All Topics / Help Needed! / To buy PPOR first or investment?

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  • Profile photo of MakkdoggMakkdogg
    Participant
    @makkdogg
    Join Date: 2013
    Post Count: 3

    Hi everyone,
    We are new to this forum and would like some advice on our current situation.
    We live in Tannum Sands (20kms out of Gladstone) and currently pay $580/wk in rent. We have 5 kids and are nearly ready to purchase a property. Our plan is to be here for another couple of years we moved here for work. Just wondering whether to start with investment property or ppor first? $580 is a lot of money each week and a mortgage repayment for what house we would get is cheaper as well. Our main concern is will we be stuck with an ip that has trouble getting rented once we move?
    Thanks in advance for any advice

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Makkdogg

    Firstly welcome to the forum and i hope you enjoy your time with us.

    It is a question i get asked by nearly every new client and one i normally answer with the same response. Why not purchase both !

    Depending on your current savings and income there is no reason why you couldn't do this.

    Structure the loans correctly so i you do decide to move then you will be able to maximise your interest and expense deductions.

    $580 / week is a fair amount in rent and you may find that the interest repayments on an equivalent property would be cheaper but there are other financial consideration.

    With 5 children your allocated living allowance in respect of serviceability is going to fairly high so you need to factor that into the equasion and ensure you use lenders that can accomadate this.

    Anyway good luck in your decision making and to starting your portfolio.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
    Post Count: 1,404

    There are too many unknown variables to give you any sort of answer. Income?  Are you planning on staying where you are long term? Servicability (can you afford any out of pocket expenses each week). Deposit? Borrowing power?

    If you are not staying long term maybe buy a PPOR then rent it when you move.  $580 a week is a lot but sometimes it is more viable to rent. You need to sit down with a calculator and work out whether buying a PPOR is better financially for you. Don't forget to factor in costs other than just the interest (rates etc) plus stamp duty, solicitors costs, loss of interest on not having your deposit in the bank.

    Most new investors worry that an IP will not be rented. If you do your DD you will know the vacancy rates, what type of IP is in demand etc etc. This will alleviate your fears. I don't know your area at all. If it's not an ideal place for an IP (or PPOR) maybe look elswhere.

    Good luck.

    Profile photo of Diane Hunt ValuerDiane Hunt Valuer
    Member
    @diane-hunt-valuer
    Join Date: 2013
    Post Count: 1

    I would say buying a property to live in would be the best bet as you will save $580 a week rent and there is no capital gains tax payable on your residence.

     Remember to get any property you are thinking of buying valued by an independent valuer to ensure you are not paying above market value.
     Cheers Diane Hunt 

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
    Post Count: 1,404
    Diane Hunt Valuer wrote:
    I would say buying a property to live in would be the best bet as you will save $580 a week rent and there is no capital gains tax payable on your residence.

     Remember to get any property you are thinking of buying valued by an independent valuer to ensure you are not paying above market value.

     Cheers Diane Hunt 

    Not always the case Dianne. You are not "saving" $580 a week. Also- If you live in an area with low rental yields, financially you are better off renting and buying an IP in an area with high yields. Plus you gain tax advantages.  Yes you will pay CGT at the end but the longterm advantages can be better.  That's why you ALWAYS need to look at the numbers.

    Do your DD is all I can say.

    Profile photo of MakkdoggMakkdogg
    Participant
    @makkdogg
    Join Date: 2013
    Post Count: 3

    Thank you for your replies everyone. There is not much happening in the town we haven't been here long so don't know it like 'home' yet but I do know that when looking at houses to rent the real estate was actually contacting me to see if I was still interested etc  I take that as a bad sign normally I'm harassing them!! 

    We are saving about $1500/wk at the moment by Xmas will have 10% deposit for a house here but we are leaning towards investment since we don't know area very well yet and do move around to where the $$$$ is we haven't stayed in a location longer then 18 months. We are completely debt free and we are capable of saving even more then $1500/wk but we understand the 5 kids (hand brakes lol) and our rent really pull us up on what we would be eligible to borrow. 

