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PPOR debt free... How do I set up investment property

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kezza | 27 Sep 2014, 05:03 PM Agree 0
We only have $10,000 owing on our PPOR and we are about to buy our 3rd investment property. What is the best way to set up the finances on this new property? We plan on paying out the PPOR so we will be completely morgage free from this one before we purchase our next investment. The new property will have a morgage of approx $430,000. Should this be set up as interest only (like the other two) or, as this will be the largest morgage have this as P&I with our funds sitting in an offset working against the morgage?
I'm at a loss as to how it should all be set up once your PPOR is paid off. Please help.
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  • Scarfie1 | 19 Oct 2014, 02:07 PM Agree 0
    Hi Kezza,

    I would recommend setting up the Investment loan as interest only and use an offset account. By going interest only you will be able to build funds in your offset account faster, and thus be able to get into you next investment property sooner. However, that is assuming you want to invest further. You can always do voluntary principal reductions if you want down the track.
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  • Mark Coburn | 28 Oct 2014, 05:17 PM Agree 0
    Hi Kezza,

    There are a few questions to consider.
    - What is the overall Loan to Value Ratio across your portfolio?
    - What is your overall cashflow position with the third property? are you cashflow positive or negative on the portfolio?
    - Your age is also an important factor.

    As far as P&I or IO, don't go P&I. Interest Only with a full offset account. That will give you maximum redraw and keep the bank's sticky fingers out of your portfolio's equity.
    P&I for after tax borrowings (PPoR)
    IO for before tax borrowings (Investment Properties)
    Do you have them all set up as stand-alone mortgages, or are they cross collateralised?
    If they are cross collateralised then you need some more advice thats beyond this open forum. PM me.
    Regards,
    Mark Coburn
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