Hi All,
Current Situation
– IP value 500k, owes 293k (58% LVR), currently CP+ generating ~$300/month after expenses.
– 30k cash savings.
– Living rent-free in parents house for 12 mths (while they travel).
– Will need a PPoR once they return (something ~250k, run down in a ~400k suburb so I can renovate to bring it up to par).Meanwhile
– I have my eye on Branxton, NSW (predicted boom town – see other thread), purely as an investment to rent out.
– 2 bed units sell for ~220k, mediocre yields of approx $220/wk – but lots of growth predicted.Question
– Is 100k equity and 30k cash sufficient to be able to do both?Thanks
Structured properly your equity position looks ok but can't comment on serviceability without further detailed information.
Richard Taylor | Australia's leading private lender
Buy one get your head around it, assess and go again, You should never take yourself to the credit limits. Where is your buffer if the market goes to shit and unemployment sky rockets? (I am not predicting this devastation, but lean on the side of conservative, and you will be able to play this game for a long time). Don't get struck out with one bad innings.
Always buy property, but buy at a steady and calculated pace. If the market travels south and you have money in your pocket, then you can buy again, If the market trends forward then you are still a winner – they call this methodical approach "dollar cost averaging" .
I once spoke to a Dr who pulled all of his money out of the stock market just before the GFC. I asked him, where did he get your foresight? Response: " I am not greedy, Once you have enough money, that is all you need" I am not suggesting anyone is greedy, but we sometimes tend to be to certain of ourself because of something we read or hear.
Property is an opportunity, not a certainty – and that is the way it should be played. Property is not about getting lucky (well, it is for some, but it is more about getting smart).
Conclusion: One property now, One property when the figures look great again!
Thanks Richard, I was hoping you would reply. Me: $90k, partner: $0. Pushing it? These are worst case numbers but I’m guessing I’d be pretty stretched?
Thanks number8, I really appreciate your post and think it makes a lot of sense for me. It’s made me have a re-think and not want to be so greedy. I love my sleep at night and don’t want to go grey stressing while “hoping” for the Branxton place to go up, meanwhile flaking out having to service all the debts etc. Very good points and I love this idea of the sustainable/calculated approach.
How does this sound:
– Put down 20% deposit on the new PPoR from my existing LOC. This means I only borrow the remaining at 80% LVR and avoid mortgage insurance.
– 30k+remainder of LOC is available for renovations.
– Excess positive cashflow from IP#1 can then help pay down this new non-deductible debt?
– Get to this point and after the renovation has added some equity, then start thinking about the next property.Many thanks.
Hi recruit
If the new property will be an a PPOR then NO definately dont utilise your current LOC unless you have a sub account as the interest wont be deductible.
I think i may have got confused on your post as i thought you were looking at buying a an IP initially.
Use the offset account on the new loan just make sure you make it Interest only as well.
Richard Taylor | Australia's leading private lender
Ah sorry Richard.
Our first priority was the new PPoR to renovate (I.e. the 250k place in ~400k suburb). Getting an IP in Branxton was the second priority, only if it appears do’able? Do you think this would be stretching my current income and equity too far? I have a feeling so..
Thanks I will make the new loan IO.
So when buying the new $250k PPoR, DONT use my LOC to access funds for the 20% deposit??? I was under the impression that NONE of the interest on the new PPoR place would be deductible because its a PPoR, not an investment.. Could you please explain this area further?
Thanks again.
Ok sorry bit clearer now.
From an income perspective and making a couple of assumptions you certainly appear to qualify for both.
Non of the interest will be deductable on your PPOR but i guess what i was getting at was do not mix personal and investment use in a line of credit. If you need to split the accounts and have a series of LOCs.
Richard Taylor | Australia's leading private lender
Thanks for clarifying Richard. I get what you are saying. So it’s fine to draw funds out of IP1’s equity, but just so long as that’s from a split/separate LOC account, so I don’t screw up the accounting etc.. Got ya – thx for the tip.
