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If you’re happy renting then rent where you want and buy an IP where it makes business sense can sometimes be the preferred option, as like you said, you then have deductible debt as opposed to non-deductible debt if you were to own your PPOR.
$34k isn’t as bad as I was envisaging. My comment on you credit report isn’t so much to do with payments but the credit hits every time you apply for a new card. If you have an over-active credit report the banks do like this so much. When you apply for a credit card it shows as a ‘continuing credit commitment’ and if you cancel the card it is not reflected on your credit report. The 6 balance transfers you have done – what time period is this over?
It’s in the banks best interests to grant as much lending as (responsibly) possible. The normal Joe will get the balance transfer and won’t pay it out within the specified time frame. This is how the banks make some of their money.
I have a slightly different mindset when it comes to tax. I agree in paying as little as legally possible but it also the more tax I pay means the more I am earning. So if I’m paying $200k a year in tax that means my income is also sizable. Paying $1 to save 50c in tax is a bit of a false economy.
Negative gearing has it’s place but if you’re looking at building a decent portfolio then you will be hitting serviceability walls pretty early on. If you’re looking at just a couple of properties (but buying IP’s is addictive!) then NG isn’t so bad as you usually get the capital growth to help offset the lack of cash flow. But if / when you sell you will more than likely be up for capital gains tax so they always get you in the end!
Other than reducing your tax paid do you have any other goals you’re hoping to achieve out of property?
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Hi DJ,
Are you looking to buy an IP or PPOR?
Doing balance transfers can do a lot of damage to your credit record when you apply for the credit cards. The low interest rate can be attractive but if you’re looking to purchase a property they can sometimes do more harm than good.
If the cards are on the higher rates of around ~20% most banks have a low rate card option. If you haven’t done so already swap the cards to a lower interest rate card. This isn’t a new application – it’s just a product swap.
You could also look into getting a debt consolidation loan, but generally the rates on personal loans are similar to low rate cards so other than the mental thing of knowing you only have 1 payment instead of a lot and knowing you can’t ‘spend’ the money again there’s usually not too much to gain.
Without knowing all your details the (low) 5% deposit + costs market is getting very tough to get in to and having a bit of consumer debt probably won’t help things.
I understand what you’re saying about prices but if I were in your position I would knuckle down and get rid of the debt ASAP then save for a deposit. The best time to buy is always 5 years ago.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Why these particular areas? Chasing CG or CF or something else – hard to make recommendations without knowing some of the details.
Have a chat to Corey Batt who posts on this forum. He from SA and knows that particular area better than the back of his hand and I’m sure he’d be happy to have a chat to you about it.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
I can only talk to what I would do in this situation. I wouldn’t accept it – there seems to be too many conditions and strings attached to the ‘gift’. It would always hang over my head and it wouldn’t feel like ‘my’ home. If I was happy renting where I was then I would stay there, as long as my partner and I are happy does it really matter if the in laws don’t approve?
IF I did take up the offer the only motivation would be to draw on the equity to fund other investment purchases.
But, that is just me.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Questions are good!
okay I’m gonna have a crack at this! so what you’re saying is that the loan repayments are made by paying the interest only? and the money for rent is split into two, one for future properties or for personal use, and the other half to pay the interest correct? I like to ask as many questions and understand every specific large or small detail so I know exactly what I’m doing so if it seems annoying I am sorry and I thank you for your patience! :)
When you have an investment property, instead of making principal and interest payments where you are not only covering the interests costs but also reducing the principal owed have your loan/s set up as interest only so you are covering the interest costs only and not reducing the principal. This will help with cash flow. Any spare cash you have place in an offset account. Preferably against your PPOR if you have one, if not (assuming you have no other non-deductible debt) then have an offset account attached to your IP.
Usually there are no easy ratios as to what portion goes to what. You get your rent (and assuming your IP is CF+) you minus expenses such as interest, insurances, land and water rates, PM fees, maintenance etc and what left over is the cream on top to do with as you please. If your rent does not cover these costs then you will have to dip into your own pocket and it turns into a negatively geared property.
