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It's taken two and a half years so far. Three or four more won't matter.
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.
I thought most people bought an IP and then joined the forum
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.
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.
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%.
I don't reckon you ever will.I haven't drawn upon the LOC yet as I have not found the right IP to purchase.
It doesn't have to be with a different lender necessarily.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.
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 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 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 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.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've heard it said that one should do research on 100 properties, make offers on ten, and buy one.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 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.
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.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.