - again, don't worry about the LVR etc) and you had a job to cover the payments, after the first new equity you borrow ie. $100k to buy a boat, your repayments are now $1,200 pcm.
Where is one going to fund this extra $600 from?? Then when the process is repeated - you take another $100k (again, no job because you are living off equity), repayments are now $1,800 pcm! Yes, rents will grow however would they grow at a rate to cover these extra repayments?
Please let me know if I am right or if I'm missing something / being naive about the whole thing!! It's been bothering me for a while now!
Main reasons being servicability. Obviously if you have other income from shares, a job (therefore you're not LOE) etc then that is a different story.
It is all well and good to say; buy a property worth $100k then another and another - after so many years the property is now worth $200k, you go to the good banker and ask 'please sir, may I have some more'. The banker willing obliges and lends you another $100k which you then happily spend on boats, fast cars and groceries. (please don't worry about LVR's etc here - I'm just talking conceptually).
That extra $100k eventually runs out however don't worry, the value has gone up again to $400k (or another property you have has some equity) so you go back to the banker and again, ask for another $100k / $200k.
Therefore, your total debt just keeps increasing and increasing. My main issue is when you originally bought the property for $100k and repayments were, say, $600 pcm (assuming you financed 100% @ 6% - again, don't worry about the LVR etc) and you had a job to cover the payments, after the first new equity you borrow ie. $100k to buy a boat, your repayments are now $1,200 pcm.
Where is one going to fund this extra $600 from?? Then when the process is repeated - you take another $100k (again, no job because you are living off equity), repayments are now $1,800 pcm! Yes, rents will grow however would they grow at a rate to cover these extra repayments?
Please let me know if I am right or if I'm missing something / being naive about the whole thing!! It's been bothering me for a while now!