What is the average time between joining the forum and buying an IP?

Thanks

Hi Aries,

I did not know this before I joined this forum so you are in fine company.

Aaron C usually gives good answers to most questions I have about property finances.

Loc refers to line of credit. So essentially, I asked the bank to give me a loan secured against my unencumbered PPOR. But I don't pay the bank anything until I use the money. Based on the value of my PPOR, I have a LOC limit of up to 600k.

When I do find a property to purchase, I will draw from this loan / LOC and start paying interest to the bank. This way, at the end of financial year, all interest payments on the LOC is tax deductible, making for easier accounting.

Thank you Aaron C and China.

I remember reading somewhere about a loan product called "equity loan" which could be "better" than a line of credit.
But I don't know what makes them different. They appeared to be the same to me, hence my previous question
 
Good post as always HE.

I agree with you in that China should concentrate on getting a good CIP. He is in the position to bypass all the rubbish of dealing with lots of low yielding resi IPs and can go straiht to the good stuff, i dont see any point in going down the cheap resi path imo.

I would disagree. I think the two biggest hurdles at this point are changing mindset and analysis paralysis. Far easier to put your toe in the water with a RIP, then jump in the deep end with CIP. Best way to learn is to put a little money down on a simple deal.
 
I would disagree. I think the two biggest hurdles at this point are changing mindset and analysis paralysis. Far easier to put your toe in the water with a RIP, then jump in the deep end with CIP. Best way to learn is to put a little money down on a simple deal.

Perhaps have a mix of both, why it is one or the other, we are currently experiencing resi growth in major capital cities so load up. Buy both, smart investors should be able to work both. CIP for cashflow and RIP to chase cycles, flip and make $.

Its different strokes for different folks, will give you an example Handyandy possibly one of the most successful investors on SS, he owns in excess of $20M net in property, yes... pick up jaw from ground......:) and guess what... its resi, he owns unit blocks by the bucket load, in prime locations in Sydney and they were all cashflow positive from day 1.

Amazing but true....
 
Hi Aries,

I did not know this before I joined this forum so you are in fine company.

Aaron C usually gives good answers to most questions I have about property finances.

Loc refers to line of credit. So essentially, I asked the bank to give me a loan secured against my unencumbered PPOR. But I don't pay the bank anything until I use the money. Based on the value of my PPOR, I have a LOC limit of up to 600k.

When I do find a property to purchase, I will draw from this loan / LOC and start paying interest to the bank. This way, at the end of financial year, all interest payments on the LOC is tax deductible, making for easier accounting.


Hi, you should read more about cross collaterisation. Not a good idea to get a LOC and buy an IP using it. I made that mistake. Luckily I had enough equity to keep buying. And also luckily my PPOR plus the first IP went up in value allowing me to uncross them before selling the PPOR.
 
Hi, you should read more about cross collaterisation. Not a good idea to get a LOC and buy an IP using it. I made that mistake. Luckily I had enough equity to keep buying. And also luckily my PPOR plus the first IP went up in value allowing me to uncross them before selling the PPOR.

My understanding is that the LOC secured against PPOR is used to draw funds for a deposit (20%) and purchase costs of the IP whilst a separate loan is taken out with a different lender for the balance of the Ip's purchase price.
 
My understanding is that the LOC secured against PPOR is used to draw funds for a deposit (20%) and purchase costs of the IP whilst a separate loan is taken out with a different lender for the balance of the Ip's purchase price.

Yes thats correct. But if you are doing that why do you have a LOC of $600k? That severely restricts your ability to get another loan to fund the other 80%.
 
Yes thats correct. But if you are doing that why do you have a LOC of $600k? That severely restricts your ability to get another loan to fund the other 80%.

The LOC is approved up to the value of 80% of my PPOR which comes to about 600k. I haven't drawn upon the LOC yet as I have not found the right IP to purchase. Should I be diminishing the value of the approved LOC?
 
China, I wouldn't have thought that you would be restricted much at this stage, given the level of your savings and income. I'm only surprised that you are going for a LOC at all instead of using saved funds.
 
I haven't drawn upon the LOC yet as I have not found the right IP to purchase.
I don't reckon you ever will.

You joined two here years ago, could buy a modest IP with cash - or several - using your resources and income level and have been privvy to a Universe of info here on this forum to help you make the right decision.

Have you even narrowed down your search to a specific suburb yet?

Why not hire a Buying Agent to select one for you. Give him/her the suburbs you are thinking of and let them come back with a short list for you.

My understanding is that the LOC secured against PPOR is used to draw funds for a deposit (20%) and purchase costs of the IP whilst a separate loan is taken out with a different lender for the balance of the Ip's purchase price.
It doesn't have to be with a different lender necessarily.
 
China, I wouldn't have thought that you would be restricted much at this stage, given the level of your savings and income. I'm only surprised that you are going for a LOC at all instead of using saved funds.

