Pointers for cash investment

Question from Claire updated on 30th August 2013:

I have $80,000 equity in a house worth $330,000 (I don't live in it as I rent elsewhere). I now have $300,000 cash to invest and would like some advice. Should I pay off all the $250,000 mortgage and get a revolving credit to buy more properties? If so, how many investment properties should I look to buy? Two? Three? I should mention that while I'm on a good income now which could service three or four mortgages, I'm starting my own business next year so my income will be dramatically cut for a while. Therefore I'd get approved and buy the properties while I'm still employed fulltime. I'm thinking of the investment properties mainly in terms of growing the $300,000, but if I could get some positive cashflow that would be good too. Any suggestion or pointers appreciated. Thanks, Claire

Our expert Kris Pedersen responded:

Firstly with your current property I would recommend either restructuring the mortgage as a revolving credit and putting your cash in there to save on interest costs or you could use an offset facility instead. In regards to how many properties you should buy it isn't the number that matters but what you are trying to achieve from them. Note that the number of properties is quite irrelevant as someone may own 10 properties in a small town yet still have a lower overall asset base than someone with a waterfront Auckland property for example. You state that capital growth is more important than cashflow so ideally you want to stay away from the smaller towns and focus on the cities (not withstanding the earthquake risks at the moment) but keep in mind if you are starting a new business you may have periods where your cashflow is tight so you need to be careful about putting more pressure on with a negatively geared portfolio. Potentially look to lock rates in as well so you have some certainty around your payments

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz

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