To avoid or not? LMI

[Hadouken]

Hi all,
Going to refinance my PPOR with a split secured loan.
Just wondering.
Buy 1 IP and avoid LMI
Buy 2 IP's and pay LMI on both?

Both IP's will aim to be slightly NG and will try turn them CF+ in 4-5 years.
Is the LMI even an issue?
Or should I just jump in?
I currently have one IP slightly neg

Still a massive L plater on investment!

 

[Corey Batt]

LMI is a tool which if used correctly can allow you to build a portfolio larger and faster than you otherwise would. If you balance the LMI cost with the deposit requirements (stick to 88-90% LVR's) it can be quite cost effective.

If you genuinely believe the investments that you're buying will perform as expected, paying a marginal amount of LMI is a prudent way of getting to your goals faster.

 

[Peter_Tersteeg]

If you never needed LMI, you'd be mad to pay it, it's a waste of money.

If LMI helps you achieve your goals sooner by being able to leverage into more property, then it's a useful tool and usually worth the expense.

It sounds like you're in the second category. If you're planning to build a portfolio and your resources are limited, then LMI will help you stretch those resources further.

BTW, why would you 'aim' to negative gear? This is like saying you're 'aiming' to loose money. Negative gearing is a market reality in most cases at the moment, so it's something you need to deal with. It shouldn't be an objective.

 

[Jamie M]

Hi all,
Going to refinance my PPOR with a split secured loan.
Just wondering.
Buy 1 IP and avoid LMI
Buy 2 IP's and pay LMI on both?

Hiya

No one can really tell you what you should do - it all comes down to what you're aiming to achieve and your tolerance to risk.

I've got lots of young clients who continually purchase at 90% LVRs- they view it as a tool to buy more with less. They're not overly concerned about the cost and are comfortable with high LVR's.

If you think you'll stop at the one IP - then don't pay LMI. Avoid it - it's a waste in this instance.

If you think you'll purchase mutliple IPs and can sleep at night with a high(ish) LVR than utilise LMI.

Cheers

Jamie

 

[Hadouken]

BTW, why would you 'aim' to negative gear? This is like saying you're 'aiming' to loose money. Negative gearing is a market reality in most cases at the moment, so it's something you need to deal with. It shouldn't be an objective.

Aim probably wasnt the correct word to use
I would try to put as much daylight between the rent and repayments as possible.
Looking to turn them all positive as fast as practicable.

Appreciate the advice!

Robert

 

[Redom]

Hi all,
Going to refinance my PPOR with a split secured loan.
Just wondering.
Buy 1 IP and avoid LMI
Buy 2 IP's and pay LMI on both?

Both IP's will aim to be slightly NG and will try turn them CF+ in 4-5 years.
Is the LMI even an issue?
Or should I just jump in?
I currently have one IP slightly neg

Still a massive L plater on investment!

Depends on your goals. As Corey mentioned, powerful way to grow your portfolio quicker. If you dont want a large portfolio and have a smaller risk appetite, can go with one 20% deposit. If you want a larger asset base working for you, definitely go LMI. As mentioned, its relatively cost effective.

 

[Jess Peletier]

I like LMI in certain situations, particularly for expanding a portfolio quickly.

However, without knowing your other circumstances other than having 1 neg property, I would be careful to over-extend into 2 more neg IP's, especially if you don't have a decent cash buffer in case of emergencies.

If you do have a buffer in place, it could be perfectly fine to use LMI and get into 2 new IP's. Just do the sums first.

 

[Hadouken]

Once again, appreciate the advice given.
Will definately take the risk/reward into account.

I do have a buffer if needed.

I figure I will take the quote in my profile and run with it.

 

[dabear]

My take is use LMI if you have good serviceability but cash for deposit is tight. It's a tool balance your income and the amount of deposit.

 

[Peter_Tersteeg]

Aim probably wasnt the correct word to use
I would try to put as much daylight between the rent and repayments as possible.
Looking to turn them all positive as fast as practicable.

Appreciate the advice!

Robert

That's fair.

Forgive me as a come across a bit harsh, I've sat down with a few different people whose goal was to, "Negative gear because they're paying too much tax". It's not a good reason to invest, just a circumstance you need to factor in.

As much as I hate writing out the cheque to the ATO, I'm happy knowing it's because I've made money.

 

[Corey Batt]

That's fair.

Forgive me as a come across a bit harsh, I've sat down with a few different people whose goal was to, "Negative gear because they're paying too much tax". It's not a good reason to invest, just a circumstance you need to factor in.

As much as I hate writing out the cheque to the ATO, I'm happy knowing it's because I've made money.

Indeed. I know a particular property spruiker who was advising clients to buy heavily negative geared properties, then sell them once they were CF+ and buy a new negative geared property because 'paying tax is bad'.

 

[Terry_w]

Consider this - what is going to run out first,
1) serviceablity or
2) deposits

 

[Rolf Latham]

look beyond the obvious being today.

even if buying one, LMI may be a reaonable option since it allows you to hold more cash back for challenge or opportunity/

many will say dont bother with that, if you are going to buy just one, do it at 80 % and then refi that at a later date with lmi to buy the next place.

While that has some merit, it tends to sideline the one constant that will always be there.

That one constant is change.

Changes in markets, lender risk appetite, your personal circumstances, and governance may all get in the way of that in the future


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