I have one IP with an interest only loan of $355K ($305K fixed at 7.79% and $50K variable at 7.87%) both with redraw and offset capabilities. I have about $10k extra sitting over the loan accounts available for redraw. Rental income is $345 pw. I purchased the property last July and believe it is easily worth at least $400K now (based on sale of another unit in same block for $395K in August last year).
I use the offset account for daily living and am not really disciplined enough to keep substantial savings in it. For this, I have an ING maximiser with about $2K (which I save $340 pm into).
My salary is approx $62k. I am planning on requesting a tax variation from the ATO which should allow me to receive an extra $4-500 per month.
I am keen to purchase another IP (cheaper, hopefully near positive cashflow) and would like to know:
1. how much equity I would need and could use;
2. how much cash deposit (if any) i would need; and
3. if it is better to place extra funds onto my mortgage or into ING account for deposit or buy $2k worth of shares every six months.Thank you
SarahHi Sarah
At $400K value and $355K mortgage, there appears little equity left to draw on unless you refinanced your LVR at above 80%. This may then attract LMI if you decided to go down this track.
Your saving of $340 per month however sounds promising. Also assuming your tax variation impact returns $450 per month, that would mean your tax return (if there was no variation) would amount to about $5K to $6K at the end of the financial year.
You might want to consider using the $340 per month in an offset account against your IP mortgage to offest the interest. If you kept accumulating this in an offset account then this would come to $2K at the end of financial year. Adding this to your tax return would give you around $7K to $8K.
Using these amounts you might think about looking for a property of around $70K financed at 95% LVR with 5% for costs. In the meantime, you could start refining and practising the search for such a property and doing some 'dummy' runs of how you would proceed in July 2008 if all the conditions are right. I don't know if such a property at $70K exists or what other criteria you would be looking for, but it would begin to refine your thinking into shortlisting property according to some stringent criteria.
For such a significant financial decision and with volatility in interest rates, it makes sense to 'practise' and do the sums over and over as much as possible.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
