Investment Strategy

Discussion in 'Investment Strategy' started by Smokenbenny, 29th Mar, 2022.

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interest only or principle and interest

  1. interest only

    33.3%
  2. principle and interest

    66.7%
Multiple votes are allowed.
  1. Smokenbenny

    Smokenbenny Member

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    Hey guys and gals, this question has probably been posted a million times (although I cant seem to find them). I have a deposit for an IP this would be my first ever property and my goal is to keep investing until I can one day retire/semi-retire or at least have the option. currently earning 75k per annum with yearly increase, overtime, bonuses ect. my expenses are low and I would be able to save most of my income. I would like to know how you would begin investing in this situation and how you would structure everything? taking into account the loan (P&I or IO), offset accounts, first home buyers scheme, purchasing through trusts, business or personal ect. Id like to build a portfolio that meets this goal in as short amount of time as possible, I know property isn't get rich quick, what I mean is when it is possible. Hopefully this post can help others that are in a similar situation as there is so much information out there, it's easy to get caught up in it all.
    Cheers.
     
    Investor1111 likes this.
  2. kmrr

    kmrr Well-Known Member

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    Put cash into an offset ILO paying down debt. you'll have more flexibility to do with your cash what you want instead of asking the bank for it back.
     
  3. Investor1111

    Investor1111 Well-Known Member

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    Agree wtih this. Im of the opinon you want to have I/O loans on all property during your accumulation phase, until you achieve your asset base and happy with the net passive income generated from this. Parking money into an offset account against your PPOR / IP debt like kmrr menitioned to keep a buffer in place / claim interest repayments against your taxable income / reduce your monthly repayments.

    As far as buying properties in trusts / personal name. Both can work depending on your finanacial situation. Can help with BC in certain situations and more importantly protect yourself against litigious situations that may come about through job / work liffe. To control everything, and own nothing. Will ask my accountant / broker to see if buying in trusts will be beneficial for myself in the future aswell.
     
  4. Alex AB

    Alex AB Well-Known Member

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    I would agree with doing IO only and put extra in offset while you are starting and need capital to buy more later. However, check these two points as well for your case:
    1. Are you going to run into DTI cap soon? If you do, then might need to reduce debt. if so, PI might be worth thinking about
    2. Rates difference between IO and PI loans? Used to be a small difference but seems getting a bit bigger.
     
  5. Smokenbenny

    Smokenbenny Member

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    Thank you all for the great advice I might be mistaken but from what I remember an offset account can be linked to multiple properties at the same time, so it would reduce the interest on all loans by the amount in the offset account is that correct? And Alex AB, in regards to DTI is there anything I can do early on to help besides switching to P&I. Thank you everyone appreciate the knowledge.
     
  6. Smokenbenny

    Smokenbenny Member

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    My mistake only one per loan
     
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  7. Investor1111

    Investor1111 Well-Known Member

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    Getting rid of all non income producing debt is always the best place to start. Clearing off all car, personal loans,ect. These debts carry a mutiple and reduce your BC from 6-10 times for every $, depending upon the policy of the lender. Banks will reduce BC by a x6 multiple on the credit card limit, regardless of the current balance or wether you pay in full every month. :cool:
     
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  8. Smokenbenny

    Smokenbenny Member

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    Thanks mate, no personal debt, car loans ect and would like to keep it that way. The only thing is I don’t have a credit rating at all. Would that be a huge factor or not really?
     
  9. Investor1111

    Investor1111 Well-Known Member

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    Only a problem if there are bills outstanding in your name and credit agencies report this on your file. I use this one when i checked my credit score, creditsavvy.com.au
     
  10. Mezza

    Mezza Active Member

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    All sage advice provided. When I started, all loans were IO until I hit the BC ceiling. To keep going I needed to reset loan life’s and covert to PI. These allowed the next purchase.
     
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  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Why one or the other?
    You could split the loan and have one split IO and one PI
    The IO would have a higher rate, but you could have an offset attached to this and save into that. This would greatly improve cash flow.


    The other split would be PI at a lower rate so could save interest.

    Another option is to split and have both IO and you can change one to PI later if need be.
     
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  12. Smokenbenny

    Smokenbenny Member

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    Thanks again everybody!
    Investor1111- I haven’t had any loans or anything borrowed so no outstanding debt. Cheers mate.

    Terryw- just watched your podcast on Spotify mate thank you for providing in depth information. Splitting the loan seems like a great idea, are there any downsides to this? I haven’t had a look into splitting loans yet. Thank you
     
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  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Some lenders could charge extra for a second loan split potentially - but i can't think of any off the top of my head
     
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  14. Investor1111

    Investor1111 Well-Known Member

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  15. Smokenbenny

    Smokenbenny Member

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    would this need to be set up from the beginning (half IO half P&I for example or split but both IO) or is it something I can do at any time?
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You could do it down the track, but changing to PI from IO will generally require a new application whereas changing from IO to PI won't.
     
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  17. kmrr

    kmrr Well-Known Member

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    on the topic of splitting loans, i've split one of mine fixed/variable. the variable portion is a higher IR but was the max i assumed i could offset over the fixed period. i save a bit on interest this way because the over and above of what i didn't think i could offset is being charged a lower IR.
     
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  18. igor1234

    igor1234 Well-Known Member

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    all our investments were always P&I but our limitation wasnt CF. advantage is u get better rates and banks happy to land u more. its also some sort of safety net if after decade your investment didnt move. rare but happens.
     
  19. KVC

    KVC Well-Known Member

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    Hi please share whats P&I and CF. tnx
     
  20. The Y-man

    The Y-man Moderator Staff Member

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    P&I = Principal and Interest
    CF = cash flow

    The Y-man