The information I have obtained from this forum is that I should never use my own savings and income for investments, if possible. Or use as little as possible.

Hence, the LoC.

As I have learnt, it is best to risk others money and the return on investment would be far greater. Capital preservation is the key.

I would then hang on to my savings and income for other purposes e.g. place in offset to defray interest costs - so like a virtual use of my own funds.

I did not know any of this prior to joining the forum.
 
I don't reckon you ever will.

You joined two here years ago, could buy a modest IP with cash - or several - using your resources and income level and have been privvy to a Universe of info here on this forum to help you make the right decision.

Have you even narrowed down your search to a specific suburb yet?

Why not hire a Buying Agent to select one for you. Give him/her the suburbs you are thinking of and let them come back with a short list for you.

It doesn't have to be with a different lender necessarily.


I am getting closer BV.

I have made two offers in the past twelve months on properties in Sydney - one a commercial IP (medical centre) and one a resi IP on the lower North Shore but have not been successful.
 
I have made two offers in the past twelve months on properties in Sydney - one a commercial IP (medical centre) and one a resi IP on the lower North Shore but have not been successful.

Just one thing china - if the property is a good one do not be afraid to pay a price for it. Obviously less is better but the quality of the property is what dictates growth.
 
The information I have obtained from this forum is that I should never use my own savings and income for investments, if possible. Or use as little as possible.
I think most people on the forum borrow because they have no other option- or then to be able to go further with the assets they have.

This may be the subject of a new thread. To me, it seems a waste to have well over $1M sitting in a deposit account earning perhaps 3%, and then borrowing money at 6% to invest. It would make more sense if perhaps if the aim was to buy into a portfolio in excess of the savings- and you would be in a prime position to do so.
 
I am getting closer BV.

I have made two offers in the past twelve months on properties in Sydney - one a commercial IP (medical centre) and one a resi IP on the lower North Shore but have not been successful.
I've heard it said that one should do research on 100 properties, make offers on ten, and buy one.

The more you research and make offers, the better you will get at it.
 
I think most people on the forum borrow because they have no other option- or then to be able to go further with the assets they have.

This may be the subject of a new thread. To me, it seems a waste to have well over $1M sitting in a deposit account earning perhaps 3%, and then borrowing money at 6% to invest. It would make more sense if perhaps if the aim was to buy into a portfolio in excess of the savings- and you would be in a prime position to do so.

Again my understanding from this forum, is that it is best to obtain maximal leverage for investment purposes. If I did not obtain LOC and I pulled out cash for a 20% deposit from the LOC, it would mean that the flexibility of this cash is lost. Whereas if I preserve the cash and place it in offset, I can still defray the interest costs.

Further more, at the moment, I am still working and hence the interest payments can be tax deductible.

Prior to joining this forum, I would probably have taken the approach of paying for the IP upfront but since joining, I get the impresssion that it is good to incur some "good debt" whilst I am working and generally move to no debt once I get closer to retirement which hopefully will not be past 2020.
 
Again my understanding from this forum, is that it is best to obtain maximal leverage for investment purposes. If I did not obtain LOC and I pulled out cash for a 20% deposit from the LOC, it would mean that the flexibility of this cash is lost. Whereas if I preserve the cash and place it in offset, I can still defray the interest costs.

Further more, at the moment, I am still working and hence the interest payments can be tax deductible.

Prior to joining this forum, I would probably have taken the approach of paying for the IP upfront but since joining, I get the impresssion that it is good to incur some "good debt" whilst I am working and generally move to no debt once I get closer to retirement which hopefully will not be past 2020.
Your maximum leverage would be obtained by taking a big hunk of your savings as a deposits, and then borrowing to increase your purchase power. $3M would presumably not be difficult to do.

I'm not saying that this is the most advisable thing to do. That would be too much with your level of confidence. I'm just saying that this would give you your "maximal leverage for investment purposes".

Hardly anybody in this forum would be in a cash position like yours, so leverage is necessary to buy anything.

While you would get a tax deduction for interest paid, you're still behind.

On $600K it would cost you about $6K extra pa, taking tax, interest paid, and interest earned, by taking a loan.

(Loan- 5.5% interest paid, less 50% tax deduction- your cost $15k
No loan- reduce your 3% interest earned ON $600k ($18k), pay less tax- your cost $9k).

Your circumstances are so totally different from just about anybody else that it's probably not worth your while to draw any conclusions from anybody here on how to structure your finances- including from me. You really need to see a professional investment advisor- one that likes property, one who charges a fee for service and not commissions, and one who doesn't try to sell you something from a new development.
 
China has it right in my view.

Use as much leverage as possible and keep as much of your own cash as possible. It buys you time in the event things turn to custard. Use the Loc for deposits and stick the cash in an index fund is another way or put the cash into an offset account for whatever loan you end up taking out. Using cash to buy property is a waste imo if you have the option of using leverage - even if the cash just ends up in an offset account it still gives you a lot more options....
 
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