Advice and answers needed for a couple looking to invest in property =)

My view is that rather than paying rent, you would be better off paying off a home loan. You can then borrow against the equity in your home to assist in purchasing investment properties.

This of course does depend on how the numbers stack up and you should look at this. How does your rent compare to likely home loan payments? What would your cash flow postion be for an IP and does that change the balance?

Also, ask yourself what’s important to you – is there a non financial motivation to owning your own home?

Lastly, you should research the performance of property in the area where you are looking and get an idea of where the market is heading. If prices are likely to come off further then it may be better to try and time your entry into the market to position yourself for maximum capital growth.

In theory, you are right. Buy the IP, then use whatever equity to help purchase your PPoR. You still need to cover the loan on the equity + your res. home loan, if you were to get it. A lot of people forget that using equity is still borrowed money. It ain't free. Will your combined incomes support your IP leveraged to the hilt AND a PPoR?

The first thing though is the equity you have in your IP is not enough to borrow on unless you were to raise the Loan to Value Ratio (LVR) from 80% up to say 90%, which then increases your outgoing payments making the property negative. If the market drops then the bank can ask you to make up the difference to get your LVR down, so you will be treding on uncharted territory for both of you and probably not the best strategy.

Also you can only borrow up to 80% (usually) of your equity, so the difference between 80% LVR now ( your $64k deposit) and 90% is $32k less 20% is only $25,600
Does this make sense?

Personally, given you are starting out and havent got huge finances to play with, I'd look at :

• buying your first IP rather than a home to live in as the tax gains are much better and you have a rent income.
• Secondly I would probably take as much care as I could to research areas to look for the best capital gain potential suburb that I could afford and buy a property really close to the next suburb that is more expensive. ( See RP Data & Residex for this info).
• Thirdly I would look for an IP that needs some work, or I can add value to in some other way either straight away ( a cosmetic renovation) or down the line Eg: a subdivision, add a granny flat or convert an extention or garage, or develop the whole block.. This way you are in a position to create your own equity in the property, rather than waiting for the market to dictate that to you.

If you were to buy your own home first, what happens in many cases is you buy a place you want to live in which costs more than an IP that you dont want to live in. Your liability to the mortgage is much higher and you find it hard to save enough to get to the next stage of property investing. Most people never get there and those that do it can take years.

One other option ff you dearly wish to live in your own house first, is to set up a company and buy it in the company name, then you rent it off the company. The tax deductions are the same as an IP although for all intents and purposes, you have your PPoR.
Check all this out with your accountant. Make sure they specialize in property or you are wasting your time ( and money)

Hope that gives you food for thought.

Ian
http://theblockblog.com
Free Property Investment Info. Tools & Resources For Investors With A Sense of Humour.

Assuming your username relfects where you live.

The first thing I would do if I was in your situation is go and see a broker. Jamie M is in the ACT – you can get a feel for Jamie by his comments on  this forum. Recommend you do a search by username and see what you think.

Your third post has a lot of 'IFs' in it. Until you definitive answers to these IFs you could be taking an approach that is not going to work. While everyone talsk about property – property is somewhat of a secondary consideration. First consideration should always be finance. I always recommend people should get the financial picture right before looking at property.

Give Jamie a call.

As for the home V IP debate.

Really a matter of personal preference. Most people could mount a case supporting both positions and in many respects it comes down to a financial decision (IP) V an emotional decision (Own Home). Only you and your partner will know the answer to that question.

For what it is worth the home mortgage is a bigger ask than looking after an investment loan as you don't have any assistance from rent or tax deductions.

Call Jamie.

The extra payments plus your lack of deposit (after you buy PPOR) will severely restrict you ability to buy an IP.

Yes pay interest only. Put any extra money into the offset account. When you buy a PPOR pay extra into that. Always pay personal debt first as it's not tax deductable.

Do NOT under any circumstances do this. Borrow at 80%. Any extra money you have put it into an offset account against the loan. That will lower your repayments the same as if you paid it into the loan. The difference is it is YOUR money to take out when you wish. If you pay off the loan then pull the money out to buy a PPOR you lose that money in tax deductions because you spent it on personal purchases. If you pull the money out of the offset account you sdtill retain the tax benefits on the whole lot of the loan.

InvestingCoupleACT wrote:

I think IF we were to buy a home first the banks may reject an application for another loan IF we were to apply for one to get this investment property but i think IF we were to get this investment property first our chances for a loan for a home where we reside in would be better??  meaning the outcome of this scenario would be that we have an investment property where we pay next to nothing or literally nothing in home loan repayments and then just pay off our home loan??
Rookies

The bank looks at your expenditure VS your outgoings. Rent is calculated at 75-80%. Having the IP would not increase your chances of a PPOR loan. Not while it's negatively geared anyway.

Yes. You have good income. No debts and a good deposit.

Once you buy the first one (with your extra money in the offset) get pre approval for the next one and use the money in your offset to pay the 20% deposit + legals, stamp duty etc. The bank may let you lend to 90% but you will need to pay LMI.
repeat/repeat/repeat.

If you buy properties that are not too negatively geared you will be able to repeat. If the properties are too negatively geared you will hit a wall sooner than if they aren't. But with your income you can afford to be a bit negatively geared if you need to be.
You could buy places that need small renos (or big if you are that way inclined). Do the reno and this instantly (or should otherwise you are wasting your time)increase the equity AND the rent. You can revalue if you need to withdraw the money out for a deposit on the next one.

eg buy $250K. Reno $15K new price  $310K. So increase of $45K. Reval and you have $36K for the next one (80% of $45K).