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  • Borna Boltužić
    Participant
    @borna-boltuzic
    Join Date: 2015
    Post Count: 4

    Hi all,

    Long time reader, first time poster. Just like to firstly say thank you to everybody that contributes to this forum, i have picked up quite a few pearls along my journey!! :)

    I would like to ask what some of the risks of a higher LVR might be for an IP? And possible tax benefits, if any?
    Apart from the obvious of higher monthly repayments, LMI and possibility of a lender rejecting, what might some of the longer term risks be?

    My wife and i are looking at buying our first IP soon to hold for 3-5 yrs+ and in the meantime save for a PPR whilst accumulating more funds in our super to buy another IP later down the track.

    Thanks in advance!

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Hi Borna

    Firstly congratulations on your maiden post and hope it is the first of many.

    Other than the added costs involved in a higher loan to value and the possibility of negative equity should the property fall in value there is no real disadvantedge in putting a limited deposit on your IP.

    As far as potential Tax deductions the only additional benefit is the added interest deduction on the extra borrowing.

    Structured correctly there is no reason why you wouldn’t proceeed on this basis.

    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 PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    Hi Borna,

    As Richard suggests, you will have some extra costs involved with a high LVR purchase for an IP, however they are normally tax deductible .

    With the plan you are suggesting, it can be most beneficial to have as minimal a deposit on your first IP as your risk profile allows. Coupled with the right structure it will allow you to maximise any deposit for a future PPOR property, and maximise your tax deductibility down the track once the PPOR is purchased.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

    Borna Boltužić
    Participant
    @borna-boltuzic
    Join Date: 2015
    Post Count: 4

    Thank you!

    Just to clarify, you both mentioned increased interest deductions, are you simply referring to the fact that the negative gearing amount will be higher and therefore can claim a higher amount on my income?

    Another question, how would you structure the loan?
    We are leaning towards interest only, but would you split some i/o and some p&i?
    We have been quoted 3.99% 3 yr fixed by ME bank, what do people think about potential further drops in the cash rate and how they will affect i/r?

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    Thank you!

    Just to clarify, you both mentioned increased interest deductions, are you simply referring to the fact that the negative gearing amount will be higher and therefore can claim a higher amount on my income?

    Yes, the higher the interest, the higher the deductions against the income of the owners on title.

    Another question, how would you structure the loan?
    We are leaning towards interest only, but would you split some i/o and some p&i?
    We have been quoted 3.99% 3 yr fixed by ME bank, what do people think about potential further drops in the cash rate and how they will affect i/r?

    IP should definitely be all I/O, especially as you’re thinking of a PPOR down the track.

    Fixed can be good if you’re looking at a set and forget type loan, or for when cashflow might be a bit tight and you would like to know your repayments for budgetary purposes. If it’s to “beat the bank”, then in the majority of cases you would lose out.

    Fixed rates are also independent to the cash rate, and will rise or fall outside normal RBA cycles.

    You should really see a decent broker who can go through your whole scenario and come up with a structure to suit you.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

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