Outlays In PIA

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From: .watto .


Hi All,

When assessing a property in PIA and using 80% finance secured against IP and 20% plus costs from a LOC secured with equity from PPOR.

Do you leave the outlays input box in PIA at zero?

Also when an IRR can not be calculated a message of "Positive cashflow - infinite IRR."

Is this due to zero dollars being outlayed?

Cheers
Watto
Melb Freestyler

 

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Reply: 1
From: Webmaster (Somersoft)


The simple equation "Loan amount = total cost - total outlays" must always hold true. If all of the costs are borrowed, irrespective of the collateral used, then the outlays will be zero. In this case you may have a split loan (80% of which may be I/O at a certain rate and the other 20% I/O at the rate pertaining to the LOC). Note that you would not specify a credit line for the 20% in this case unless you were intent on using all available cash to repay the principal on that loan (not a good idea for an investment loan in my opinion). You would more likely be using the credit line to repay the non-deductible debt on your home loan, etc.

A return on investment cannot be calculated if there is no investment, hence when you have a positive cash flow from the outset, the IRR must be infinite. Note that this does not automatically mean you will make a squillion dollars on the investment.