Newbie Investor Considering Loan Options



From: John Cooper

Hi I am looking at starting out my investemnt portfolio in the very near future. I have about $40000 in savings and no other equity, and i am looking at approaching some lending institutions for a loan. My question is what sort of loan should i try to get as Jan's latest book mentions that a Credit Line can be a good vehicle in the initial period.
I live in Brisbane and wish to borrow and invest locally. Has anyone had good/bad experiences with the RAMS Investor Loan, Suncorp-Metway Professional Asset Line?
Is a credit line a good way to go in the beginning?
Any feedback would be appreciated.
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Reply: 1
From: Patrick O Brien


I wish you luck in your pursuit to start a property portfolio. The type of loan you should get really depends on whether you want to pay some funds of the principal or whether you simply want to pay interest only to maximise tax deductions. A line of credit will allow you to do both but you will pay a higher rate of interest. This is why you might want to go for one of the basic interest only loans out there (e.g. ING Bank, Homeside and Citibank). If you want to use the equity you have built up down the track you could refinance into a line of credit at that point in time which will allow you to draw down the equity.

If you aim to pay the principal of the loan quickly and you are a good budgeter then a line of credit may be beneficial to you. This would allow you to immediately draw down any equity without having to refinance.

I think you will find that there may be cheaper (or better) line of credit loans out there besides RAMS and Suncorp. I would recommend you shop around first or see a mortgage broker.

Good luck

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Reply: 2
From: Rolf Latham

Hi John

If you are going to go direct rather than through a broker I would strongly suggest an ANZ product with a 95 % loan with capitalised mortgage insurance, thus making your hard won cash last more deals.

Understand that for every dollar you have saved for deposits and costs you have earnt that dollar + whatever tax bracket you are on. Like Patrick and many of us that have been around for while, I have yet to be convinced that a Line of Credit suits most people as a core lending product, especially someone that may not have a PPOR and is looing to buld an IP portfolio.

You can get the same benefits as an LOC loan, a higher LVR and a lower rate by packaging existing Loan products incorporating a 100 % offset product. Most lenders dont know how to put this together, or will speficially disallow a product mix that suits you best. It is really hard to go past a good independent broker.


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Reply: 3
From: Denis Backhouse

G'day John,

Mate, I'm no financial planner, but I reckon the world's your oyster!

A $40 000 deposit in Brisbane will get you into a $200 000 property.

That's probably too much to pay, unless it's in a great capital gain area, as it will probably run negative.

But as I said, I'm only a pretty humble investor.

What I'd strongly advise is for you to have a good long look at Geoff Doidge's website

Read everything there, and when you're comfortable with Geoff, go to his seminar on June 1st. It will be about $1300 well spent.

The one I went to about a couple of years ago showed me how to buy and renovate a property in Sandgate Qld. that turned me a nett profit of $34 000 in about 7 months.

I'm just finishing another now, in Brighton Qld that will bring about $40 000 profit ... This time in only 2 months, and I work full time!

Geoff surrounds himself with an "army" of professionals ... Accountant, solicitor, QS, town planners, mortgage brokers ... and you meet them at his seminars and get to ask them any questions you want.

Hope that's valuable.

Best regards,

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