Hi Guys,
First time poster on this forum
I'm currently looking at buying my first PPOR, and turning it into an IP after 3-4 years. My partner and I are 25, and looking in the Eastern Suburbs outside Melbourne (Ringwood, Heathmont, Bayswater etc.).
We will be structuring our loan to be IO with a 100% offset account, and putting as much as possible over the 3-4 years, into the offset account before we take those funds out to buy our next PPOR and rent the first one out.
We have no plans for a family until we move into this next PPOR, my question is:
Should we buy a small unit for 330-370k and quite easily pay off a large amount of that over the 4 years, or buy a decent sized house for 470k, having paid off not as much. We can get by on the the loan for the 470k property comfortably, but I'm not so sure it will be easy to pay off once we have 2 properties.
Hi there,
Have you taken a look at what the demand is like in those areas for small units versus decent sized houses? And what the rental yield would be? These things are factors that will come into play also.
Other thing to remember, you don't have to "pay off" an investment property. Just cover the holding costs (interest only mortgage interest, council rates, water rates, insurance). Ideally the rent should cover these costs so the IP would not cost you anything to hold. Each year you put the rent up and bit by bit, if you were that way inclined, this surplus rent could "pay off" the mortgage. Alternatively if after the term of the 30 year loan is up your surplus rents haven't "paid off" the mortgage, you could simply refinance. ie get another bank to pay out the old loan and start a brand new one with a fresh new 30 year stint
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
ps if you know you are going to convert it to a PPOR, probably I would opt to put as little deposit down as possible (eg 5%) and whack all the spare money in the offset account. That way you can pull that offset account money out in a few years and buy your new PPOR with it.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks JacM,
I've had a look at Residex and found that Bayswater for example:
House
Median Purchase: $436k
Median Weekly Rent: $370
Gross Yield: 4.41%
Unit
Median Purchase: $348k
Median Weekly Rent: $350
Gross Yield: 5.23%
The average growth for both types of property in the area looks similar, and the vacancy rate seems to be at an average of around 1.5%-2.0%
Am I missing something here, is there a reason you would chose to purchase a house of a unit in this area? Granted there are options for subdividing on a house.
Also, when you say 'cover the holding costs', are you suggesting the best approach is to have the rental income paying for mortgage interest, rates, insurance etc. and any additional income remainding should go to my PPOR, or any other loan in which I can't offset against my personal income?
Would paying only 5% or 10% of the deposit and leaving the rest in the offset be worth it in the long run? I would have to pay a higher interest rate for the loan I'd like as well as paying LMI.
Because it will bcome an investment you should borrow as much as possible and put as little in as possible. There are ways to structure it so you can borrow 105% and then later free up more of your cash for your new ppor.
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
Terry has answered most of your questions superbly so I won't reiterate.
In terms of whether you should go for the higher yielding property or not is a decision for you. Capital Growth can be anticipated based on past performance of similar assets, but not guaranteed. In this regard, I prefer assets that are in sensible towns that will rise in value in a similar fashion to towns around them, but I expect the asset to cover its costs. I am sure not going to put my hand in my pocket every week to cover the difference for the next however many hears hoping for capital growth to rescue me.
There are many different opinions on this topic.
All this said, I have an aversion to body corporates as it involves and annoying amount of dealing with other owners, so I personally prefer to seek out properties with good yields on independant titles.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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