All Topics / Help Needed! / Stuck…need help

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  • Profile photo of JpropJprop
    Participant
    @essenceofjad
    Join Date: 2016
    Post Count: 18

    Hi all,

    Thanks in advance for your response. Just a bit of background. Goal trying reach that financial freedom by 45 years old currently 31. I owe a unit which i live in currenlty 80% LVR. Purchased my first investment property (regional nsw) 7months ago through company trust structure also 80% lvr and is postively geared. I want to purchase another IP this year but lacking the deposit. Spoke to my broker and he said serviceability and capacity is there to borrow 300k but would need to draw on the equity of the two properties for the 20% deposit.

    Question would be:

    Is it a good idea to use the equity meaning paying for the lmi or save the deposit which will take longer?

    Also, the IPs im looking at atm are postively geared regional areas then work my way closer to the main cities or would that be the wrong way of doing it to grow a portfolio?

    Thanks,
    Jad

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

    Hi Jprop,

    To me, forcing Equity growth is way easier than saving. As such, the more of your own cash you can retain (to put into reno’s to add value) the better. The flip side is that, with the Equity growth, this provides the deposit/costs to “do it again”. Re LMI, the cost of having it is laughably small. So if you can get it, do consider using it. What is the interest cost of an extra $10k on a mortgage for LMI if it allows you to keep $50k in your back pocket to do renos? It is tiny in the scheme of things.

    Tied up with all that is serviceability though. Positive gearing is a darn good start, but so too is a regular income while you go through your accumulation phase. Once the accumulation is complete, consolidation (paying down the debts) is next.

    Spoke to my broker and he said serviceability and capacity is there to borrow 300k but would need to draw on the equity of the two properties for the 20% deposit.

    Sounds good to me – check whether you have the serviceability to handle another purchase – if another positive geared buy, that will help. Your broker (or one of ours) would be able to give you chapter and verse – just beware of getting both houses on one loan though. You DON’T want to go that way. It might seem easier NOW, but it could tie you up tight further down the track.

    It is called “cross-collateralisation” or x-coll – and you don’t want to go there. Be sure your broker KNOWS that !!

    Have a read of this pointer:-
    https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697974

    And, having done that, do read on down that thread – there are some pretty neat “pointers” for newer investors, including (just a posts further on) a story of a young bloke who used positive geared property to set himself up – in LESS than 2 years. It is a good read !!! ;)

    Hope that helps some…

    Benny

    Profile photo of JpropJprop
    Participant
    @essenceofjad
    Join Date: 2016
    Post Count: 18

    @benny Thanks for the response. That advice will help me make a better decision. Another question, are banks still wanting 20% deposit for IP’s? I was in the same situation when i bought my first IP whether to use 10% deposit to buy two properties but the banks had restrictions on only lending if there was 20% deposit? Talking about IPs in regional NSW. Is this still the case?

    Thanks again,
    Jad

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

    Hi again,

    Right now is where talking to me won’t help. The MB’s on here can likely give you all of those answers, and I do know there have been changes recently that might make 90% loans harder to get. But impossible? I am not sure for regional properties – but I keep hearing that “some” lenders are not as hard as others….

    Check with some of the MB’s who pop in and offer their thoughts. Hopefully, one or two might follow me up since I am struggling and be able to offer you good value. Look in their signature areas to see “Who’s who”,

    Benny

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    Hi Jad.

    Where abouts in regional NSW are you buying that has limitations on LVR?

    I would personally try and add value to your current properties to try and create some sweat equity. Maybe have a chat to an investment savvy broker on here so all your options are available to you.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me | Phone Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Hi Jad,

    We wrote about LMI here if you want to have a read and see what I think.

    Definitely stand alone properties. No doubt there.

    Presuming you could borrow 88% (usually that’s the sweet spot as far as not paying too much LMI) on your existing properties and that’s enough for a 25% of the new property (20% deposit + 5% purchasing fees), then you should be good in that aspect. Your broker should be able to run the numbers and make it happen 👍😎

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of JpropJprop
    Participant
    @essenceofjad
    Join Date: 2016
    Post Count: 18

    @the-dark-knight, looking at Moree and Wagga.

    @ethantimor My broker is crutching some numbers for me. :)

    @benny thanks for the information.

    Thanks all for your advice.

    I just want to put my strategy out there to building my portfolio. I think i may need to change it. I am currently purchasing positively geared IPs in regional areas (main reason is they are less expensive and positivelt geared). Only problem is capital growth is very minimal and equity is not as great. I have one IP in Narrandera which is 2units(both with tenants) and a big shed at the back which was rented. That is now going through valuation to see how much equity hoping to use it for my next IP. The strategy mainly focus on positively geared IP and I didnt put into account capitol growth to purchase more properties. That IP at is in a company trust structure which means i wont be able to claim any tax benefits if i purchase a negatively geared property. What other strategies would you implement or change?

    I was thinking of what Tony suggested of renovating my current IP to add more value or i was thinking of investing in an area that is due for growth and buy and hold? I guess i just need some advice or guidance so i can keep purchasing and achieving the goals ive set.

    Thanks again.
    Jad

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    CF+ is great for cashflow but wealth is with capital growth.

    Could you elaborate on your current strategy? Ok, so you buy x properties that are CF+, then what? Sit and wait for the low capital growth to bring you to a point where you could refinance and buy another property? That could take a very long time… 😁

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of JpropJprop
    Participant
    @essenceofjad
    Join Date: 2016
    Post Count: 18

    @ethantimor Sorry for the late reply. You may be right. My current strategy was to purchase CF+ IPs but that does limit me in buying more IPs to build my portfolio.

    The IP i have currently is in Narrandera (Regional NSW). It is a Duplex (2 unit) house on a 800+ size land. The thing with this property is that it has a big Shed at the back which has back lane access and that is cut off from the two tenants. Used to be rented for $50 per week just for storage. I could renovate it to add value as Tony suggested. What other options would do you thing i can do to help me purchase my next IP. The next one I will focus on Capital growth to help me purchase my next property. But i would want a mixture of CF+ IPs and CG IPs so the CF+ IPs would help me cover expenses for the shortfall on the CG IPs.

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Hey mate,

    Each situation is different but generally speaking I like to manufacture myself the growth of my property. This can be done in various ways and it’s not only a lot of fun but very profitable as well. So you could buy a CF- property in a high growth area, turn it into CF+ quite quickly and enjoy the ride. It’s a double win! 👍😎

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

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

    If shoot me an email i can send you a copy of my API article on how i built a $25M unencumbered portfolio over a decade using a variety of cash flow strategies from development to Vendor Finance to Private lending in order to pay down my lending and be able to initially retire from the workforce at 40.

    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.

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