I am wondering is this still relevant advice and would the bank entertain giving 100% loan for investment property: taken from Key Post: Interest only mortgages for investment property
Last edited by a moderator:
Brendan - Property Investment advice 2004
- Thread starter ccbkd
- Start date
I am wondering is this still relevant advice and would the bank entertain giving 100% loan for investment property: taken from Key Post: Interest only mortgages for investment property
Brendan Burgess
Founder
- Messages
- 52,270
The rates are out of date, but the principle is the same.
Over the longer term, equities should outperform property. The only advantage of investing in property is that you can get tax relief on the borrowing.
If you are going to invest in property, you should borrow the maximum allowed.
You can still borrow 100% of the price of an investment property if you have other properties on which to secure the loan.
Brendan
Over the longer term, equities should outperform property. The only advantage of investing in property is that you can get tax relief on the borrowing.
If you are going to invest in property, you should borrow the maximum allowed.
You can still borrow 100% of the price of an investment property if you have other properties on which to secure the loan.
Brendan
Z
z106
Guest
I certainly wouldn't say the 'only' advanatge.
There are a lot more differences between property and equities than that.
Far too simplistic surely.
Brendan Burgess
Founder
- Messages
- 52,270
You are quite right. There are lots of other advantages.
Calls in the middle of the night to fix broken lights.
Evicting problem tenants.
Taking legal action to recover unpaid rent.
Registering with the Tenancies Board
I am sure I am leaving some out.
Brendan
Calls in the middle of the night to fix broken lights.
Evicting problem tenants.
Taking legal action to recover unpaid rent.
Registering with the Tenancies Board
I am sure I am leaving some out.
Brendan
Z
z106
Guest
Well one disadvantage of equities is the volatility.
Assuming that someone wants to make a levarged investment, the volatility of equities completely diminishes the power of leverage as it results in margin calls depending on how leveraged you are.
(If you are buying equities outright compared to a leveraged property investment then it definitely doesn't compare.)
Assuming that someone wants to make a levarged investment, the volatility of equities completely diminishes the power of leverage as it results in margin calls depending on how leveraged you are.
(If you are buying equities outright compared to a leveraged property investment then it definitely doesn't compare.)
Z
z103
Guest
How would a basket of equities across all types of industries and countries etc be less volatile than just investing in a property, where the risk probably isn't spread at all?
With this in mind, a lending institution would look more favourably on the amount paid of an existing mortgage rather than cash deposit on investment property, i.e as an investor you would be better advised to try and pay of existing PPR mortgage rather than saving money for a deposit on another investment which you should try and borrow as much as possible to gain write-offs on tax?
I would consider this to be bad investment advise Brendan.
This could be a disastrous investment strategy
An investor who borrows the maximum allowed to purchase a number of investment properties could subsequently suffer longer than expected void periods. If they do not have sufficient cash or other liquid assets to pay the mortgages they run the risk of losing their whole property investment portfolio.
A serious investor should NEVER borrow the maximum they are allowed by the banks they should borrow the maximum they can afford to repay. They may be the same amount but they most certainly not the same thing.
I'm sure by maximum he means as close to a 100% mortgage as possible(the correct strategy for property investment imo), not borrow as much money as he you can get your hands on.
ubiquitous
Registered User
- Messages
- 3,782
100% mortgages and interest-only mortgages are grand if you believe that the value of a mortgaged property will never, ever fall below the amount you have paid for it. Otherwise they carry an inherent risk of negative equity, that in my mind is best avoided.
Brendan, I see two ways of interpreting this statement. If you've decided to buy property you should either
1. leverage all your assets to borrow the maximum amount you can
OR
2. decide how much makes sense for you to invest and then maximise the tax efficiency of the investment. Under current interest offset rules this would mean borrowing the full cost of the house, even if you have to secure it on other assets.
I assume 2. is what you are recommending rather than 1.? The context isn't completely clear from this thread.
The support group for non homeowners is calling your advice into question
http://www.thepropertypin.com/viewtopic.php?t=12873
http://www.thepropertypin.com/viewtopic.php?t=12873
Brendan Burgess
Founder
- Messages
- 52,270
Hi Mugs
I was not and I don't recommend investing in property.
It's too much work. The returns are not as good as equities. There is risk - which people see now in retrospect, although when this was pointed out a few years ago, a lot of people said "property never falls in value".
However, if you are going to invest in property, which I don't recommend, then you should borrow the maximum allowed by your bank.
If you were investing when the rate was 2.5% it was because you expected a long term return in excess of 2.5%.
If you are investing now when you can get a risk free rate of return of 5% on cash, it must be because you expect that you will get a long-term return in excess of 7%. If you believe that, then it makes sense to borrow at 7%.
Of course, it makes sense to pay off all other loans such as the mortgage on your PPR first.
Brendan
I was not and I don't recommend investing in property.
It's too much work. The returns are not as good as equities. There is risk - which people see now in retrospect, although when this was pointed out a few years ago, a lot of people said "property never falls in value".
However, if you are going to invest in property, which I don't recommend, then you should borrow the maximum allowed by your bank.
If you were investing when the rate was 2.5% it was because you expected a long term return in excess of 2.5%.
If you are investing now when you can get a risk free rate of return of 5% on cash, it must be because you expect that you will get a long-term return in excess of 7%. If you believe that, then it makes sense to borrow at 7%.
Of course, it makes sense to pay off all other loans such as the mortgage on your PPR first.
Brendan
ubiquitous
Registered User
- Messages
- 3,782
Its hard to believe that anyone should base their investment strategy entirely on what their bank tells them or offers them. I thought that that would have been obvious given the fallout from the recent banking excesses worldwide.
Z
z106
Guest
I think you may be a bit pedantic there.
I think it is reasonable to assume that Brendans underlying assumption is that the person has firstly done their figures and reckons they actually can afford the debt. (Be it through owning other assets or through salaries or whatever)
I think it is highly unikely that he is suggesting that someone should borrow excessively just for the tax benefit even though they can't afford the debt.
My original reason for posting this was an attempt to fish some information for investment strategy, I have a sum of savings which I wish to invest Long Term, but I am undecided as to what to do with it, I was thinking of maybe using a small portion of it to pay off PPR and remainder in Blue Chip Shares, or either take a punt on investment Property at home in falling market or maybe abroad, but reading Brendans remarks about 100% borrowing would suggest I would only need money for legals and stamp.. but on the flipside I was also considering that if I did pursue objective number 1 i.e lump sum against mortgage and shares the Bank would consider this as leverage against investment property - I suppose its a strategy that needs a little more thought or feedback!
Brendan Burgess
Founder
- Messages
- 52,270
Hi cc
It might be better to post full details in the Money Makeover forum.
I have always stressed that one should not make financial or investment decisions in a vacuum. You must look at your overall position.
Borrowing to invest is always risky. As a general principle, borrowing to invest in property is less risky than borrowing to invest in shares. Many would believe that this general principle does not hold in the current market conditions. In other words, despite the tax advantages, it might be safer to borrow to invest in shares than property, at this point in time.
Brendan
It might be better to post full details in the Money Makeover forum.
I have always stressed that one should not make financial or investment decisions in a vacuum. You must look at your overall position.
Borrowing to invest is always risky. As a general principle, borrowing to invest in property is less risky than borrowing to invest in shares. Many would believe that this general principle does not hold in the current market conditions. In other words, despite the tax advantages, it might be safer to borrow to invest in shares than property, at this point in time.
Brendan