Forums / Property Investing / Help Needed! / What first: PPOR or investment?

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  • Profile photo of jekjoyjekjoy
    Participant
    @jekjoy
    Join Date: 2013
    Post Count: 6

    We are considering what we buy first: our home or an investment property.

    Anyone has pondered the same thought? We like to establish a portfolio of investment properties long term to be financially free.

    What are the pros and cons either way?

    Thank you!

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    Hi Jekjoy

    Why not do both? :-)

    I've helped plenty of first home buyers purchase their first home – and then tap into its equity to fund the deposit/costs on an investment property.

    It works really well when the home that's purchased can be renovated for a quick equity gain. We then get it revalued – access the equity and organise the IP loan . Some clients rinse and repeat this process with each property they purchase –  and build a decent sized portfolio.

    I wrote an article for Australian Property Investor magazine on this exact topic – here's the link.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Agree with Jamie.  Have your cake and eat it too.  Done correctly, an investment property can be funded with little or no money down.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Yes consider CGT and tax implications. 

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of jekjoyjekjoy
    Participant
    @jekjoy
    Join Date: 2013
    Post Count: 6

    HI guys,

    really appreciate your opinions :)

    Have already read Jamie's article too. 

    We are on our way to be educated investors. Hopefully our roads will cross some time later.

    Cheers

    Jekjoy

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Jeykoy, as JacM above mentioned why not look at doing both or buying an IP without using any of your own money.

    We have helped hundreds of forums members of the last 12 years buy both at the same time without crossing their loans or using any of their own savings.

    It is all in the structure of the deal.

    When i arrived in Australia i purchase an IP and a PPOR the same week albeit i was lucky enough not to need any finance but the concept is still the same.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of JhaiMitchellJhaiMitchell
    Member
    @jhaimitchell
    Join Date: 2012
    Post Count: 30

    we have done exactly what Jamie has suggested.

    Now we are sitting on $100,000 worth of equity and about to buy our second property after one year. We should be able to buy a third property next year.

    Profile photo of Mark CoburnMark Coburn
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181

    Renting where you want to live and investing where the market is moving can give you the best of both worlds. They call them professional renters for a reason. 

    We have a client CJ (who won't mind saying this): 28yo, self employed, single female, earning less than $90,000p.a. living in a rented apartment (that would be worth $900k) and pays $350 per week for her share. Living the good life and while saving a bit too. CJ has just bought another 2 investment properties with us in the last 2 months. One is an 2 bedroom apartment and the other is a 4 bedroom house. That brings her number of properties to 4, 3 houses and 1 apartment. 

    At this point CJ will be able to buy again 18 months. All her properties are positively geared and she plans to buy 2-3 more investment properties before she buys a PPoR. She made her first investment 5 years ago and will be able to retire on over $2000p.w. by the time she is 45. Of course I think CJ is smart but her friends think she is a millionairess (all by careful saving and smart investing).

    If you delay buying your PPoR and invest first, your ability to continue buying (serviceability) is going to let you grow your wealth much, much faster. Once you take the luxury of moving into your own home, you holt your ability to save and it often takes 5-10 years before there is enough money spare to buy that next property. The outcomes are as different as black and white. 

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
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    |Ph: 0405 243 547 | Property Investment Advisors |Mortgage Brokers|

    Profile photo of ronnie01ronnie01
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    @ronnie01
    Join Date: 2013
    Post Count: 54

    Wow reading all this is great I am getting the idea of both worlds PPOR and IP. How does the investment property work ?? If I buy my PPOR and than tap into my equity to purchase an investment property would I have to apply for another mortgage for the investment property??? How does it all work for newbies like me.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    Hi Matt

    Access equity in your PPOR  – set it up as a second loan which is used to cover the deposit/costs on your IP. You then set up another loan against the IP to cover the remaining balance.

    So you basically have three loans set up. Original PPOR loan, equity release and IP loan. The first two loans are against the PPOR and the third against the IP.

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of ronnie01ronnie01
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    @ronnie01
    Join Date: 2013
    Post Count: 54

    Oh I understand so basically if you buy a PPOR say for $300,000 and have equity of 20% so $60,000 to invest into an investment property also worth $300,000 I would need to get another mortgage for the 2nd property and so on….. for 3rd and 4th investment property? That means you would have so many mortgages and if they weren't positively geared you would be screweddd??

    Thanks Jamie its people like you that I keep learning and keep reading these forums its great :)

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    You're welcome :-)

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Mark CoburnMark Coburn
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181
    mattliasiian wrote:
    Wow reading all this is great I am getting the idea of both worlds PPOR and IP. How does the investment property work ?? If I buy my PPOR and than tap into my equity to purchase an investment property would I have to apply for another mortgage for the investment property??? How does it all work for newbies like me.

    When you buy an Investment Property, your ability to keep saving for your next property is not reduced, however when you buy a PPoR your costs go up and your savings go down for a quite a few years. 

    To grow a portfolio you need to continue with your savings while your investment property's equity is growing. If you have bought well, your investment property equity will be growing a lot faster then you can possibly save. Once your portfolio gets to 4 or 5 properties, you can then turn your attention to buying a home for yourself. 

    My mother, who was a great property investor told me " it took me 10 years to make my 1st million dollars, but only 3 years to make the 2nd million". She bought her first investment property age 50yo and went on to buy 20 more over the next 15 years. 

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
    Email Me | Phone Me

    |Ph: 0405 243 547 | Property Investment Advisors |Mortgage Brokers|

    Profile photo of RetalsRetals
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    @retals
    Join Date: 2014
    Post Count: 5

    Hi Guys,

    I am currently in the same boat Jekjoy in that my fiancé and I are unsure whether to buy PPOR or IP first. We both live at home with our parents and I am fortunate to not pay board by helping out around the house. Hence I am able to save quite substantial amounts every month (I am payed monthly). My current financial situation is as follows:

    Base Salary: $75000 p/a

    Savings: $80000 approx. 

    I am completely debt free as we speak. I live in Adelaide and hence have been looking to purchase there however from what I have read on these forums everyone seems to suggest otherwise. Basically i was hoping to find an undervalued property, renovate as smart as possible, have it revalued and then hopefully draw on the equity made to fund the next IP. My only problem is no matter how hard I study the market or read literature, I cant seem to find or act on any property. Therefore are they any suggestions people can give me or even assist me in finding my first property?

    In contrast do you guys recommend buying a PPOR before purchasing an IP? Also I have read numerous literature suggesting to finance the IP as interest only, but wouldnt it be better if you were going to hold for a long time to reduce the debt? For example say I buy an IP and keep it till I retire (this is purely a scenario) wouldn't it be better to have it payed off rather than only have access to its appreciation over time? 

    Any advice is greatly appreciated and sorry if these questions seem amateur. 

    Cheers,

    Scott

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Scott,

    The objective is to have a sufficient income stream in your retirement years. So you want your rents to be sufficient to pay the bills and any outstanding mortgage repayment obligations and still have enough left over to support your own living costs. If you had a few properties you had owned for several years and slowly crept the rent up each year, this should be achievable, assuming you had chosen properties wisely. To some degree, you could say you don’t necessarily need the mortgage to be paid off completely before you hit retirement, but you do want the mortgage repayments to be tiny in size compared to the rent you are achieving, such that there is plenty of surplus left over for you to live off. Does that make sense?

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

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