Hi All,
Have been reading the forum for a while and have seen a few similar posts, but would like some clarification on my specific situation.
I am 24 and my girlfriend and I are looking at purchasing our first property in Brisbane. Our area of interest is Townhouses and Houses on the western train corridor from Paddington to Oxley (townhouses in the more inner suburbs and houses further out). Our plan is to buy something that will be our PPOR for 1yr which will allow us to qualify for the first home owners grant and stamp duty waiver, after this point we will be moving out and looking for rental tenants for the property. I am being transferred overseas with my job in early 2012 for 6-12 months with accommodation payed for by my company and we will likely not return permanently to Brisbane for 3-5years, with other O/S postings likely with my job. Our main motivation with this purchase is to take advantage of what we feel is a weak market in this area and to use the rental income and (hopefully) any equity created to assist in purchasing a PPOR in another 3-5 years and possibly starting a small business in that time aswell.
To give you some information on our finances:
– Our combined gross income is approximately $125K PA
– We are credit card debt free
– both own debt free cars of $20k and $10k respectively
-no other debt
-Weakest point of our finances is our deposit which will be only 25KBased on discussions with bank and mortgage broker we have limited ourselves to a maximum purchase price of 470K at a 95% lend. We are looking at an interest only loan with a 100% offset account, we are quite diligent savers and we think the IO 100% offset will give us more flexibility down the track. If we are on the wrong track with any of this I would love to hear the point of view of some more experienced investors. Also we are thinking of locking in our interest rate for 5 years, just to give us peace of mind.
We have recently found a house which we would think about purchasing, however we would also like to do some cosmetic renovations before we rent it out (recarpet, new benchtops and doors in kitchen, paint and new bathroom). Are we able to borrow an additional amount on our loan to perform these renovations? i.e purchase price of house is 450K, loan ammount would be Approx 425K but we would borrow an additional 15K for the renovations. Is this possible?
We think we can rent this out post renovation for $500pw. Which would give us a return on our investment of around 5.6% PA and a slightly negatively geared property.
I guess i just want some feedback on whether we are on the right track with this at present and any other considerations we need to take into account.
thanks in advance
Sam
Totally agree that the way to go would Interest only with 100% offset account but unfortunately you wont be able to fix the rate of interest on the loan and still utilise the offset account (odd lender exception).
You may want to therefore look at splitting the loan between a fixed rate and variable and link the offset account to the variable portion of the loan.
This way you can get the best of both worlds.
In regards to whether you can borrow funds for the renvoation this will depend on whether the work is being undertaken by a licensed builder and if so whether the lender valuer agrees that the valuation will increase accordingly.
Either way the Bank will want to control the funds payable to the Builder.Remember even at a 95% lvr + LMI the capitalised LMI will be limited to 2% of the purchase price and you will have to come up with the balance. In addition to your own legal costs you will still have the mortgage registration and transfer.
Might want to double check how much you will need to make sure you have this up your sleeve.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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