Starting out

Make your principle place of residences loan interest only, if you have access to an offset account. From there setup a direct debit for the difference you otherwise would be paying with P&I into the offset. Place extra funds into offset until the balance grows enough to provide a sufficient deposit. If the value of the property has risen enough, you can also draw from the equity to assist in the deposit.

Definitely get landlord expensive – it really isn’t THAT expensive. Usually only ~$250 which is tax deductible.

Most importantly come up with a strategy. Work out what you’re trying to achieve and establish where exactly you are (aka, you have one property which you are going to turn into an IP). From there bridge the gap with a strategy which you are happy with. Once you have a goal its a lot easier to work out what properties in the future will be suitable purchases and whether they HELP or HINDER your plans.

Hi Kirstie,

Are you paying principal and interest or interest only on your home loan? If it’s principal and interest then change it to interest only. This will help with cashflow and is generally what is done with investments.

Do you have any equity available in your house at the moment? What is the mortgage against it and what is it’s value?

Technically you don’t need to get landlord insurance but that premium, IMO, is well worth it. In the scheme of things it’s not much to pay to have the SANF that your property is protected and so are you should you need to make a claim, which eventually the odds are you will need to. It’s tax deductible and just part of the property investing expenses.

All good :) You’re asking questions and wanting to educate yourself so you’re off to a great start!

My guess would be is it’s principal in interest (P&I). This is where you pay the debt (principal) down as well as the interest that is charged. An Interest Only (IO) loan is where you don’t actually pay down the principal just pay the interest payments each month. This can be a tough mental hurdle to overcome as it’s in a lot of people’s mentality that all debt needs to be paid down. This is generally not the case with property investing. Cash flow is king and have an IO loan enables this. You allow capital growth to make the gap between the debt owing and the value of the property to grow larger.

If you have already paid LMI with your current loan then you will lose that LMI is you refinance to another bank so keep that in mind.

Is there a reason why you want to rent out your current principal place of residence (PPOR) and not continue living there and purchase a different IP? Does your PPOR make a good investment?

Make your PPOR loan IO as soon as you can, and any extra funds put into an offset account which will offset your homeloan balance in the sense that, say you have a $200k home loan and have $50k sitting in your offset then you will only be paying interest on a balance of $150k. Better than paying the principal down.

he LMI is 10k and we pay $260 a month over 4 years for that but can pay it sooner if we wish.

I am a little bit confused by this – do you have a separate loan for the LMI charge?

If we only use the equity in this property to purchase another house will that void the LMI?

Not if you stay with the same bank. It’s generally called a ‘top up’. Depending on the LVR you started out with (95%, 90% etc) and the banks policy it’s fairly straight forward to draw out equity to the original LVR if it’s around or less than 90%.

RE the LMI – makes sense. It’s usually capitalised onto the loan.

You’re correct with both scenarios. In the first example that is the preferred method.

You get an equity release as a separate loan or Line of Credit which is secured against your current PPOR. You then use those funds to contribute towards deposit and purchasing costs of your IP. Because it’s a separate split it makes tax deductability a lot easier if you have a PPOR and an IP as only costs relating to the IP would be deductible.

In the second scenario what you’re describing is what is called cross collateralisation (x-coll). This should be avoided as it can make things very messy and be a headache later on. Most of the time, it’s only the bank who benefits from this set up. This is how bankers (and non IP savvy brokers) tend to set up new loans for investments as it’s easier and less paperwork.

Go with the first scenario as this is what will benefit you and make things more simple for you down the track.

What else would you be wanting to use it towards?

I think the best way to go about things is to start with your end game and work back from there instead of starting almost blindly and hoping for the best.

Why are you wanting to invest in property? Financial freedom? If so, how much do you need or want? So now you have that figure what do you need to invest in to make it there? What average purchase price, per annum capital growth and rental yield figure do you need to get there? Once you have some rough figures you can then find areas and suburbs to fit that criteria. <– Hope that makes sense.

Is positive gearing common?

Yes, but negative gearing is too! I’m not a fan of spending $2 to save $1 in tax so I like to find properties that are at the very least neutrally geared. If not, then there needs to be something else about that property to compensate for the fact such as development potential, it will be a flip or outstanding capital growth.

Some people like to hold a balance of cash flow positive (CF+) and high capital growth properties in their portfolio because usually with the high CG properties you compromise on the rental return (there are some areas that are both, but carry their own risks). The CG provides the $$$ for the deposits on new purchases and the CF helps with the servicing of the loans.

An IP savvy broker should be on your go-to list. As well as a good accountant and conveyancer / solicitor – they can all help you achieve your end goal and set you on the right path

With this day and age there doesn’t need to be a face to face meeting but some people prefer it – it’s up to the individual with what they feel most comfortable with.

An accountant can help with the tax side of things and there’s some good websites out there where you can get all your raw data for your scenarios such as rental returns, avg CG, demographics, vacancy rates, infrastructure etc etc

• This reply was modified 9 years, 10 months ago by  Kinnon Bell.

Some of the free website I frequent are:
http://www.investsmart.com.au/property – good for Capital growth figures, suburb demographics and make up
http://www.htw.com.au/downloads.aspx – monthly report on the state of the market for residential and commercial
http://www.suburbview.com/ a holistic view of all the real estate for sale websites
http://www.homepriceguide.com.au/ similar to investsmart
http://www.refindhouseprices.com/ How many days advertised and listing price history so if they’ve reduced the price since listing, that kind of thing.
http://house.ksou.cn/ Has sold prices and when
http://www.propertykeyword.com/ if you’re looking for a specific property type like ‘block of units’ or ‘renovators delight’ etc
http://www.sqmresearch.com.au/terms_vacancy.php rental vacancy rates
http://www.myrp.com.au/n/free-suburb-profile/myrp-545#LandingReport have a suburb profile report sent to you
http://www.abs.gov.au/ Data on demographics
+ each council / state website that has planned infrastructure and developments

*Generally* brokers do not charge a fee for their service – they are paid by the banks when the loan settles.

Not sure about the Doreen area but Peter Tersteeg of Sage Lending Solutions http://www.sagelending.com.au/ based in Nunawading is a good IP savvy broker.

Don’t apologise for the questions – you will learn more if you ask!

Kirstie you’ve got quite a few questions. :)

Form a great team of experienced professionals (broker, accountant, conveyancer/solicitor etc) who you can then leverage off their knowledge to assist you to meet your goals, and CHALLENGE your goals to make you achieve much more than you original set out on.

Kinnon who has been posting a bit in this thread is a great broker who is also a seasoned investor, with experience in investing in multiple States – have a chat with her regarding your situation and I’m sure she would be able to open your eyes up to your potential, list any challenges you might face upfront and MOST importantly how to overcome them.