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Using Equity to invest

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Newby | 03 Feb 2015, 01:00 PM Agree 0
I am looking at my first investment property and have more than enough equity in my home to obtain the loan. My question is as i have enough equity in my home the bank will loan me 100% of the purchase price of the investment property with none of my personal funds being used (except legal fees etc). I am not sure if this is the right thing to do or to add some of my personal funds to the loan to keep the investment property separate. Any help would be appreciated :) Thanks
  • Dean Collins | 01 Apr 2015, 04:43 AM Agree 0
    Get a LOC (Line Of Credit) on your PPOR (Primary Place Of Residence) and then borrow 80% for the new IP (Investment Property) itself, this way although you borrowed 105% you don't have to pay LMI.

    If you borrow this way you are actually financing 105% eg cost the stamp duty legals etc and all of the interest can be written off against rental income.

    It wont help with servicing the loans and even with an Interest Only loan on the IP you probably wont be able to service the debt just from rental income, but as long as you don't co-mingle the funds etc all of the interest will be tax deductible and able to be negatively geared against your primary income.

    My advice is borrow an Interest Only for the 80% against the IP and then pay down the 25% borrowed against the PPOR as soon as possible, this way by the time this is paid off you can then go an purchase a 2nd IP using the capital growth from your IP and PPOR and do it all again in 2-3 years time.

    Beware though......Sydney prices are NUTS at the moment, there isn't enough rental income to justify the prices being asked so don't lose your head and shop around wisely for a bargain where rental ROI is high enough to make it a smart investment.....otherwise I'll be the person purchasing it from you in a few years from now for less when you realized you over paid and cant afford to service your mortgage.
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