Hi Everyone,
I would like to know, should I buy a second IP or pay off my loan on the property I have first?
I owe $155k and get $826 p.m rent out of which comes management fees, body corporate fees etc. before any goes to the loan.
I have been making occasional lump sum payments but wonder if its worth it, and whether I should get another +CF property at this stage or concentrate on this one ONLY?
Trisha[blink]
what is the value of the property?
Trisha
You will need to define your investment goals in order to determine why you are investing in the first place.
For most it is to achieve financial independance. The you will need to define what financial independance means to you. For some it could mean an income of $40kpa and for others it could be $200k or more.
For an income of $40k you will need around $800k in net assets. If you use borrowed funds to achieve this and have a gearing ratio of 50% then you will need a property portfolio of $1.6m in todays dollars
Therefore once you have a plan then the rest will be easy.
Regards,
Sailesh Channan
http://www.developersedge.com.au
“Helping you select, develop and profit from property”
1300 73 5934
trisha,
It depends on many things…
* how much equity do you have?
* how much serviceability do you have? (you may have 100k equity but you’ll still be borrowing that 100k anyway)
* are you on a P&I loan? or an IO loan? How long will it take to pay your current loan off?
* how negatively geared are you?If it is going to take you 20-odd years to pay this loan off, unless you want to work for wages, you’re better off buying more property… but noone can advise you unless they walk in your shoes.
Perhaps get a financial consultant/your accountant/a mortgage broker/someone with finajncial savvy who you can trust… to discuss your personal situation.
kay henry
You could pay off your first property and then take out a LOC on it at a smaller interest rate than your current mortgage and invest with that. I’m not sure how this would fare with X-Coll but it could be an option to help you move forward.
Good Luck…G7
I think the simplest way to answer this is to analyse where your money is working hardest.
EG: loan interest rate = 6.5% then every dollar you pay off the loan is effectively earning 6.5%. If you have an internet only account earning 5.5% every dollar should go to the loan in preference to the account as you will get more out of it. If you add to the equation the opportunity to buy another property earning you 20% on your money (by whatever means) then obviously you are better off buying the second property.
Generally speaking what tips the balance for me is the consideration of cashflow vs paper profit. By that i mean I bought a house that is returning about 40%, but that’s a mix of CF and CG (so it’s 40% unrealised profit). At the moment I am happy with that as I have a job that pays me and i don’t need the cashflow to live. My plan however is to sell a couple properties to cash in and buy a PPOR outright then build up my equity again to provide replacement CF so I don’t have to work any more (though I’ll still be putting effort into making money, it will be for my own benefit and fun).
If you want/need CF then pay out the laon at least until the point where rent excedes expense. However you could do this by buying a pre-release land alottment then selling in 1 year and applying the CG against the loan (for example). So work up a budget and plan for cash and it should all become clear.
It is a 3 bd unit valued at 210k, I have paid off my house which is worth around 240k and we have a principal and interest loan on the property.
Thanks for the advice people, I will have to sit down and work out my goals I think.
Trisha
trisha,
your total lvr for the 2 properties is 34%. you certainly don’t have problem with being able to purchase another property (assuming you are earning a decent income). like others have said here I believe you need to think about your investment and personal goals are. property is merely a vehicle to get there.
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