To pay LMI or not to pay?

A

auror

Apologies if anyone thinks this is a duplicate thread - I'm aware that there is a similar one in Property Finance but my situation is slightly different.

We have quite accumulated some savings and we will be buying IP #1 soon!

We have enough deposit to buy IP #1 on a 80% LVR loan. In fact, we have enough savings to buy 3 such properties, all on 80% LVR loan. (Yes we've been busy saving and have had too much time deciding what to buy!)

However I'm aware that if we buy all the IPs on 90% LVR loan, after accounting for the cost of LMI, we'll be able to buy 5 properties.

So given that paying the LMI allows you to buy more properties....... would you pay or would you not pay LMI?

Or have I answered my own question?
 
I guess it comes down to your individual risk profile. Personally, I'd be buying 5 IP's with a 10% deposit each.

I don't mind LMI at all - without it, there's no way I could have purchased my PPOR and two IPs (I couldn't have saved 20% deposits for each).
 
Thanks for the thoughts. I realise that I'm fortunate enough to be in a position to choose not to pay LMI.

My risk profile is probably on the risk averse side. We already have a PPOR loan with about $480k outstanding. The idea of taking on 5 more IPs at 90% LVR just freaks me out... at least 3 at 80% sounds manageable.

I wonder if I will regret the decision though, when I get to 3 IPs and wish we could buy a couple more??
 
How about 3 at 90 % and preserve the rest as buffer

You just said u were risk averse.......................:)

Thats one way to manage cashflow risk

PS dont spend any CASH savings on an IP if you can avoid it.

park it against your PPOR debt or against other IP debt


ta
rolf
 
mortza said:
I guess it comes down to your individual risk profile. Personally, I'd be buying 5 IP's with a 10% deposit each.

I don't mind LMI at all - without it, there's no way I could have purchased my PPOR and two IPs (I couldn't have saved 20% deposits for each).
Click to expand...

Personally I'd buy 7 or 8 IPs with a 5% deposit each :) I think LMI is well worth the cost. I'd certainly have a lot less today if I hadn't used LMI.
 
just a side question - if you havent had an IP yet have you made sure you can afford any shortfall on 5 (or even 3) properties? It can be a big hit - especially initially - so ensure that comes into the equation.
 
How do you eat an elephant? Start with the first bite. buy one IP with as small a deposit as the lender allows. Borrow a bit extra and park the rest of any cash you have in offset. Repeat as regularly as you feel comfortable.
 
Belu said:
just a side question - if you havent had an IP yet have you made sure you can afford any shortfall on 5 (or even 3) properties? It can be a big hit - especially initially - so ensure that comes into the equation.
Click to expand...

Thanks Belu. I'm an analyst by trade so I've done up lots of spreadsheets :) We have been saving $4.2k per month on average for the past 12 months so we're pretty confident we have enough income to sustain 1 IP (as well having some cash buffer).

I think it's just a matter of getting started..... but thanks for all your responses they've been very helpful. I don't think my bank will let me do 95% LVR hence 90% is the max we can go up to.

Cheers all!
 
Hi auror,

I would pay it and have done so. It's a Capital deduction.

I wouldn't be putting 5 IP's with one bank though. Diversify your lenders and watch out for Cross-Coll.

Regards JO
 
tobe said:
How do you eat an elephant? Start with the first bite. buy one IP with as small a deposit as the lender allows. Borrow a bit extra and park the rest of any cash you have in offset. Repeat as regularly as you feel comfortable.
Click to expand...

Very good point. It's unlikely you'd be buying all 5 properties on the same day.
 
I will only pay LMI as a last resort, if I have the choice I do not pay it.

It is not protection for me, it does not add value, I can not get it back.

I will only go to a max of 80 % LVR I want the 20 % balance as a buffer.

It does delay my portfolio building however it helps the sleep at night factor.

Cheers,

Fourex.
 
I wouldn't buy 5 properties straight up. Two main reasons for this.

1) You may be buying at the wrong cycle of the market. You may be paying too much for the 5 properties. Better to spread the purchase over time.
2) You may find you don't like property investing once you have one.

Buy one property and then wait for at least 6 months and then decide if you want to buy more.
 
Another investment idea you may want to consider is to start up a SMSF and buy one property in it on 50% deposit.

That way in a round about way it's possible for the payment of capital of the loan to be a tax deduction.
 
Hi Jimmy

A better rate nmay be possible

the downside of that .10 % on rate may be that your are stopped from buyhing the next IP to hold and build from.

Almost always .10 isnt goint to add much to your portfolio, but the next IP that your current bank said no to, grows ur asset base

ta

rolf
 
auror said:
Apologies if anyone thinks this is a duplicate thread - I'm aware that there is a similar one in Property Finance but my situation is slightly different.

We have quite accumulated some savings and we will be buying IP #1 soon!

We have enough deposit to buy IP #1 on a 80% LVR loan. In fact, we have enough savings to buy 3 such properties, all on 80% LVR loan. (Yes we've been busy saving and have had too much time deciding what to buy!)

However I'm aware that if we buy all the IPs on 90% LVR loan, after accounting for the cost of LMI, we'll be able to buy 5 properties.

So given that paying the LMI allows you to buy more properties....... would you pay or would you not pay LMI?

Or have I answered my own question?
Click to expand...


Costs of LMI is nothing compared to the gains one will make from investing wisely. I see it as part of business moving ahead.
Cheers, MTR
 
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