No thank you this does help because every bit of information does count! My next question would be
A) how do you identify a possible negative or positively geared property
B) are you able to choose and property and positively gear it using strategies or not?A) Do the sums. Excel is good for that. Work out what the loan value will be and the interest charge for that amount (it’s useful to add a 1 or 2% to your sums as interest rates will eventually go up and you want to mitigate for as many things as possible. Then find out what all the associated costs are (some mentioned above). Find out what the property is renting for or could be leased at and minus your expenses from that. Is it in the green or red?
There are other things to consider too such as tax and depreciation but the above is a guide to help know whether to eliminate a property or investigate further.
Don’t forgot about capital growth in your chase for positive gearing though!
B) Yes. If it would typically be negatively geared there are some things you could do to help with the cash flow: renovate, furnish, short term or holiday letting, rent by the room, add a granny flat or rent out the garage or shed separately. I’m sure there’s more but they’re the ones I can think of at the moment and they all have their positives and negatives.
Hopefully this gives you some food for thought.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Ok great thanks heaps. I’ve purchased a couple of books to help me with investing. Generally how often do people buy properties to add to the portfolio?
It’s a tough one to answer as it’s different for everyone. It depends on your goals and risk appetite. If you’re planning on starting a family I would recommend keeping the risk fairly low.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
how it is possible to repay the loan for the property
You don’t! :) Keep the loan as interest only so you don’t pay principal down and that in turn helps with cash flow. Capital growth helps take care of the equity.
I haven’t heard of splitting the rent into thirds before. Unless your LVR is low or you are getting massive rents on the property interest costs would be more than 33% of rental income. Other costs need to be taken into account too such as water and land rates, PM costs, insurances, maintenance etc etc Maybe it’s splitting your wage into thirds?
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Some of the free website I frequent are:
http://www.investsmart.com.au/property – good for Capital growth figures, suburb demographics and make up
http://www.htw.com.au/downloads.aspx – monthly report on the state of the market for residential and commercial
http://www.suburbview.com/ a holistic view of all the real estate for sale websites
http://www.homepriceguide.com.au/ similar to investsmart
http://www.refindhouseprices.com/ How many days advertised and listing price history so if they’ve reduced the price since listing, that kind of thing.
http://house.ksou.cn/ Has sold prices and when
http://www.propertykeyword.com/ if you’re looking for a specific property type like ‘block of units’ or ‘renovators delight’ etc
http://www.sqmresearch.com.au/terms_vacancy.php rental vacancy rates
http://www.myrp.com.au/n/free-suburb-profile/myrp-545#LandingReport have a suburb profile report sent to you
http://www.abs.gov.au/ Data on demographics
+ each council / state website that has planned infrastructure and developments*Generally* brokers do not charge a fee for their service – they are paid by the banks when the loan settles.
Not sure about the Doreen area but Peter Tersteeg of Sage Lending Solutions http://www.sagelending.com.au/ based in Nunawading is a good IP savvy broker.
Don’t apologise for the questions – you will learn more if you ask!
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
An IP savvy broker should be on your go-to list. As well as a good accountant and conveyancer / solicitor – they can all help you achieve your end goal and set you on the right path
With this day and age there doesn’t need to be a face to face meeting but some people prefer it – it’s up to the individual with what they feel most comfortable with.
An accountant can help with the tax side of things and there’s some good websites out there where you can get all your raw data for your scenarios such as rental returns, avg CG, demographics, vacancy rates, infrastructure etc etc
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This reply was modified 9 years, 4 months ago by
Kinnon Bell.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
What else would you be wanting to use it towards?
I think the best way to go about things is to start with your end game and work back from there instead of starting almost blindly and hoping for the best.
Why are you wanting to invest in property? Financial freedom? If so, how much do you need or want? So now you have that figure what do you need to invest in to make it there? What average purchase price, per annum capital growth and rental yield figure do you need to get there? Once you have some rough figures you can then find areas and suburbs to fit that criteria. <– Hope that makes sense.
Is positive gearing common?
Yes, but negative gearing is too! I’m not a fan of spending $2 to save $1 in tax so I like to find properties that are at the very least neutrally geared. If not, then there needs to be something else about that property to compensate for the fact such as development potential, it will be a flip or outstanding capital growth.
