We live in Melbourne and own our home. How do I protect our home if we invest in property?
This is a really important question and a common concern. One of the first things I would say is don’t cross-collateralise. What does that mean? If you walk into a bank, and say that you want to invest in property, they’ll often recommend that you secure the investment loan against your home – providing your home as security. You don’t need to do that.
Secondly, release your equity first. By releasing your equity first, through what we call a Master Facility, you will be able to cover all the deposits and cost to buy an investment property but structure what we call standalone finance. That means you don’t have to give your home as security for the loan on the investment property. The other reason why you release your equity first is because it leaves plenty left over for what we call a buffer – approximately $20-$40k. That’s money just sitting in that account, purely for the investment property. For example, if the property becomes vacant, the mortgage still needs to be paid and you don’t need to fund these payments yourself – it comes from the Master Facility.
Thirdly, depending on your circumstances, you might also want to consider neutral or cash flow positive properties. That is, the rental income and tax credits cover all the costs. Therefore, you don’t have to find the funds yourself.
What we’re talking about in these last two examples is cash flow management. The only time your home or your investment properties are going to be at risk is if you’re not in a position to cover the interest payments on the loans. If you’ve got buffers, standalone finance and target properties with neutral cash flows, you’ll eliminate a lot of those problems.
Of course, this information is general in nature. If you’d like tailored information, you can book a FREE 1 on 1 session here – specific to you and your circumstances.