All Topics / Creative Investing / Newbie Property Investor. Advise needed :)

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  • Profile photo of KSJAKSJA
    Member
    @ksja
    Join Date: 2013
    Post Count: 5

    Hi guys,

    I recently built an investment property in Springfield Lakes QLD and it is now awaiting to be rented out. I am expecting the rental income to be just less than $400 per week. The house and land price added up to approximately $380,000 and I owe the bank around $360,000. I have an interest-only mortgage coupled with an offset account for this investment property. The offset account now has approximately $10,000, but I will soon receive $32,000 (after tax)  from work which will be added to the offset account. My annual income is approximately $55,000 and I have put through a tax variation form to ATO which has reduced my tax rate to approximately 9%.

    So here is my question, should I let the $40,000 sit in the offset account, or is there a better way for me to utilize this money in terms of additional investment?

    Any suggestions welcomed :)

    Thanks,

    KSJA

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

    KSJA based on the fact that you have no non deductible debt and based on the fact you don't need the potential interest to support your living expenses i think it is a good place to park the cash for the time being.

    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 Modernity InvestingModernity Investing
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181
    Qlds007 wrote:
    KSJA based on the fact that you have no non deductible debt and based on the fact you don't need the potential interest to support your living expenses i think it is a good place to park the cash for the time being.

    Cheers

    Yours in Finance

    I will +1 to Richard on that.

    Modernity Investing
    Email Me

    Profile photo of Shiny_Suit_ManShiny_Suit_Man
    Participant
    @shiny_suit_man
    Join Date: 2012
    Post Count: 54

    The interest rate on your house is probably better than what you would get if you but the money anywhere else (i.e. term deposit) so think of it as making you money (by saving you interest), that is more or less what i do and also what Richard is getting at.

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Leave it where it is.

    Its tax free and a flexible option as your circumstances change.

    For example if you purchase a PPOR you could repeat the strategy and park in the offset connected to the PPOR. 

    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 KSJAKSJA
    Member
    @ksja
    Join Date: 2013
    Post Count: 5

    Thanks guys for all your replies :)

    Lets say I park my money in the offset account for now but I want to buy another investment property down in the future, when should I even start considering? Should I wait till the sum in the offset account grows larger? or should I wait till the investment property I have in Springfield Lakes goes up in value (which can me a long wait, haha)? What factors would you consider?

    Thanks again :)

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    At the moment you're sitting on a high LVR so you'll need to wait until you've either saved some more cash, the properties goes up in value or a combination of both.

    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 carllarzcarllarz
    Participant
    @carllarz
    Join Date: 2014
    Post Count: 10

    As the others have mentioned, park it.

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

    Hi KSJA,

    As has already been said, you're on a high LVR, so it would be best to batten down the hatches and squirrel money into that offset account for a while.  Build yourself a fortress of cash.  The more you have, the less impact bumps in the road can have. 

    You'd want an absolute bare minimum of $65k sitting in that offset account before even starting to entertain thoughts of getting a second property.  That would mean two properties with an LVR of 90% with some spare cash in the emergency tin. 

    In order to reach such a target, identify areas that will be easy to make budget cuts.  If you are currently buying lunch at work each day, take home-made sandwiches to work for lunch a few days a week instead.  If you are buying coffee in the cafe each morning, borrow a thermos from someone and bring DIY coffee from home instead.  If you are paying entrance or membership fees for a gym, go for a free jog around the block instead. etc etc.

    If you haven't done so already, get a depreciation schedule done on the Springfield Lakes property to help reduce your taxable income.

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

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

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

    I have to disagree with the others.

    With 42K in your offset account you may well be able to buy another IP subject to a few consideration.

    Even at a 90% lvr there maybe a few ways of covering the acquisition separately.

    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
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    Depends what you buy. You already have one CF- property. How much can you afford to be out of pocket each week?

    Profile photo of Modernity InvestingModernity Investing
    Participant
    @mark-coburn
    Join Date: 2006
    Post Count: 181

    Providing you have equity, Investment Property purchases in the current market should be positive or near neutrally geared after tax:

    • 100% Borrow ($450,000)
    • 4.99% Interest only
    • New Build
    • Tax credits based on $85k+ household income

    Fixing your rate for 5 years @ $5.5% (I am not say that you should, but could) will change your return to a negative of $5-$15 per week in the first year, returning to positive in the second.

    Modernity Investing
    Email Me

    Profile photo of Currently UnavailableCurrently Unavailable
    Participant
    @currently-unavailable
    Join Date: 2014
    Post Count: 1

    You could buy a second investment property now and keep the $40k you currently have in your offset facility to keep growing. 

    Bridge Investment Group can use your savings as funds to complete and then on settlement they give it back.

    Now that's taking the greed out of property sales!

    Will it come in on valuation? Yes

    can you repeat the process straight away? Yes 

    can you afford to get another investment property? Maybe 

    Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    Hi,

    Because you have just built a house for 380K it does not mean its worth 380K it could be more or even less.

    The investment property is not rented out as yet? How long has it been vacant for?

    Before rushing into another venture, I would suggest you concentrate on this property, As JACM mentioned build a cash buffer in the offset.

    Do you live in your own home or are u just renting?

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
    Email Me | Phone Me

    Your first port of call in finance :)

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