Whilst the official RBA cash rate remains on-hold at 1.5%, you can expect investor rates to rise throughout the year to around 5% (discounted). Your risk profile will determine whether to fix, remain variable or split. APRA have upped the ante on all investor lending and want to especially cap interest-only lending. Whilst getting a loan may become harder going forward, this is the natural real-estate and business cycle unfolding and is actually bullish.
There’s too much upside potential when you consider national commodity prices are increasing; Malcolm Turnbull talking up free-trade with India (the new China); QLD, NSW and VIC posting budget surpluses; national unemployment below 6% and property price growth in every capital and major regional city except Perth and Darwin. Whilst some markets are now super-hot like Sydney and Melbourne, they weren’t like this back in 2009-2013 when Perth and Darwin were all the rage. It really is peaks and troughs and the aim is to identify and get ahead of that economic growth curve as best we can whilst balancing the factors of cash-flow, capital growth and risk.
Investor Education – Part IVA Tax Avoidance
Word of caution to be weary of investment groups that promote the allocation of rent from an investment property to pay down your owner-occupier (non-deductible) debt and in return receive higher tax deductions because you’re also using borrowed funds (and claiming its interest) to repay the interest on the investment loan. Whilst the ATO can’t tell you how to spend your rental income, they will disallow tax deductions and impose severe penalties if an arrangement is deemed to fall within Part IVA. If unsure, please speak to your accountant or get in touch for a referral.
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2million portfolio at 90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.
The best way to predict the future is to invent it – Alan Kay
From all of us at the Defencewealth Team, we wish you and your families a safe and happy Easter!