Buy Premium PPOR Strategy

LoE requires two things.
Endless growth. Over the long term, with a few assumptions, lumpy not smooth, probable.

Unlimited serviceability, refinancing and cashout. This is the part that is a problem.

 

The theory is to pay for the mortgage or Living expenses from your income and profits of the PPOR capital growth. let’s say you’re PPOR LVR is 50% and you unlock 30% of the equity sitting in 100% offset account against your loan for any use. your income pays for the living expenses and mortgage and if any shortfall from your offset account. if you had a bad year you would pay the shortfall from the offset and pay the extra interest as you increase your LVR.

in terms of the capital growth over few years it will increase in some percentage which will decrease your LVR. at the same time, you pay your principal and the loan is decreases or stay the same because of the shortfall.

We know that the property capital growth is safer investment as it keeps increasing compare to other investment options and the prove for that is the bank LVR 80% for property.

The Capita Growth multiplies percentage is increasing every year based on the property value and the percentage of CG i.e. 1yr 100k, 2yr 110k, 3yr 120k..etc this is where the Premium PPOR comes in as much as your value is higher your CG multiplies are bigger, this mean you will get to your goal quicker as long as you keep it for longer time and make the repayments. for serviceability to lower the risk for bad times you have the offset account as your backup but need to monitor as you go. you can see in my PIA screen how this multiplies percentage increase every year and the loan decreases, how fast you will reach your goal depends on the PPOR you choose (orange or lemon), CG rate and serviceability.

in term of living on equity, let’s say over 5 years you had shortfall and you had to take 100k from the offset but your CG increase to 500k you still gain 400k in equity and your loan has decreased or stay the same. let’s say you had a bad cycle and you made 200k CG profit Tax free, is that bad? as well keep in mind that median price properties in Sydney in 25yrs will reach 6m so 3m Premium PPOR can reach 6m in 10-15 years and if you took 2m loan you have 4m in equity.

To access the equity, you can sell the property and buy in the same price or refinance, the bank will revaluate the property again take % of the equity and put it in offset.

furthermore, to speed up the process you can use a combine strategy of Premium PPOR and Renovation. Buy un- renovated in a good area renovate, it will increase the value compare to buy renovated, stay at least one year so you established as owner occupier and then sell it and do it all over again, this mean in 10 years or less you can reach your goal. off course this strategy is not for everyone.

if plans go well and you paid your debt in 10-15 years you can use your offset for the living expenses against the equity gain and enjoy life. After that I will leave it for you…

This is just my theory not facts and depends in many variables and events and things might not go as plan. I’m not experience in investments just trying to think out-load and hear your thoughts.

Did anyone here used this method???

Thank you

 

cashing out capital growth hits serviceability walls at some point. Probably a couple of years after you stop working, when you have no way of going back to your old pay, and you are stuck with rising repayments.

Sure you have equity, but you have to sell to realise it. If you focus on ppor, you also have no other assets to sell.

You havent discovered some new thing, just an old thing you didnt know about. Loe was was a popular idea a couple years back, when loans were assessed on actual repayments only. Post apra.....

Any brokers want to say this is wrong, tell me, because i want to loe if the loans are available.

 

This is known as Living Off Equity or LOE. It might work once, but there are 3 major problems to overcome with this
a) Lenders generally will not allow a person to borrow money with no use - especially more than $50k these days,
and
b) to borrow again it will get harder and hard, especially where you have increased non-deductible debt, and age restrictions start to kick in too
c) the interest on the loan would also not be deductible


See this old post that I wrote:
5 Living Off Equity Strategies to Speed up Retirement 5 Living Off Equity Strategies to Speed up Retirement

 

People really expect 8% p.a. cap gains... Recent gains are due to lowering interest rates which can now only go up. Unless there is hyperinflation and maybe property can go up in nominal value?