Hi,
My wife and I are looking into our first Investment Property. We are both late 20's
We are currently paying off our home near Newcastle NSW. Our home is worth around 300k and we currently owe about 185k. We had a shocker about 2 years ago and fixed our mortgage at 8% for 5 years ( I know…. but got some bad advice and seemed like a good idea at the time). We make well above the min repayments and are about 25k in front but cant use this money until the fixed term is up.
Also we just sold our boat so have 50k in the bank.This is were the plot thickens : My parents are nearing retirement but still have a mortgage ( hence a major reason for us wanting to invest now). They are looking to downsize and are looking at dual occupancy.
We have a holding deposit on a block of land which is coming up in our area, its 860sq corner block, which we are currently seeing builders with Duplex designs. The Block will be slightly under 200k, so our 1/2 will be around 100k, and the duplex (turn key package will be around 380k, so our side of things will come to about 290k or thereabouts. My parents will live in there side and we will rent ours out which we have been advised will be around $290-$300/week.
If all goes to plan this will be the first of many investment properties.
So the advice I'm looking for is mainly how to set it all up finance wise:-What would be the best way to use the 50k we have, Do I Use it straight off the cost of the investment and get a normal Principle and Interest loan for around 240k
-Or get an Interest only Loan and pay the principle amount off our home, as I understand the interest paid is tax deductible which will help at tax time, then pay our tax return off our home as well.
-Or the offset account which we do not fully understand the benefits etc, maybe we could put the 50 in the offset and borrow the whole amount for the investment on either P&I or Interest Only ??Any Advice will be Helpful
ThanksHI if you are never planning to live in the property then you wnat to get an IO loan. Have you enquired about refinancing your loan on your PPOR. I refinanced and even though i had to pay a ridiculous amount of moeny to do so, i am now sooo much better off with a significant recuction in repayments. I should alos recoup the costs of refinancing within ten months.
The benefits of the offset account is that if you have a loan for $200,000 and you pay $50,000 onto the loan then you are paying interest on $150,00 but you alos then you have that money locked up in the loan.
If you have a $200,000 loan and you put $50,000 in an offset account then you stull pay interest on $150,000 however you have access to the money whenever you need it.
However, an even better option would be if you could have the offset account against the loan on your PPOR as this is a non tax deductible loan
cheers
Sonya
What will be the value of each duplex? The rental yield, although fine, does not warrant all the work?
This is only a numbers opinion (removing your heart out of the equation).
Yes, all loans in your case should be interest only, particularly as you have discussed a property portfolio in the future.
What you are doing to help your parents is noble. But would it be easier and better for them and you if they simply sold their place and downsized and bought a place off someone else.
As a new investor doing a development could be a difficult first step. Putting your parents in the mix could make it even harder for everyone. It might be an idea to do it yourself and leave your parents out of it. Just thinking out load here, no need to take my advise. Just try to be really careful because when family gets involved it is no longer just an investment…it’s personal.
If it is for investment only then yes I would agree with what others have said and go I/O. This way you can maximise your cashflow because you can minimise your outgoings. It also makes your tax return a bit easier and maximises your reductions. With only around 5% rental return you are going to want to do your best to minimise outgoings so you don’t have to pay huge amounts each month that you can’t afford.
It is an interesting situation so good luck
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just a Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeThanks for the advice guys
I think i will definitely look into the costs involved in getting out of our fixed term loan as the offset account on our home loan for the 50k sounds like the way to go but is not available with the current loan, might be able to get some discounted exit costs if starting up another loan with same finance company.
From the research I have done on similar duplexes for sale in similar areas, each unit will be worth around 330k conservatively, also the costs I mentioned will be absolute maximum at this stage and the more we speak to different builders the more money we will be able to save in different areas. eg to not go the full turn key package, get some contractors that I know to do a few of the finishing off like floor coverings, concreting, landscaping etc.
I understand that I could maybe afford to do the whole thing myself and leave my parents out of it, and also that I could buy another investment property for a lot less effort, but we have a few reasons we think are good ones but thanks anyway.
It was mainly to get your opinions on the finance side of things, and the best way to set it up
ThanksJust a few things to be careful of.
1. If you get the new loan with the same bank then your loans are automatically cross securitised. This means if your townhouses fold, then the banks can go to your Principle Place of Residency (PPOR) and make you sell that. So be careful with that and maybe look at starting your next loan with a new bank.
2. Think about setting up your properties in a trust. Because one of them will be your investment it is a good idea to look at asset protection. See as an investment if the tenant hurts themself in your property then they can sue you, and if it is in your name then they can sue you for everything you are worth (your house, your car, your furniture, your 50k savings). But if it is in the name of a trust with a non-trading company as the trustee, then all they can sue you for is the investment property. So you might lose that but at least you won’t lose anything else.
I invest with trusts, and it is more difficult to get lending, but it is worth it in the end.Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just a Click AwayRyan McLean | On Property
http://onproperty.com.au
Email Me
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