    Profile photo of Colin RiceColin Rice
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    @fms
    Join Date: 2011
    Post Count: 338
    Makkdogg wrote:
    I do know that when looking at houses to rent the real estate was actually contacting me to see if I was still interested etc  I take that as a bad sign normally I'm harassing them!! 

    5 kids (hand brakes lol) and our rent really pull us up on what we would be eligible to borrow. 

    Rents in Gladstone, and I am assuming surrounds are on the decrease. People are negotiating down on rentals so you may be in a position to do likewise if you go the IP route first? 

    This thread from another forum makes for some interesting reading on the real estate market in Gladstone;

    http://somersoft.com/forums/showthread.php?t=71992&highlight=Gladstone

    All the best. 

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Whilst with most lenders you will need to not only to have saved a 10% deposit but also be able to cover your acquisition costs (In Qld these are not cheap) there are a couple of loan products which might suit especially if you are then looking to buy another property shortly after.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of tommytuckertommytucker
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    @tommytucker
    Join Date: 2010
    Post Count: 82

    Gladstone…ouch. I went to Qld on a whim last year to meet a property developer and he was still talking about it; I can't remember if it was good or bad though. He was more focused on Toowoomba and Lockyer Valley.

    Profile photo of MakkdoggMakkdogg
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    @makkdogg
    Join Date: 2013
    Post Count: 3

    Thanks guys!! We were edging towards ip first because we won't be here long, we plan on going back home (around Canberra) when we are done with the money chasing. We are hoping to build up some properties over the next few years. Thanks so much for your advice we appreciate it :)

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

    Buying an IP 1st & PPoR 2nd OR PPoR 1st & IP 2nd that is the question, the answer is over a $1,000,000 difference in your wealth.  

    Renting where you want to live and investing where the market is moving can give you the best of both worlds. They called professional renters for a good reason. We have watched the results of doing the right way time and time again. 

    We have a client CJ: 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 (PPoR), 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 OR well over a $1,000,000 in wealth.

    You have to start with a clear strategy and work towards that goal. This quote sums it up:

     “You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.”
    ― Alvin Toffler

    I spend 50% of my week, working with clients to get their strategy right. When they have their strategy's in place, they tell me that they find investing far simpler with a clearer direction, as Alvin Toffler so clearly puts it.

    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 ChrisA1ChrisA1
    Participant
    @chrisa1
    Join Date: 2011
    Post Count: 172

    Good thing about buying an IP is that you don't have to buy the IP where you live, but where you'll get the return you're after (be it CG, yield or mix).

    Or, you could buy in Canberra while the prices are down and rent it out until you move back.

    ChrisA1

    Persistence is 'to keep on keeping on, no matter how hard the going may be'

    Profile photo of Johny AppleseedJohny Appleseed
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    @johny-appleseed
    Join Date: 2014
    Post Count: 7
    Mark Coburn wrote:
    Renting where you want to live and investing where the market is moving can give you the best of both worlds. I spend 50% of my week, working with clients to get their strategy right. When they have their strategy's in place, they tell me that they find investing far simpler with a clearer direction

    Mark Coburn, Thanks for this post. This has changed my thinking on buying a home first and then saving for a investment second. I have been reading a few of your posts, I am going to call you for some help with my property strategy. 

    Profile photo of Johny AppleseedJohny Appleseed
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    @johny-appleseed
    Join Date: 2014
    Post Count: 7

    Mark Coburn, Thanks for talking to me today. I wanted to say Ill be getting back to you soon. yesyes

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

    John, 

    No sweat, a little bit of strategy goes a long way. With those things in place you can start your portfolio with a bang! 

