Investors cautioned about line of credit loans
Investors should think twice before taking out a line of credit against their home, a property mentor has warned.
While many investors opt for a secured line of credit to cover costs in their portfolio and unforeseen emergencies, Kevin Lee from Smart Property Adviser does not promote this approach.
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He said the average person may be tempted to overspend and get into unmanageable debt.
“I've seen so many people without the discipline to make a line of credit work that it's not productive,” he said.
“I don't recommend this for average people unless they are super disciplined and they don't use those funds for any other reason than an emergency.”
Rather, he recommended investors build up savings for “rainy day” situation.
“I’d rather they save themselves in an emergency by saving their money and putting it aside,” he said.
“If they haven't got the discipline to stay away from it, the best way to deal with it is to get a second signatory,” he said.
On the other hand, Brendan Kelly from RESULTS Mentoring said a line of credit could keep an investor’s portfolio afloat through crises illness or unemployment.
“If you're able to establish a line of credit against your own house or the houses in your portfolio, then you can continue to service your debt,” he said.
While maintaining your portfolio by amassing debt may not be a long-term solution, Mr Kelly believes it will buy the investor time to fix the issue.
“If you've got a $50,000 line of credit and you're chewing up $2,000 a month, you've got 24 months. You can probably solve the problem by then,” he said.
