P&I or IO Loans?

When borrowing for +ve cashflow properties what are the pros & cons of using P&I versus IO loans?

I would imagine I would be using the buy & hold strategy in most cases – as I am primarily interested in the cashflow at this stage.

Also I just finished reading “Real Estate Riches” by Dolf De Roos last night – a HIGHLY RECOMMENDED book.

VERY IMPORTANT QUESTION COMING UP:…..

He suggests that you should try to add value to your IP ASAP and get a new valuation on the property. Then take the extra funds you can borrow as a result of this valuation, use part of it to pay for the improvement, and pocket the rest tax free.

For example, Dolf suggests getting a +ve cashflow property with a garage or carport. Pay to erect a carport for (let’s say) $1,000. If you get an extra rental income of $20 per week, your annual income would be $1,000.

The new valuation will capitalise the extra rental income at 10% giving you an extra value of $10,000. Lets say you can get a new mortgage using (let’s say) 70% LVR for $7,000.

You pay for the carport out of this loan money, and you deduct interest (say 10%). Dolf works out you are left with $6,000 (remember you have $1,000 extra rent pa).

And that $6,000 is not income as such so it is tax free!!!

Does that work in Australia?

As Dolf is an Aussie I imagine that is so. But I have heard of another American doing this, so maybe Dolf is just referring to the US as he lives there now (next door to Robert Kyosaki).

Thanks,

David Paxton
New Homes Consultant
Sterling Homes
0412 853 395