Hi All,
I'm fairly new to property investing, so hopefully this post will make sense.
Late last year I bought a 2 bedroom apartment (currently my PPOR) in Homebush West, NSW for $400K on a $210K mortgage at currently 6.16% with St George (the difference was made up with a monetary gift from the parents and the FHOG). I have this set up as an IO loan with 100% offset.
My plan is to eventually turn this PPOR into my first IP and move into a smaller apartment as my new PPOR (hopefully in the Inner West suburbs). After reading these forums, I'm thinking that the best way to go about this is to use the equity in my PPOR to arrange a LOC to help fund the purchase of the new PPOR, in addition to a second separate mortgage (to avoid crossing the properties).
The main concerns I have at the moment are the serviceability of both the LOC and the second mortgage (even if they're both IO), as I only get paid $3200 nett per month. The 2 bedroom rental rates for my suburb are around $400pw-$450pw which should cover the repayments on the future IP, plus a little extra bit extra.
At this point in time though, the properties that I'm looking at possibly purchasing range between $300K-$350K, so I'm thinking that I may have to wait until I get a pay increase or a job promotion, and maybe save a more money to help improve my serviceability.
Am I on right track here?
If this can't happen in the near future, I'm thinking at the very least I will have a plan so that I can work towards this goal
Thanks for everyone's help!
You have set it up incorrectly.
You will find that you cannot claim the interest on the LOC which will be used to fund the new PPOR.
What you should have done was borrow money from your parents and used the LOC to repay this loan. You then ask you parents to lend you (0%) or gift you for the new property.
This would have saved you a bit in tax each year.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Synergism
Welcome aboard.
Terry's right – some careful planning and correct advice from the start would have saved you quite a bit of money.
Back to your question though. It sounds like you've already done the calculations on holding costs and have recognised that you can't afford to purchase a new PPOR in the inner west. On that basis, I wouldn't jump into the next purchase until you're in a position where you can confidently meet your increased level of debt.
Owning a PPOR on a smallish income can be quite burdensome on serviceability. I have a few clients on relatively low incomes who still live at home with the folks or rent in a share house and are able to accumulate properties because they don't have a large PPOR debt weighing them down.
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]
Thanks for the replies Terryw and Jamie M. I guess hindsight is a wonderful thing.
So when the time comes for my first IP, should I be paying off the LOC before the new PPOR (which will probably be on IO repayments)?
In the mean time I'll have to look at ways of improving my serviceability.
Do you think there's a chance that your next PPOR will one day turn into an IP? If so, you don't want to repeat the same mistake so I'd place an offset account against the loan (new PPOR loan) and place additional savings into that (rather than paying down the principle).
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]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
