All Topics / Help Needed! / $70k to spend, buy 1 or 2 properties?
G'day everyone,
I have recently sold an investment unit I had and am looking at investing $70k into 1 to 2 properties. I have found two places and am trying to work out what seasoned campaigners like yourselves would recommend.
House one – For sale – $285k, currently rented for $365p/w, 800m2 – house needs work but is zoned 2c and has had drawings for 2 x townhouses and 2 x villas with no DA ever sought and all neighbours have previously been developed.
House two – for sale – 255k, currently rented for $340p/w, 500m2 – house needs very little work, is zoned 2c but such small land I am thinking could do very little down the road.
I am unsure if I should buy two and take on the LMI or just one. If I buy the two neither are positive geared and I though I can wear the cost it will be a little harder. If I buy one then I would have it easily positive geared. both are good deals for the area but neither are exceptional.
would you guys look at the longer development as the best approach? would you try to buy the two as longer term you will get greater returns? I am very new to this and I was looking at Carly Crutchfield program but have been reading forums and have decided to stay away – so if I don't have her advise who do I go to?
Cheers
W0mbatHi Wombat
Welcome to the forum.
I've always been a fan of using as much of the banks money as possible and utilising LMI to grow the portfolio quickly. However, this doesn't work for everyone – it comes down to your own risk profile. If owning a couple of properties with high LVRs is going to stop you from sleeping at night, then I'd recommend you don't go down this path. If you believe you can afford to purchase both and aren't troubled with owning a couple of properties with higher LVRs, then I'd consider getting both.
Here's a blog entry on utlising LMI to grow the portfolio – http://www.passgo.com.au/blog/25-the-project/68-lenders-mortgage-insurance-lmi-a-good-or-bad-thing
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]
Hi Jamie,
If you go for a higher LVR loan, say 95%, will you miss out on any type of features than an 80% LVR will give you? Such as, maybe having to have a higher interest rate, having to have a P & I etc?
Hopefully you have factored in capital gains tax liability on the sale of your investment property in your next tax return.
Chris89 wrote:Hi Jamie,
If you go for a higher LVR loan, say 95%, will you miss out on any type of features than an 80% LVR will give you? Such as, maybe having to have a higher interest rate, having to have a P & I etc?
Hi Chris
Not necessarily. You would likely get the same rate applicable to deals between 80% – 95% and you can opt for IO (though some lenders like Adelaide Bank only allow P&I).
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]
Gday W0mbat,
Seems like you havent got a clear concept of where you want to go with the properties. Whats the outcome of buying them? What do you want to achieve? If you want to develop them, then the property with the biggest land area and most useless house is the best buy to start with. The one purchase as opposed to 2 would also not put you under any pressure it seems.
Secondly when do you want to develop the property, if thats your intention? If its 5 years from now and you have a land banking type strategy then maybe buy the 2. If you want to develop sooner, you will need every bit of spare cash to do this, so buying 2 might not be the best idea moving forward.
Your focus appears to be on the loan risk & insurance cost, rather than the property itself and what you want to do with it. Try turning your focus around to the end result and the profit you want to achieve, then work backwards. To do this you need to know very clearly what you want to do with the property, then do your costs and calculations over the time frame you have decided on. Work out your best option, then focus on the loan and the cash you will need to reach your goal with this or these properties.
You are definitely on the right track with your purchases though. Good on you. Always go for property that you can add value to down the line, whether it be immediately or in a time of your choosing. Large blocks are best.
Hope that makes sense.
Ian
http://theblockblog.com
Free Property Investment Information, Tools & Resources for Investors with a Sense of Humour.G'day everyone,
Thanks for the welcomes
Very informative for me as a newbie at this, so thank you for taking the time to respond.
I am thinking I might just get the 800m2 block instead of the 400m2 block, though it may require more work up front. If I am doing development work do you recommend waiting till after 5years to lower the capital gains tax? It is in a coastal suburb that I believe will be going up and going through it with my mate who is a architect we can easily do the 2 x villas and 2 x townhouses ourselves, but I was thinking more of getting the DA and then selling. What are your thoughts on that? I have been told developers generally want to squeeze in as much as possible where architects like to have more room, so sometimes selling with a DA is a bad idea? is there a way of working out if say you got a DA worth $50k (not that I nkow how much they cost) that it would add like $200k in value – is there a rule of thumb?
Does anyone happen to have any software they usespreadsheets they use that they would be able to share to assist me in working out my calcuations?
Thanks for your help again,
w0mbatFrom a investors point of view- you first need to look at the basic numbers how each one affects you:
1. how much do you make?
2. How much tax do you pay and what will the affect on the tax be on buy 1 or 2 etc…
3. Are you and YOUR FAMILY willing to accept the possible change in lifestyle?
4. Your age? are you nearing retirement ?
5. Short and long term goal-do you need the money in the next 2-3 years? marriage etc….A lot to think and plan.
planning is the key.
About the LMI; a lot of ppl think LMI is a curse …it’s not it’s like any insurance it provide you with a benefit– where is the benefit you ask?
Normally LMI cost around 1-3% of the loan amount depending on value and LVr…so let’s choose the highest 3%- yes you are down by 3% by paying this LMI …but remember LMi can be borrowed (capped)1. the LMI is tax deductible
2. If the property went up by the average of 3-5% per year – then you make this “unrealised gain” back.if we had a property boom or the property goes up in value; wouldn’t having 2 property be more beneficial then 1? of course…..yes easy said then to be done… always consider if you can afford it and how much strain it will place on your family and your life style….especially if you lose your job for 2-3 month.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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