    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 JTurnJTurn
    Participant
    @jturn
    Join Date: 2018
    Post Count: 1

    Buying an IP first was my initial strategy. However, everyone I spoke to told me to buy a place to live first. That way you can take advantage of the first home buyers grant and can paint the walls and do some gardening.
    Now whilst I would like the freedom to do those things, I’m not going to be able to afford to buy a place in Brisbane in the area I live now until… never! However I’m getting close to having a deposit together for a place in Toowoomba or Logan or Ipswich where there are still positively geared properties and houses on 1000m blocks ripe for subdivision.
    In QLD the first home buyers Grant is now the first home Builders grant, and I’d have to go pretty far out to afford to buy land/build within my budget.
    So thank you Mark Coburn for that valuable piece of information. I dare say I’ll be in touch to talk strategy in the near future. Cheers

    Profile photo of wan0151wan0151
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    @wan0151
    Join Date: 2019
    Post Count: 0

    Hey Mark,

    A fellow novice here. I don’t quite understand why renting is beneficial. Let’s say for eg: You bought a house PPOR for 700k on a interest only loan and burrow the full amount. Just for examples sake. That would result in a monthly mortgage of around $2.2k. By constantly saving and parking excess cash into an offset account, you constantly decrease the mortgage without losing money (I mean the money in the offset account isn’t being consumed). This way, you own the property (as it’s your PPOR) and keep paying less to keep the property (through the offset account) and then you’ll be able to use the equity obtained in the house in a few years to continue purchasing property. Is the purpose of renting just to live somewhere for a smaller monthly fee so it reduces your overall annual expenses, allowing you to burrow more money for IP purchases? If anyone could clarify this, I would really appreciate it :)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    These days with low interest rates I think buying a main residence first is ideal because

    a) you get a CGT free asset (potentially)

    b) no land tax

    c) owner occ rates

    d) improved serviceability over time

    e) ability to debt recycle into investments at lower interest rates

    f) ability to add value

    g) emotional aspects

    h) because it might cost more to rent the same place

    i) ability to move out and rent the property yet still keep it CGT exempt.

     

    etc

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
    Post Count: 1,416

    These days with low interest rates I think buying a main residence first is ideal ….

    Terryw’s comment above makes a lot of sense – I was one who had earlier thought (10+ years back) buying IP’s first was better from a financial point of view.  This was mainly because any Interest paid on an investment is a Tax deduction, while on your own home, it was not.   There were one or two other benefits too, but Interest Rates were the elephant in the room.   Of course, with Interest Rates now stupid-low, the whole scenario has changed.

    As an example, check out this post:-

    https://www.propertyinvesting.com/topic/5048770-will-moving-some-investment-loans-from-io-to-pi-reduce-serviceability/#post-5048778

    In there I commented

     “Interest Rates are so low today, the principal repayments now make up a WAY BIGGER portion of a mortgage repayment than they used to. e.g. 20 years ago, a $200k loan taken over 30 years is repaid at 3.3% pa (so, Principal repayments averaged out to $6,666 per annum, while Interest back then might have been at 9% – so Interest was $18,000 per annum). i.e. Interest is nearly 75% of the total mortgage payments, and principal repayment only 25%.”

    Today, with a likely Interest Rate around 3%, and (likely) a far larger mortgage, the ratio of Interest to Principal payments has totally reversed.  Though Interest Rates on IP’s are deductible, Principal repayments aren’t.  Hence the PPOR swings back into favour.

    The points Terryw made today do indeed change the whole situation.  These low IR’s have been a game-changer for sure.   But there are still other advantages with IP’s that might tip the scale in your case – it depends on a host of other factors.   As always, “run the numbers” to see which is best for you today.

    Benny

    • This reply was modified 3 months, 1 week ago by Profile photo of Benny Benny.
    Profile photo of DonForestDonForest
    Participant
    @donforest
    Join Date: 2021
    Post Count: 0

    Thank you for your advice in this topic, I think I will buy a property.

    • This reply was modified 3 months, 1 week ago by Profile photo of DonForest DonForest.
    • This reply was modified 3 months, 1 week ago by Profile photo of DonForest DonForest.
    • This reply was modified 3 months, 1 week ago by Profile photo of DonForest DonForest.
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