We are looking at purchasing our first IP and will be going to a lender in the next week or so.
We have mainly been looking at properties on the north side of Brisbane (Nundah, Northgate, Clayfield, Albion etc) as we are more familiar with this side of the city.
The problem I have is to work out what would be the best option and how much the bank actually can lend us. I would prefer a house or townhouse but I think that will be too much for us with repayments etc so we are leaning towards apartments in this area.
Looking at the numbers, if I have done the correctly, the LVR for the 3 Options below are very similar – does that mean that the bank will evaluate the loans required the same way?
Assumed borrowing Cost 20'
Town House: 940/1080 = 87% -> see below
House: 850/990 = 86% http://www.realestate.com.au/property-house-qld-wooloowin-109766126
Apartment: 710/850 = 84% http://www.realestate.com.au/property-unit-qld-albion-109163176The properties would be negative geared and when calculating the my weekly contribution it ends up being similar for the townhouse and the apartment but lower for the house due to it not having any Body corp. Not sure though that a house might have a higher maintenance cost.
Salary 1: 100'
Salary 2: 45'PPOR
Value: 540'
Mortgage: 380' (Offset account)Town house option (in the same estate we live in)
Townhouse in Hendra
Purchase price: 540'
Possible rent: 600pw
Body corp: 900 per qtr
Rats: 300 per qtrAny comments or suggestions would be much appreciated.
Thanks,
johk
What LVR do you need?
Which do you think will show greater capital growth?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi,
The lower the better
But doesn't the bank generally req a LVR under 80% to avoid LMI which would be preferable.Thanks,
johkHi,
The Townhouse was sold for 595’ before the GFC but I think the house in Wooloowin might have more potential over 5-10 yrs. Similar house in Clayfield, which is the neighbouring Suburb, are around the 700’ mark. This particular house might be on the wrong side of Wooloowin ie closer Kedron and Lutwyche. Wouldn’t mind having a second opinion about it the location of the house within the suburb by someone who has more experience of north Brisbane. Also, I am not sure how the rental demand would be for a house like that in Wooloowin.The advantage of having a house though is that you don’t have to worry about Body Corp fees going up.
The townhouse is in a bigger estate with townhouses and houses. The demand is very high in the estate for rental properties and Body corp managers who handle some of the rentals make sure that when there are a changeover of tenants it happens over day ie you don’t miss a day of rental return.
johk
For a sub-80% lend it’s much easier to get finance and the type of property isn’t that relevant. Now all you need to decide is which type.
I know both properties and wouldnt have an issue with either.
The house has a small land area and not ideal for Capital Growth and the small garden will need to be maintained which comes at a cost.
Remember the Body Corporate fees will cover the Insurance of the property and this is something that you will need to do anyway with a freestanding house.
It would depend on who is managing the BC as to whether i would consider the Townhouse. There are a couple of BC's i can think of i woulldt trust as far as i could throw them. ($900 / quarter seems expensive so i would want to see the last Annual Minutes)
You mention that you will be looking at an 80% lend. Where is the balance of the purchase price and acqusitions costs coming from?
I am assuming these will be borrowed so you need to make sure you structure the loan correctly. I assure you your Bank wont be encouraging that as it is not in their best interest.You also dont appear to have factored in any Depreciation / Capital Allowance. Whilst i would never buy a property purely on the Tax breaks they do need to be considered as they will effect your cash flow.
More hard data would be needed to compare like wiith like.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi,
I have attached 2 spreadsheets for the House and the townhouse where i have tried to outline the cost etc
House http://www.bohemiadesign.com.au/bohemia_clients/House.xls
Townhouse http://www.bohemiadesign.com.au/bohemia_clients/townhouse.xlsWhat I can’t get my head around is comparing to an apartment – the total “out of the pocket” expenses per week are similar.
I guess this is what you have to decide – have a greater debt with a possible greater return or a smaller debt with a lesser return.Johk
After reading a few articles etc one loan structure would be:
Loan 1:
Interest only Secured by IP 310*0.8 = 248’
Loan 2:
Line of Credit for the additional 20% and purchasing cost and negative gearing secured by PPOR
Interest for loan 1 is debited to Loan 2
Rental income is paid to Loan 2If I understands it correctly with the above structure you can’t use the IP as a ‘tax benefit’ – not that that is the reason for us purchasing an IP.
Also, how do you calculate the required Line of Credit or would you use the whole PPOR for it (not preferable)?
Am I right assuming that with the above loan structure we wouldn’t be able to purchase the townhouse or the house as there wouldn’t be enough “value” left in the PPOR?I am sure I will have a few more questions as I go through this.
Thanks for your comments.
johk
I wouldn't do it like that myself.
You would be borrowing to pay the interest on line 1. Although you would be putting the rent into loan 2 there would still be a shortfall – probably.Have a read of TD 2012/1
http://law.ato.gov.au/atolaw/view.htm?docid=%22TXD%2FTD20121%2FNAT%2FATO%2F00001%22Get tax advice before you act on your structure.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Agree with Terry personally would be doing it that way but i guess that is upto you and the advice your Bank / Mortgage Broker is giving you.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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