[David RyanParticipant@david-ryanJoin Date: 2022Post Count: 0]

October 25, 2022 - 8:26 pm

I stand corrected.

I thought I saw cheaper rates for individuals – perhaps because it opens up more options when it comes to lenders, e.g. fintech lenders such as tictoc who are competitive on price but lack features like loan splitting (and perhaps reliability etc).

[David RyanParticipant@david-ryanJoin Date: 2022Post Count: 0]

October 25, 2022 - 3:52 pm

I have been considering this strategy, as the recipient of a $1M inheritance and a borrowing capacity of $700K (I’m in the 37% tax bracket), since borrowing capacity is my limiting factor.

However, I am not convinced it’s the best strategy.

Interest rates are much higher when lending to a corporate trustee with an interest-only loan (vs. owner-occupier P&I). Currently it seems to be 4% vs 6% (ballpark) – and you’ll probably be assessed at 9%. When you’re paying that much interest (6%+) it’s even harder to find positively geared properties. You may sacrifice capital growth in order to achieve it by purchasing duplexes, units/small blocks, regional properties. But you’ll need to see some capital growth to make the leverage worthwhile. Otherwise you’ll have an under-performing asset, and there’s no point extending your borrowing capacity just to acquire more under-performing assets. You could stick it all in ETFs/REITs and get an average return instead. There’s no point investing your time and taking more risk unless there’s a prospect of higher than average returns.

(Edit: If you know what you’re doing, you can probably get cashflow positive properties with growth prospects. I’m just saying that being cashflow positive alone isn’t enough.)

You could invest some of your savings into other asset classes (shares, credit funds) to increase your cashflow and firm up your borrowing capacity. Not financial advice, but it sounds like you have the funds to get some.

• This reply was modified 1 year, 6 months ago by  David Ryan.