Forums / Getting Technical / Finance / 20% deposits 80% LVR

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  • Profile photo of tom123tom123
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    @tom123
    Join Date: 2013
    Post Count: 91

    Hello all,

    I’m just starting out and would like to know the pro’s and con’s of 80% LVR’s rather then 95% LVR (which i can get)

    biggest con i’ve noticed is my ROI is lower obviously with a low LVR.

    and it ties up a lot more money that i can’t use.

    As mortgage brokers and experienced investors, What are the pros with 80% LVR apart from that you have less hoops to go through and more banks will lend to you and no LMI.

    Are their any differences when trying to get equity out of a 95% LVR compared to 80% LVR, are their any clauses i should be aware of?

    thoughts anyone?

    Profile photo of Kinnon BellKinnon Bell
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    @kinnon
    Join Date: 2014
    Post Count: 151

    It depends on a few things like how aggressive you want to be, also your risk profile and what your goals are.

    90% can be a happy medium as any growth (manufactured or ‘natural’) your properties have you can redraw that equity out as 90% is the top-up limit for banks. That way you’re finding the balance between LMI and leveraging for on-going purchases. But, initially you could always go an 80% LVR and top up down the track to 90% and pay LMI then.

    If you want to purchase a few IP’s then you want to structure your lending not just with LVR’s in mind but also the serviceability ratios with the banks so you go to the less generous ones first then when affordability starts getting a bit tight you go to the more generous lenders.

    There’s a whole plethora of things to consider!

    • This reply was modified 5 years, 2 months ago by Profile photo of Kinnon Bell Kinnon Bell.

    Kinnon Bell | Kinetic Funding
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    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    Hi Tom

    It all comes down to how aggressive you want to be with your investing and what your overall plan is.

    You can buy more properties if going with 95% lends – the downside is the large LMI cost and high LVR (so if the property market takes a dip, you could find yourself in negative equity).

    If you’re young and looking at a long term buy and hold strategy for instance – then purchasing multiple IPs at higher LVRs is probably going to be a better option than one at 80%

    In regards to the second part of your question – equity releases at 80% are quite easy, at 90% they’re still usually ok depending on the lender and at 95% I probably wouldn’t bother. CBA/NAB might say they do them – but in reality, they’re not easy to get approved and are restricted to very tight parameters.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Profile photo of tom123tom123
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    @tom123
    Join Date: 2013
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    Thanks guys, much appreciated!

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
    Join Date: 2007
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    Hi Tom 123.

    Really good Question…

    Like anything there is always pros and cons… and it also comes down to what you are comfortable with.

    For me personally, I only like to borrow up to 80%… at a time..

    Give you a bit of room if things get tight out there.

    What area are you looking at buying in?

    Jpcashflow | JP Financial Group
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    Your first port of call in finance :)

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    If you have cash to put down and were thinking of going to an 80% lvr then why wouldn’t you go 100% lend with a TD collateral.

    Certainly the easiest way of accessing future growth in the property without the additional costs of LMI.

    At 95% the LMI costs start to become rather expensive and only deductible at the highest rate you pay Tax.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of tom123tom123
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    @tom123
    Join Date: 2013
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    how would i get a 100% lend? what is a TD collateral?

    Profile photo of tom123tom123
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    @tom123
    Join Date: 2013
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    Also Richard, I am wanting to purchase my first IP in a company / trust structure. i’m based in victoria if that makes any difference

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Hi Tom

    Why do you want to purchase in a company/trust?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of tom123tom123
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    @tom123
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    I’m looking to purchase neutral / cash flow from day one properties.

    why do you ask?

    Cheers, Tom

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Hi Tom

    No makes no difference at all.

    TD is Term Deposit.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    I’m looking to purchase neutral / cash flow from day one properties.

    why do you ask?

    Cheers, Tom

    Because too many new investors jump into overly complicated/expensive structures without truly understanding how they work and whether they’re suitable for their particular circumstances.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of tom123tom123
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    @tom123
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    well the way i see it, my mum has 5 negatively geared properties (capital growth properties)

    which she bought all in her own name. but for my own circumstances seems silly because after the first 10 years they will hopefully be neutral and then after 10 + years they will be cash flow so you will have to pay income tax rather then company tax. that was my thinking behind it.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Hi Tom

    Sit down with an excellent accountant and solicitor get some tailored advice specific to your current/future situation. There is more to consider here.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
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    I have to agree with jamie on this one
    Settup and maintenance fees might out the benefits.

    There are also pros and cons to both

    Jpcashflow | JP Financial Group
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    Profile photo of CatalystCatalyst
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    @catalyst
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    It’s good that you are thinking of your end goal but- Are you aware of the differences in costs along the way?
    There are differences in land tax exemptions and lots of other things.
    You may end up paying a lot more in the first 10 years to “hopefully” have a postviely gearedd property at the end. You may not even keep the properties long term, negating all the extra costs along the way.

    As others have said, do your homework.

    BTW- I would not be happy with a property that was negatively geared for 10 years. IMO that’s not a strategy that will see you retiring on rents any time soon. And I don’t put any cash in. I borrow ALL the costs.

    • This reply was modified 5 years, 2 months ago by Profile photo of Catalyst Catalyst.
    Profile photo of tom123tom123
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    @tom123
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    thanks guys for your replies, Catalyst 1 how do you expect to buy a property say in sydney or melbourne within a 10km radio from the cbd at todays price. and not have it negatively geared?

    also how do you borrow all the costs? are you just saying your buying below market value so you don’t have to put anything into it?

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    also how do you borrow all the costs? are you just saying your buying below market value so you don’t have to put anything into it?

    BY tapping into equity in other property.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
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    Why are the options just 80% or 95%?

    What about 88% and 90% (these are the thresholds where LMI skews)?

    Do the numbers on all 4 scenarios and then take it from there.

    TheFinanceShop | Elite Property Finance
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    Residential and Commercial Brokerage

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