Some people like to hold a balance of cash flow positive (CF+) and high capital growth properties in their portfolio because usually with the high CG properties you compromise on the rental return (there are some areas that are both, but carry their own risks). The CG provides the $$$ for the deposits on new purchases and the CF helps with the servicing of the loans.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
RE the LMI – makes sense. It’s usually capitalised onto the loan.
You’re correct with both scenarios. In the first example that is the preferred method.
You get an equity release as a separate loan or Line of Credit which is secured against your current PPOR. You then use those funds to contribute towards deposit and purchasing costs of your IP. Because it’s a separate split it makes tax deductability a lot easier if you have a PPOR and an IP as only costs relating to the IP would be deductible.
In the second scenario what you’re describing is what is called cross collateralisation (x-coll). This should be avoided as it can make things very messy and be a headache later on. Most of the time, it’s only the bank who benefits from this set up. This is how bankers (and non IP savvy brokers) tend to set up new loans for investments as it’s easier and less paperwork.
Go with the first scenario as this is what will benefit you and make things more simple for you down the track.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
he LMI is 10k and we pay $260 a month over 4 years for that but can pay it sooner if we wish.
I am a little bit confused by this – do you have a separate loan for the LMI charge?
If we only use the equity in this property to purchase another house will that void the LMI?
Not if you stay with the same bank. It’s generally called a ‘top up’. Depending on the LVR you started out with (95%, 90% etc) and the banks policy it’s fairly straight forward to draw out equity to the original LVR if it’s around or less than 90%.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
All good :) You’re asking questions and wanting to educate yourself so you’re off to a great start!
My guess would be is it’s principal in interest (P&I). This is where you pay the debt (principal) down as well as the interest that is charged. An Interest Only (IO) loan is where you don’t actually pay down the principal just pay the interest payments each month. This can be a tough mental hurdle to overcome as it’s in a lot of people’s mentality that all debt needs to be paid down. This is generally not the case with property investing. Cash flow is king and have an IO loan enables this. You allow capital growth to make the gap between the debt owing and the value of the property to grow larger.
If you have already paid LMI with your current loan then you will lose that LMI is you refinance to another bank so keep that in mind.
Is there a reason why you want to rent out your current principal place of residence (PPOR) and not continue living there and purchase a different IP? Does your PPOR make a good investment?
Make your PPOR loan IO as soon as you can, and any extra funds put into an offset account which will offset your homeloan balance in the sense that, say you have a $200k home loan and have $50k sitting in your offset then you will only be paying interest on a balance of $150k. Better than paying the principal down.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Hi Kirstie,
Are you paying principal and interest or interest only on your home loan? If it’s principal and interest then change it to interest only. This will help with cashflow and is generally what is done with investments.
Do you have any equity available in your house at the moment? What is the mortgage against it and what is it’s value?
Technically you don’t need to get landlord insurance but that premium, IMO, is well worth it. In the scheme of things it’s not much to pay to have the SANF that your property is protected and so are you should you need to make a claim, which eventually the odds are you will need to. It’s tax deductible and just part of the property investing expenses.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
If you have never been to an area it is handy to be on the ground and get a first hand experience for the feel of the area.
But in saying that I have made offers on properties in areas I have never been to – new-ish builds or old places that were going to be demo’d eventually so that cut out some of the potential risk of buying sight unseen.
A lot, if not all, of the DD can be done from afar as at the end of the day it’s a business decision and if it works on paper that’s the main thing.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
D) All of the above. But a solicitor and savvy accountant would be your first port of call just need to make sure each professional is a specialist in property investing and structuring.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Hi Ryan,
Few questions – how long have you been casual in the job for? What % of your income is from your PAYG work and what % is from your SE work? How long have you been self employed for?
What do you mean by ‘paid $15k paid off one investment’? And what would you call ‘large amount’?
$10k won’t get you too far at the moment – what price point are you wanting to buy in?
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
No worries.
Re the LVR and LMI – all it really comes down to is your risk profile and how aggressive you want to be as that will determine which strategy will fit best.
The 95% lend world is getting tough, particularly for investments.
There’s a LMI sweet spot around the 88% mark. In your example (with some big assumptions here) LMI on an 88% lend for a $350k prop would be ~$3900 whereas a 90% lend would be ~$6400 (but keep in mind these are very rough figures only to give you an idea of difference of 88% vs 90% would make). A portion of that would be tax deductible too depending on the time spent as PPOR to when it becomes and IP.
