New investors - I/O vs P & I and the lowest rate

uneducated, lacking will-power & discipline, and unsophisticated. Go get a mindset.
Good point @HUGH72, would be great to hear from a broker on whether P&I payments are now assessed more favourably.

 

Ok I presume they are though assuming most properties are in vic in current years there aren't that many suburbs that are positive geared even with a 20-30% deposit but again assumption could be there were bought 20 years ago.

 

This is an emerging concern of ASIC also.

 

Imo it all depends on the individuals own situation, goals, appetite for risk, aggressiveness and stage of their investment journey. I do believe there is no 1 way that fits all but I also believe that some (for whatever reason) structure things in ways which do not match their actual intentions/goals, which will affect their wealth creation.

 

IO restrictions will happen I think. ASIC have already expressed their concern and brokers should take care when recommending IO loans as it can be argued that this is not in the best interests of the client, especially where they suffer a financial loss because they have spent the money they would have been paying into the loans.

 

Because that is what happens sometimes. To say that people who get into trouble with IO do so because they're weak willed or hapless is a bit of "it'll never happen to me" syndrome.

 

The weak and willness need protecting from themselves!

 

I was reading about a firm called Mortgage Express in the UK that got into strife and had to get all mortgages off its books. Don't know if anyone else is aware but there's a couple of forums run by the mortgage holders. Sounded unreal, many couldn't refinance as the market had dipped and they had negative equity. I think its important to know about this stuff and not give out advice just based on good news stories and having experienced one boom.

 

Maybe true but should it be at the extent of the strong willed?

 

Maybe it'll depend on your credit score?

 

Sounds coincidental that I got an ip from the previous seller who I was told was forced by this group to sell their ip in shoreditch uk

 

Thanks Rolf & Terry w.

We're on an investment savvy forum. Although no one size fits all, that's the path taken by many and has been recommended also.

Regulatory changes will certainly impact the strategies and encourage positive cashflow focus as opposed to negative gearing.

 

I am a big fan of IO, but the finance world is changing and paying PI can also be a good option for some so I am doing a rethink on strategy in this area too, especially where there is no longer any non-deductible debt.

 

When we first started growing a portfolio I switched to interest only as it allowed me more borrowing power to grow a bigger portfolio and also develop. The market was picking up then and it worked well.
All loans are now P & I for us and we are focusing on paying down debt and creating more cash flow. Different market conditions.

Understanding market cycles is more important than being a "sophisticated property investor" who just accumulates properties at any cost.

Yes you need education.


Thanks Sana and Mona great to read about how other people have built their portfolio and it works in many different ways.

 

The same can be said about anything really. Where I work its all about stocks, I'm very very small minority who invests in property in this organisation. End of the day its what works for the person, just because "other" people do it, does not mean it suits a particular person.

Too many "professionals" (in the financial sector industry) try to fit their clients into buckets and push them towards particular items - I've been on both ends (you don't realise you are having things pushed to you until you start doing it to other people).

 

I have also been accused of saying the same stuff over and over again sometimes.


Problem is, investment fundamentals never change. Finance principles largely don’t change, investment strategies are the same and building wealth fundamentals for the most part don’t change.


So of course the same stuff will be spoken about over and over again, especially when newbies ask questions. There is no fundamentally 'NEW way', to invest with real estate.


Just my opinion.

 

If you do an advantages and disadvantages breakdown then IO really just leaves P&I for dead. It has numerous advantages versus the one disadvantage.
That said though, in the wrong hands that one disadvantage could be disastrous and it really is up to the broker/bank to "know your client". If your putting a client buying a PPOR through pepper then probably best to put them into P&I.
On the flip side if you have a client with a good savings record, and looking to buy an IP then I would be saying IO all the way.

My personal preference and at the moment am only holding PPOR is IO. I love cashflow and the concept of "my cash" when I need it.

 

A job the government has no business enforcing.

 

Yet they will continue to provide!

 

You have said this before Leo!