The Kitty loan system

Viewing 8 posts - 1 through 8 (of 8 total)

pjstew
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@pjstew
Join Date: 2011
Post Count: 3
November 23, 2011 - 11:05 am
Hi All
I’ve having been reading a lot about the Kitty loan system were you basically borrow extra money from the bank to cover your out of pocket expenses/short (negative cash flow) which can then be claimed via tax?
Im wondering Is there anyone out there who is using the kitty loan system as I would love to here your thoughts about
How you set up your loans?
Where you got help/ideas from?
Any lessons to be learnt?
What work well? What didn’t ?
What would you do different?
Any thoughts and comments would be greatly appreciated.
Thanks
Richard Taylor
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@qlds007
Join Date: 2003
Post Count: 12,024
November 23, 2011 - 11:13 am
Loans are set up using a series of LOC's or similar (Equity loan and an IP) and will not be accepted by every lender.

Set up obviouslty depends on the available equity you have in your portfolio.
Will respond on the other points later on as processing a couple of loans as i type.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
pjstew
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@pjstew
Join Date: 2011
Post Count: 3
November 24, 2011 - 5:43 am
Richard if it makes things easier I have a home worth 500K and outstanding loan of 300K.
i look forward to your comments.
Paul
stefk
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@stefk
Join Date: 2011
Post Count: 2
November 24, 2011 - 8:40 am
My experience with kitty loans has been negative. You never get out of the whole that you are in and not worth the attempt.
Catalyst
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@catalyst
Join Date: 2008
Post Count: 1,404
November 24, 2011 - 9:59 am
pjstew wrote:
Richard if it makes things easier I have a home worth 500K and outstanding loan of 300K. i look forward to your comments. Paul
You could get a LOC for $100K. Just be sure to keep it for investment only. If it's used for both personal and investment you may have trouble claiming tax deductions.
I also have another small LOC which all monies go in and out (ie rents go in, bills go out). It makes accounting easier.
I use my LOC for deposits and purchase costs on properties. That way you just get an 80% loan for the purchase (which saves Mortgage Insurance LMI) which is a stand alone loan (ie not crossed with your home).
pjstew
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@pjstew
Join Date: 2011
Post Count: 3
November 24, 2011 - 10:20 am
Catalyst,
Thanks for your comments. In terms of your LOC – is LOC able to be obtained from a different lender to my current home loan? I’m trying to avoid re financing.
Do you use your LOC to make up the shortfall ( rent in V loans interest)?
I guess my concern with this kitty method is what Stefk is saying – you never get out of a hole until the home becomes positively geared.
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
November 24, 2011 - 11:22 am
You will have to take the LOC from your existing home lender.
I would then take the new IP loan with a separate lender.
Totally agree that the saving is marginal and if you get in deep with nowhere to go then you can't call for a spade to dig yourself out.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Catalyst
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@catalyst
Join Date: 2008
Post Count: 1,404
November 24, 2011 - 8:45 pm
pjstew wrote:
Catalyst, Thanks for your comments. In terms of your LOC – is LOC able to be obtained from a different lender to my current home loan? I'm trying to avoid re financing.
You don't have to refinance. Just get a LOC from the same bank (they have the deeds so you can't use that property with another bank). As mentioned- get the new stand alone loan with another bank if you like. I like to have a few with one bank so I can get 1% discount.
pjstew wrote:
Do you use your LOC to make up the shortfall ( rent in V loans interest)?
Yes but I'm CF neutral now so no longer need to. I used to top it up as needed.
pjstew wrote:
I guess my concern with this kitty method is what Stefk is saying – you never get out of a hole until the home becomes positively geared.
Well I don'e see at it as a hole (but it depends what you buy). Sure you may be CF- but if you buy right that won't be for long and you should have extra equity in your purchase. I buy, reno, hold. I vuy places under market value and add value by reno. This also increases the rent to where they are CF neutral or positive. I don't need to but if I wanted to I could revalue the property and up my loan then take the money back out and put it back in the LOC. With this strategy you can keep buying forever. As soon as one house is finished I get approval for the next.
I don't believe in buying a negatively geared property and hoping for CG. That's where you could get yourself into a hole as you would be paying money out of your pocket each week and going backwards.
If you don't use the LOC where will you get the deposit? If you have to save for a deposit each time you will nevber get beyond 2 properties. You need to change your thinking about using other peoples money. I've borrowed all the money from banks using LOC and loans. I had no cash. But with good buying and adding value through reno and CG I'm not highly geared.