If you do an 80% lend then want to bump it up to 90% down the track you should be able to but depending on the bank they may impose extra conditions on you that they wouldn’t should you go in a LMI territory to begin with and preserve your cash. BUT if you do get an LMI loan to begin with then you’re tied to that particular bank in the sense that if you refinance to another bank and want to go over 80% again then you will be up for new LMI charges.
There’s a lot of variables at play so difficult to give a definitive answer.
Some things I have learnt along the way are to borrow money when you don’t really need it and maximise your deductible debt and minimise your non-deductible.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
I have about $100,000 for a deposit and am eligible for a first home buyers grant.
I also earn around the 70k p.a working as a contract carpenter.That’s a good start there, will give you a few options. Depending on the entry point and LVR you want to go you could even leverage that $100k for more than 1 IP.
Preferably I want to make my first purchase a solid base to grow my property portfolio on.
What would you recommend as the best way to get the snowball rolling?
Depending on your level of month to month savings, generally an equity play is the way to go so you can either manufacture capital growth or wait for it and use that to leverage to purchase the next properties. Cash flow is important too where you will need to find the balance as your income is still healthy but may start to limit you in terms of serviceability once you get in the thick of it.
Im thinking along the lines of purchasing a run down house (around 350k) as a first home buyer and living in it for 1 year then refinancing the property as an investment property and spending around 80k on lifting and renovating the property and renting it out as two flats/dual living
Get your finance right from the start as it saves you having to do an unnecessary refinance and another hit to your credit file. If you plan on making your PPOR and IP then start off with the mortgage being an interest only loan with an offset account to put your additional cash in. The interest only loan will also help with your cash flow whilst doing the renos.
Do your due diligence before purchasing the property to ensure you’re able to make the property dual occ and what is involved and whether it is worth it or not. It can sometimes be easy to over-capitalise with those sorts of things but it looks like you’ve researched your figures – always good to run some various scenarios and projections.
does this sound feasible and would it be best to sell and take the profit for the next project? or rent the property and borrow against it?
I’m usually a fan of buy, reno, hold and rent (and drawing on equity against the prop) as the buying and selling costs eat too much into the profits. I would only consider selling if there was an opportunity cost by holding or there was more $$$ in it than what there was holding over the long term.
even thought about building a spec home
You’ve got the skillset to do this and there could be some decent money to be gained from this as (I would assume) materials and labour would be cheap BUT there are also the pitfalls of this as you would be working for yourself and not deriving a wage from working on other projects then there’s the hurdle of owner builder finance too.
or buying a block of flats or small commercial even splitter block subdivision.
All these have their upside and pitfalls too. It’s a good idea to work out a strategy and work from that and find the properties that suit the strategy rather than being overwhelmed by options and purchasing something then trying to fit a strategy around it to suit your purchase.
I’m a fan of reverse engineering so set the end goal which (for arguments sake) is $5m portfolio with a 50% LVR in 10 years. So in order to obtain that I need to purchase X $300k properties that average X% capital growth p/a and have a rental return of X% per year. That’s just the big picture view but the details need to be worked out as well.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
No worries :)
It seems a little silly to sell it now after this long, with even a hint of improvements in the future – but having made losses each year its a little difficult to swallow.
Yes, it’s tough seeing it drop in price. I was able to ride the Melbourne wave in the mid 2000’s but still hurt when prices stagnated and dropped a bit in some areas around 2011-ish. Just starting to recover now which is good for my equity position! Seems like if you were to sell now you don’t really have too much to gain, whereas if you do hold on to it you may make back some of those capital loses.
By the sounds of it, seems like there’s no rush to sell. If it were me, I would hold on and re-assess in 12 months time once I’m back in Aust then look at things closely and weigh up my options.
I’m going to contradict myself here a little when I said ‘past performance isn’t always indicative of future performance’ by saying that property / shares / investing is cyclical. So there will be growth, and drops and troughs just need to ride it out and sometimes it takes a little longer than hoped.
Best of luck with your year to come and the goals you’ve set yourself.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
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This reply was modified 9 years, 4 months ago by
