time to refinance first ip

[sports fan]

hi there, its time to refinance my first ip and would appreciate any advice / suggestions from you experienced investors.. details as follows

bought first investment unit 2007 $365K borrowed $320K (160K variable 160K fixed both P&I) used FHOG and lived in unit 2.5 years

have the unit rented out now for $400 per week. Fixed loan term is about to finish and would like to refinance

The unit is worth at least $410K now and have paid loan down to $300K so have about $110K equity

A friend from work is telling me to change to an interest only loan to make the rent cover the repayments and get another unit but i dont really like the sound of never paying it off

should i stick with P&I or refinance and go interest only and try get another one?

 

[artlez]

Go with interest only (+ offset if required). I once had the same mentality like you but the wise people here convinced me to go the other direction. It's a lot better to buy additional properties now (or in the near future) rather than wait until you free up more cash by which stage you would have missed significant growth or even an entire cycle or two.

Basically there's no point in trying to pay off your property because once you sell it you're going to pay it off anyway. So why pay it off now and waste away your opportunity to increase your gains in the future? It's obviously a lot better having 3-4 properties in 5 years time than it is to have 1. You'd have the CG of multiple properties thereby multiplying your gains at TODAY'S prices. In 10 years or so a 300k property would be worth say 600k, but you'd only be paying a mortgage for 300k which in 2020 would be classed as a very small mortgage due to the effects of inflation. But freeing up your cashflow now by going IO will allow you to get multiple 300k properties now so that in 2020 you will have equity of say 4x300k instead of 1x300k. However, this only makes sense if you buy during the right time and buy good properties. There's no point in buying 4 properties at the peak of the cycle! This doesn't mean you can't invest any further though. You can always look into other options like shares. Basically, tying up your cash by paying principal is child's play! Sure it's the safe way to go but as long as you don't overextend yourself like many investors do you won't go bottoms up.

If you have any excess cash you can just park it into an offset account which would in effect mimic the characteristics of a P&I account without the drawbacks of locking in your cash.

 

[Rolf Latham]

I just like IO from a risk management POV

In addition, if you dont yet have the PPOR of your expectations, then PI is poor financial decisioning, because anything above IO should be going into an offset account to support that goal.

ta
rolf

 

[sports fan]

thanks for the replies sounds like IO is the go.. rolf yes you summed it up im trying to buy investment properties till i have enough equity to buy a entry level ppor in my area which are out of control $750-$800k atm and are on the up

would be good to have a chat about refinancing with you are you in sydney rolf?