First investment property- Loan and product advice

Folks,
After reading many suggestions /options I am really confuse now-

I am in the cusp of buying my first investment property , here is my scenario-
*rent-vesting , no PPOR
* Cash rich and good income with low outflow
* could easily buy and service 2-3 properties (400-500k sub) - planing to hold for long but may sell if market deteriorate in next 2-3 year , need flexibility
* Planning to buy two of them this year
* been advised to start with Tier 1 lender for first 5 properties with IO loan for 3 yrs period ( rate around 4.48 ), been categorically told not to consider tier2 -3 lender as it will affect you in long term ( as to start first with tier2-3 in start will affect if you decide to go tier1 later)

Q- Should i go with tier 1 with such high % ,where as CBA for ex again ready to increase .02-.04 basis points (and will go on i assume)
Q- should i partly fix and keep float some part
Q- would going P+I rather then IO (given the enviorment) make sense

Thanks .

 

I would go tier 2 to get a lower rate
80% lvr if plenty of cash
IO for 5 years or longer if serviceability becomes can issue later you can convert to pi.
Don't fix much if any as you can store your cash in the offset account

 

I don't understand this at all. One bump in the road and you will sell out?

Why pay money back when it sounds your plan is to just borrow more?

Only you can decide what is right for you. Having a variable loan for an offset is great. Having a fixed rate loan offers some cushioning if rates move up.

 

Sell if the market deteriorates in 3 years?
If this is your outlook for a buy and hold strategy then I would really consider choosing a different investment vehicle.

 

Hi there -

* been advised to start with Tier 1 lender

Who by? Are they experienced/trustworthy/know all your circumstances?

It depends very much on the details -what kind of deposit you're using, how many properties you hope to buy, what's your income is like, will you get married/start a family and so on.

If you're ever hoping to buy a PPOR, I would pay IO for as long as you can, and save into offset.

As others have said, think hard about buying and selling too much - property has very high transaction costs so you want to avoid too many ins and outs if possible.

 

Im looking at a ~500k loan from a big 4 w/offset. variable is 4.35% or i can fix for 2y/4.19% or 3y/4.39%

I'll probably split the loan and stick a good chunk in the offset with room to 'pay down more' over the next 2-3 years.

do people think the 2 or 3year fix seems a better option? i think i can comfortably add 300-400 into the offset each week.

 

So fix a portion of the loan, leave enough variable that you estimate you can offset during the fixed rate period.

For instance $400pw x 52 is $20k. If you fix for 2 years leave at least $40k variable that you can offset.

 

1 - any lender can increase their rate, CBA is no different. Tier 1 makes sense but so does Tier 2, IMHO. Would hold tier 3 until needed.

2 - if you fix part of your mortgage, there will most likely be high exit fees should you choose to sell. You mentioned you wanted flexibility. Fixing the rates is contrary to that.

3 - if your borrowing power isn't an issue (shorter IO terms help with that) and your money skills are decent (I.e. You don't need P&I as 'forced savings' in order to not waste your money), then the only reason that I could think of for an investor to pay P&I is the lower interest rate that some lenders offer on P&I loans, but this has other tax and liquidity consequences so it's a case to case basis decision, really (like most property related things, actually ).

Hope this helps?
Ethan