My partner is likely to become pregnant etc, but apart from that, she is happy to get a generic 50-60k office job to help with serviceability etc.
So to get both properties the requirements would be something like:
– Borrow 220k for the unit.
– Borrow 250k for the new PPoR
– Borrow 50k for renovations.So really that’s a huge 520k borrowed (minus 30k cash I have, so say $490k being borrowed) on my single income and I’d only gain $220/wk in income from the unit. Then what if:
– Unit ends up being vacant?
– Money is needed for repairs/maintenance/insurance/rates on the unit.
– Interest rate rises etc.I’m getting the feeling I’d be very much stretching myself to the limits here. Keen to get your thoughts Richard as I’ve read about your portfolio elsewhere and am very interested to hear how you would approach this. Thx again.
Course you can insure against a lot of these potential risks by fixing all or part of your loans although i am still not convinced you haven't missed the boat.
Also bear in mind that whilst the Mortgage Rate may go up 1 or even 1.5% the Banks use a affordability rate which is currently between 1.5% and 2.25% higher than the current standard variable rate so if they approve a loan they have a large amount of fat built into the deal to ensure that you dont over commit.
Secondly they are working mainly on the fact that they accept 75-80% of the Gross rental income so have allowanced for vacancy maintainance and repairs etc etc.
I have always taken a variable rate and believe if you buy in the right area you eliminate a lot of the issues that come with vacant properties.
Structuring your loans correctly and have flexibility such as lodging your 221D and having a QS report done on the properties upfront can ease some of the case flow burden.
Richard Taylor | Australia's leading private lender
Course you can insure against a lot of these potential risks by fixing all or part of your loans although i am still not convinced you haven't missed the boat.
Also bear in mind that whilst the Mortgage Rate may go up 1 or even 1.5% the Banks use a affordability rate which is currently between 1.5% and 2.25% higher than the current standard variable rate so if they approve a loan they have a large amount of fat built into the deal to ensure that you dont over commit.
Secondly they are working mainly on the fact that they accept 75-80% of the Gross rental income so have allowanced for vacancy maintainance and repairs etc etc.
I have always taken a variable rate and believe if you buy in the right area you eliminate a lot of the issues that come with vacant properties.
Structuring your loans correctly and have flexibility such as lodging your 221D and having a QS report done on the properties upfront can ease some of the case flow burden.
Richard Taylor | Australia's leading private lender
Thanks again Richard..
I too am a fan of just sticking with the variable rate also. I had fixed a rate in once in the past, but it just ended up costing me more fees than the benefit I got from it (a long time ago when rates didn’t rise much after I fixed it). But for example 1 year ago was a perfect time to fix some in, but I missed that boat and just left them variable.
Thanks for the 221D tip, I had never heard of this, yet always wondered if there was a way to do this. It sounds awesome, but I read something that the ATO use it to possibly identify people to run an audit on. I have nothing to hide, but not sure if I want to end up on their “closely monitor” shortlist etc. But if all of your paperwork and receipts were well organised then I am sure it’s a top idea to do a 221D.
Also thanks for the QS report idea, I have recently noticed lots of people fully recommending that too, so it’s something I will definitely follow up.
Your tips and ideas have given me some extra knowledge that I will now keep in mind when going forward. I think what I will do is, do one property at a time. Buy the first one (PPoR to renovate first), then quickly get stuck into renovations and aim to knock that over really fast as a dedicated project. I will try to quickly get a feel for the process and how my finances are tracking, and then look to go for the second investment after the first renovation is completed. That way I am kind of going smoothly/methodically/calculated, but ultimately moving forward fast-ish and ending up securing both properties. But I think I need to just go one step at a time first to feel more comfortable and get an idea of whether I can afford a late every morning or not
Thx again, wonderful help and appreciate it.
No problems recruit.
Richard Taylor | Australia's leading private lender
Recruit 2, I can see this is an older post now that I have just read the whole thread but I am curious if you were able to find a 220k property in Branxton as that seems low given average price. Would have been good buying – there would be a chunk of equity in the new property if your plan came off.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
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