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Discussion in 'Introductions' started by jackson888, 25th May, 2008.

  1. jackson888

    jackson888 New Member

    Joined:
    18th May, 2008
    Posts:
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    Location:
    WA, Perth
    Hey guys,

    Been lurking on here for awhile now and I must say its a bloody good forum.:D
    Just thought I'll post to say hi and see if anyone can give us any suggestion to our situation.
    Situation is missus and I are planning to buy our first house hopefully end of this year and will be putting down at least a deposit of about 40000.
    My question is would it be better if we put down 30000 – 35000 on the home loan and put the rest of the money into managed funds such as Navra which generate income quarterly or I’ll be better off putting the whole of 40000 into the house. Sorry for the newbie question.
    Yes, both of us do lack the financial side of things however we do plan to educate ourselves and hopefully this forum will guide us along the way.
    Cheers for all input

    Regards
    Jackson
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
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    Location:
    Sydney, NSW
    Jackson888

    It really depends on individual circumstances.
    What are you thinking of buying?
    Are you buying in Perth?
    I'd buy an investment property first and not a PPOR.
    I'd put down the minimum deposit required to avoid LMI (mortgage insurange)
    and to also ensure a low interest rate.

    Cheers
     
  3. jackson888

    jackson888 New Member

    Joined:
    18th May, 2008
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    Location:
    WA, Perth
    Hey BV

    The only reason why we are buying is because rental market in Perth are pretty tight right now and the other reason is we also have a dog so its pretty hard to find a rental property that allows dog.
    We will be buying in Perth and will be renting out the spare rooms.
    So is it better if I just put 40k deposit into the house and forget about the managed funds?

    Cheers
    Jackson
     
  4. Billv

    Billv Getting there

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    Jackson,

    That's what I' do, others would have a different risk profile.
    If you are able to put down 20% deposit you will also save the LMI.
    You will be saving the 9% interest (you'd otherwise pay) on any money you put down.
    I doubt that you will find a better and safer return than 9% after tax and particularly now with so much uncertainty in world financial markets
    and with our inflation on the increase, the risks IMO are higher.

    Cheers
     
  5. Young Gun

    Young Gun Guest

    have you thought about putting $40K off the house, then redrawing that $40K to invest into a managed fund. Then each year directing all income generated and tax rebates to your homeloan?

    it's called debt recycling and is a very popular strategy.
     
  6. Insan3

    Insan3 Active Member

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    Location:
    Cairns, QLD
    Is it still a popular strategy to do this and be charged LMI for essentially borrowing 100% of PP??

    And when you say redraw, I assume you really mean obtain a LOC, borrowed specifically for Investment Purposes?
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I only recommend doing this if you can get the bank to split the loan into two separate facilities (they will often do this - depending on the product) ... because otherwise you'll have mixed use of funds in the loan, since the original loan was for private purposes (PPOR) and the redrawn amount is for investment purposes. This can create real headaches at tax time.
     
  8. Young Gun

    Young Gun Guest

    yes a seperate LOC would be the way to go and this is still a very popular strategy.

    Your house is not an investment and devouting 100% of your surplus to repaying a mortgage will only lead to you being asset rich and income poor.
     
  9. Insan3

    Insan3 Active Member

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    Location:
    Cairns, QLD
    Young Gun, I must say when you made the suggestion I was completely against the idea, despite the fact I feel the same as you regarding Asset Rich/Cash Poor and the fact that a house is a Lifestyle item, not an Investment Asset. I was against because I see LMI as an avoidable charge.

    But after considering the idea...

    Borrow 100% Purchase Price
    Approx $10k LMI on a $400k house.
    Draw $40k out in a Tax Deductible LOC, Gain Tax Deductions
    Invest in Growth with $40k, aim for 10% - $4,000.

    so after 5 years, you could be up around $15,000 profit (Portfolio approx $65,000-$40k Dep-$10k LMI)....plus Tax Deductions.

    Is this your view? Please correct me where I am wrong - this has opened up my thinking a little :)