Best loan type of buy and hold property.. Investing in managed funds.

Discussion in 'Loans & Mortgage Brokers' started by Frank Manno, 30th May, 2017.

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  1. Frank Manno

    Frank Manno Well-Known Member

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    I'm going to get a loan soon to buy an investment property.

    I have some money that 'm going to invest in some managed funds.. LIC's and some blue chip shares for dividends, a mixed bag basically. .. . I am doing this for some yield and also to diversify.

    I'm chosing managed finds for yield over property because the Sydney property market is not good for rental yield and I'm too worried to invest outside of Sydney.. I am seeing a buyer's agent soon for advice so lets see how that goes but for now I was thinking, managed funds..

    I also have a deposit and want to borrow some money to buy an investment property and hold it for capital growth. Where, I don't know just yet.

    So the plan is, Managed Funds for income, Property for capital growth.. is this a good plan??

    In a scenario like the above is it best to go for an interest only loan? Or P&I? - I would like the rent to cover as much of the loan as possible because ideally I'm only interested in holding this property for growth as I have the managed funds bringing me income..

    So in this case would an interest only loan be the best option?


    -Frank
     
    Frank Manno, 30th May, 2017
    #1
  2. Shaneo78

    Shaneo78 Well-Known Member

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    Who knows if Sydney is actually at its peak, but I would think there is more risk in that market compared to other capital cities. You would get a better yield too looking elsewhere. If you are using a buyer's agent, this might make you feel more comfortable investing in another city? Worth investigating?

    I like LIC and index ETFs. Good threads on both of these here. One of the best books I read on shares was 'The little book of common sense investing'. Basically points out the insanely high fees of managed funds and the fact they rarely beat an index. Read before you buy into a managed fun
     
    Shaneo78, 30th May, 2017
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Can you afford PI ?

    ta
    rolf
     
    Rolf Latham, 30th May, 2017
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  4. Frank Manno

    Frank Manno Well-Known Member

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    I could afford P&I if I had to, but then I would be pulling money from my day job to fund the loan.. If it's interest only then the rent would cover the loan and I wouldn't have do worry about it.

    Considering my purchase is for capital growth I figured that Interest Only would be ideal.. ??

    Any advantages of P&I in this instance?


    -Frank
     
    Frank Manno, 30th May, 2017
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  5. The Y-man

    The Y-man Moderator Staff Member

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    Check out the other threads on IO ....
    1. it is getting harder to get and/or renew - so it may revert to P/I in 1 year anyway....
    2. interest rates are getting much higher on IO than PI now....

    The Y-man
     
    The Y-man, 30th May, 2017
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    unless you take a middle to long term IO loan NOW, like when would now be a good time :)

    I expect that variable IO rate will get very close to PI rate on comparable repayements withinthe next 12 mths

    while some will laugh at that............ the majors hold 40 % on average IO loans today, APRA wants that back to 30 %, the weenier "ethical, efficient,and S&P downgraded lenders" that make up the rest of lending will also crank up IO rates because they need to IF they are still in that market to contain the growth coming across from the big 4

    ta
    rolf
     
    Rolf Latham, 30th May, 2017
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  7. Frank Manno

    Frank Manno Well-Known Member

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    The intent rate on the IO loan is slightly higher than the P&I loan.. But the re payments on the IO loan are lower because there is no principle payment..

    I think I'm just concerned about how much the repayments are over month for the moment so that i don't have to pay out of pocket while I hold an investment property.

    But yes it will revert to P&I in 5 yeas anyway..


    -Frank
     
    Frank Manno, 31st May, 2017
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  8. The Y-man

    The Y-man Moderator Staff Member

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    I believe what @Rolf Latham is alluding to above is that by the end of the year, banks will raise the IO interest rates so much that you will have the same repayments as PI in any case.

    The Y-man
     
    The Y-man, 31st May, 2017
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  9. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    It will revert to P&I in 5 years, AND you'll now be paying P&I over 25 years instead of 30 (assuming you can't refi, which of course may be an option for you if your servicing isn't shot.)

    I would go IO now in most cases - there's no restriction to changing back to P&I if the IO rates get stupid, but much, much harder to revert to IO if you go P&I from the start.
     
    Jess Peletier, 31st May, 2017
    #9