I am a newbie to property investing but I have always been interested. This is my first post. I’d like hear some of your thoughts on what you would do in my situation.
I am entitled to FHOG and would like to purchase my first property before we get married next year when I will no longer be entitled to FHOG benefits.
My partner fully owns his IP valued at $180k. I have been advised that I can set up a loan with his property as security with both our names on the loan. The property will be in my name only. This means I will not need a deposit and not need to pay mortgage insurance whilst still entitled to FHOG. I have called State Revenue office and they confirm this is fine because we are not officially living together.
The mortgage broker has advised that we can secure a loan to $740k.
I do have other assets, about $100k in shares and managed funds that I was thinking to sell to fund the deposit. An accountant has advised I keep the money in shares since I’ve already paid entry costs to purchase them.
My current thinking is to purchase house & land in SW Sydney, live in it for required 6mths, renovate if necessary and move out to rent closer to the city & work. Since I can get stamp duty benefits my budget is under $500k. In 4-5 years we will move back out to this house in SW Sydney. I have read in other posts that I should consider setting this up as interest only loan. As property prices keep sliding I would like to consider purchasing another IP with the other $240k that the bank will loan us (after I convince my partner).
That is what I’m thinking at the moment. I am concerned that the returns on a house in SW Sydney is 3-4% only so I’m not sure if this is the wisest move. It seems safer because we know we would like to live there in the long term anyway. Am I nuts?? Do I have other options?
Thanks for reading my post!
Sue
As property prices keep sliding I would like to consider purchasing another IP with the other $240k that the bank will loan us (after I convince my partner).Upon application for that loan, I’d assume the bank will want to do another valuation on your first property as well as your fiance’s. If they come back short that $240 will no longer be available.
Just a thought.
Cheers, F.[cowboy2]Regarding the FHOG, you are not restricted to purchase a 500k property. There are discounts up to 600k but these reduce. Check http://www.fhog.info.
Regarding the amount you are allowed to borrow, this is directly related to the property you will be buying. If you are intent on avoiding mortgage insurance (or similar fees), you would only be able to borrow 80% of each property value.
For example:
Property 1…
$500,000 purchase price
$400,000 loan to avoid mortgage insurance
$100,000 deposit
$??? additional fees required (should be less than $2,000 assuming FHOG applies on this property)Property 2
$250,000 purchase price
$200,000 loan to avoid mortgage insurance
$50,000 deposit
$12,500 additional fees required assuming FHOG already used (about 5% of purchase price as a worst case scenario)Your total loans here would be $600,000. Although you would qualify for additional finance, unless you want to pay mortgage insurance, you would not be able to access it. You might also find that you run out of deposit and closing cost money before you run out of ability to borrow.
Also, with each purchase, you receive rental income. This further increases your ability to borrow but you will still have the deposit money problem.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksThanks guys
Mortgage Advisor, if I use my fiance’s IP worth $180k (fully owned) and a loan for $500k my LVR would be 74%. With this scenario, I’m assuming for the first property I will not need a deposit.
Another thought, is it better to buy a house & land in SW Sydney (Padstow, Revesby) to live in for the 6 months and move out and rent for 4 yrs before moving back to the house. Or purchase an apartment/townhouse closer to the city say Ashfield or eastern suburbs Sydney and live in it for 4 yrs and not worry about renting it out. Both properties will cost about $450-500k.
To try and tidy a few things up…
If you want to avoid mortgage insurance and your fiance’s property is worth $180,000 with no loan against it, you would only borrow $144,000 against it. I would get an interest only loan for the lot but only use the minimum amount required against the new purchase (to cover deposit and closing costs). Leave the rest sitting there in an offset or redraw for when needed. You only pay for what you use if you get interest only loans.
Assuming you are buying for $500,000, you should only put $100,000 in as a deposit. This avoids the mortgage insurance and maximises your deductibility for when the property becomes an investment. The new loan here would be $400,000 interest only with offset.
Moving into it for 6 months not only secures the FHOG benefits, but it also provides CGT exemptions for 6 years (not 4). You will of course lose this if you move into another property you own.
So you are right. You will not need any of your own money to do this purchase but I suggest an LVR of 80% on both properties. I don’t know how you got 74% LVR.
Regarding whether to buy out West or closer in, I cannot help you here. This is a decision for yourself. Regarding living in your own property, this is your biggest liability. You need to do the numbers with your accountant to determine if you would be better off with the investment properties or living in your own home. It usually comes down to whether rental income from the investment property is higher than the rent you would be paying.
Also, living in it would result in losing all deductibility unless you buy in a company or trust name and rent from it. You would not have the benefit of rental income though to improve your cashflow if renting would be less.
Regarding both properties costing about the same, this is not right when considering the lost rent and deductibility. There will be massive differences.
I hope this helps.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksHi Mortgage Advisor,
Thanks for the top tips. I’ll have a talk to my accountant about financial recommendations on how to buy.
Regarding the 74% LVR was calculated as follows, assuming the loan is secured with both properties (IP value $180 and PPOR $500)
LVR = ($500k loan) / (security of $500k PPOR + $180k IP)
= 500 / 680
= 74%Does this look right to you?
Yeah it is right but it does not account for closing costs and loan expenses. In any case, I would recommend doing the loans seperately as I outlined above. It is always better to have each property standing alone rather than cross collateralised especially if they are in different names.
You will not pay double fees for the loans if you take a discount package which would be very suitable at the level of borrowing you will be undertaking.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksI’m starting to understand. I’d like to confirm that I’ve got it right,
– Take out a mortgage of $144k on fiance’s IP. No mortgage insurance required.
– Take out second mortgage of $400k for PPOR. Use proceeds of $144k IP mortgage as deposit for PPOR. Again, no mortgage insurance required.
– We would still have $44k leftover possibly leave it in our offset account.
Would we structure this in the one loan, under both our names, say on a professional discount package.
It would be two seperate loans in whatever names you and your accountant suggest is most suitable.
The 44k is put into the offset even though you will not be able to deduct the interest on any loan if it was used for and is being used to offset non-deductible debt (ie: while you are living in the new property). Once you move into your rental, the whole lot becomes deductible. You can then move the 44k back into the loan to reduce your interest expense but still have funds available for additional investment expenses or leave it in the offset if you do not have free redraw.
It might even be more beneficial to have a seperate smaller split loan to use for investment expenses just to keep things tidy.
A Professional Discount Package seems to be the most suitable from the information you have provided.
It is nowhere near as complicated as it sounds and diagrams help a lot. This one might help a bit…
http://www.mortgagepackaging.com.au/tma/index_files/professional_and_other_loan_packages.htm
Speaking with a good mortgage adviser / broker would also help you to easily grasp the whole structure.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links
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