Hi all,
I’ve been doing my research for a couple weeks now (lots of googleing this forum and the other big Australian one), but I have got this question in my head that I cannot find an answer which relates to me, I know I will need to see a mortgage broker specialising in PI to get a full idea of what I need to do, but I’d like to have a clearer view when I do sit down to see one
Say if I were looking at buying a $400k property as my first home (currently still live with parents) would it be smarter to:
a) Use $80k of my savings as a %20 deposit
or
b) Some other deposit between 5%-20% and pay LMI (I still have not got a clear idea of how LMI is calculated, seems individually based, this is my next research topic)My thinking is, wouldn’t it be better to have as little of my cash as possible ‘stuck’ in the property by using the smallest deposit I could? So that if I turned the PPOR into an IP down the track I would have a larger amount of deductible debt that I can claim? OR would the LMI costs affect me too much?
Some background with my situation:
I’m still learning the ropes/getting my head around of all of this, but being 22 with $90k savings and a safe (for now) job at $55k p.a. before tax (overtime available, earned $10k overtime last financial year) as a final year trainee in the Mining/Structural engineering industry, with my pay only to increase, It seems I an wasting my time by not starting to invest now. Plus I really want to move out of home gain some independence and begin my journey in life.I’ve been researching for a couple weeks now on and off and I am very good at saving and controlling my expenditure so I/O + offset seems like a perfect loan structure for me.
Current goal is to get a PPOR (villa) to live in, within a suburb I want to live in (which can be done for $400k), with a loan structure so I have maximum flexibility in the future in regards to turning into a IP. I will have a friend living with me which will be a good boost towards the loan.
Medium term either buy an IP, or convert my PPOR to an IP and by an new PPOR. OR convert my PPOR to an IP and live with cheap rent $100 a week at a friends PPOR (when it’s built 6-12 months from now)
Long term would be to own multiple neutral/positively in a capital growth averaging (CGA) strategy similar to what I’ve seen a poster (Rixter) on somersoft employ. Basically own 10 properties which will grow in capital after 10 years, withdraw 80% capital from property 1, next year do the same with property 2 etc. (I know this is a big plan/dream but it’s just a rough long term plan of what could happen if I start young and on the right path)
Sorry if my post is a mess at the moment,
Thanks
Hi Shibby,
Welcome, and good on you for entertaining thoughts of investing at an early age. Your post shows you already have a good grasp of what can be done, and it is now a matter of refining your thoughts to suit just where you want to be. The good bit is that, with careful planning, your journey can retain flexibility, allowing changes in direction with minimal disruption. How? Read on…. ;)My thinking is, wouldn’t it be better to have as little of my cash as possible ‘stuck’ in the property by using the smallest deposit I could? So that if I turned the PPOR into an IP down the track I would have a larger amount of deductible debt that I can claim? OR would the LMI costs affect me too much?
I like the way you are already thinking – to have the “best of both worlds”, read up a bit more on “Offset Accounts”, and on “Do I buy an IP first, or a PPOR?” You will find links to both esconced in this thread :-
https://www.propertyinvesting.com/forums/general-property/4349450
Look at using an Offset Account against the property loan to give the best effect. Whether you buy IP first or PPOR, do all of your saving in the Offset (assuming you have no other non-deductible debt (credit card, car loan, HECS, etc). That way, the only decision you will need is “Which first?” – the link above might help with that.
Depending on just where your savings are sitting right now, it may be beneficial to move all remaining savings into the Offset too. Your financial adviser, who sees your situation in its entirety, will be better placed to guide you on that one. Or, instead, it might even be preferable/possible to buy TWO houses (one of each?) Who knows….
THe world is your oyster,
Benny
Hiya Shibby
Sometimes it can be beneficial to pay a smaller deposit and cop some LMI.
If the property turns into an IP down the track, you’ll have a larger loan to deduct from (and possible some LMI too).
You’ll retain some of your savings as a contingency buffer and/or for future opportunities.
I wrote an article for API magazine about this topic a while back – have a read.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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