Hi Jprop,

Property 1 will provide me with a rental yield of around 9% (leased until Sept 2016) but will chew up all my extra cash if i purchase it.

Sounds like a really good start with a 9% yield. But what is it about THIS place that has such a good return? You say it will take all of your extra cash – is that because you will need to spend $$ on a reno soon?

Tell us a bit more about each option, and it may enable more focussed answers.

Also, have a think about the actual COST of LMI to you. Like the house itself, you are not having to find 100% of it upfront. As an example, let’s say you are looking at a purchase of a $400k house, and you are borrowing 80%. Your cash (or equity) input will be $80k plus other costs – so maybe $100k all up?

Now, if you chose to use LMI to get a 90% lend, what does this look like? An online calculator tells me the LMI costs $7k – but wait…..

Instead of $100k cash, you save $40k (it is a 90% loan now) so just $60k upfront. The LMI cost can usually be added to your loan, so that $7k LMI cost will add just an extra $350 a year in Interest to your mortgage.

So, my question to you is this – “Does it make sense to pay an extra $350 a year to be able to keep $40k available in cash?”

Of course, there is a downside too – i.e. your borrowings are 10% more than previous, and this might impact on future borrowings for other IPs. Right there is where a MB can help by running through these monetary scenarios, and helping you to see your options more clearly.

Hope that helps with another perspective !!

Benny

PS The $40k you saved can be kept in an Offset account against the primary loan – just having it there will save you around $2k per year in Interest – and of course you only need $7k in Offset to totally offset the LMI cost anyway. Howzat??

Hi Kuna,
It is awesome to read of one so young who is already as far ahead as you are. Have you done well? Absolutely – that is a great start. Where do you go from here?

Ah, now that is where YOU come in. In short, it is your call. You have set yourself up to be able to advance in several possible directions. What direction do you WANT to head in?

See, some might move from PPOR to PPOR without ever owning an investment property. Each PPOR is a step up, and they are all saleable without the need to pay CGT. I have read of some who move 6 or 7 times – the 7th time, ending up with a $2m house on Sydney harbour (probably now worth $4m). They never owned an IP.

Others might buy and hold; or buy/reno/hold; or buy/reno/sell/buyagain; or subdivide/build/sell; or subdivide/build/hold……

But they all start out with the first step. You have taken a big first step – but now the occasion needs to define “Where do you want to go next?” and then start talking with a Mortgage Broker to find out just hOW to make that happen (or to reset your sights if it is too big a step financially).

Re paying off the current PPOR, sure !! I wouldn’t be racing to pay off an IP, but a PPOR’s debt is non-deductible, so why not pay it off/down. OR, you can set up an Offset account against the mortgage, allowing you to turn the PPOR into an IP down-the-track without losing the deductibility of the mortgage.

There is a lot to think about and talk about before your next move, Kuna. But you are in a strong position to contemplate your next move.

Benny

PS Take some time to check out this thread – some great info in there, and stories re how others have approached the IP situation.
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/

Hi Jacqui,

I also notice it’s a bit of a mission to find a particular member now. Once upon a time there was a link that took you straight into members and you can search by partial username.

My question re above to Admin received an answer – in short, he agreed it once did have a link, but it was removed deliberately when PM spamming was a major problem years ago. And it has never been reinstated, largely for that reason.

Benny

Hi Vardy,

A few months ago I switched to a fixed rate interest only home loan for 2 years just to increase some cashflow.

OK, one to take VERY careful note of if wanting to sell or refinance. The “break costs” when ending a Fixed Loan ahead of its natural EndOfLife can be CRIPPLING !! Be sure you KNOW how much it will cost BEFORE you go ahead with any Sale or refinance.

If the Variable Rate is higher than the Fixed Rate of Interest, then it may not be too horrific. But if Variable is LOWER, the cost to break out will be enormous (way more than you might reasonably calculate – I found this out the hard way some years back).

One to watch !!

Benny

Hi JD,
I didn’t answer earlier, as I don’t know for sure – but I would think that a townhouse should appear under “houses”.

My rationale for thinking that is simply because townhouses are mostly built “in a row, on the ground” (not up three levels as is a unit) and these houses each own the land they sit on. With a unit, that is not the case.

Could I be wrong? Hell yes !! But if someone knows I am, please respond with a little more illumination on the subject. Thanks,

Benny

Hi Codie,

Am I correct in saying on paper we are making a loss of $23,640?

Using your numbers as provided, yes you are correct. One thing I would question is the figure of $27k for Depreciation. How certain are you of that number? One small part of it will be Capital Works (2.5% of build cost of the house) or other Capital costs. Given a likely $200k build cost, that is $5k.

Can the remaining $22k be found in the Depreciation Schedule? That seems like a very high figure but it could be true for year 1 e.g. A low-value pool will likely give you a large deduction in Year 1 – but check it out for years 2 onward !! There could be a large drop in later years.

There could be Borrowing Costs – they do NOT form part of Depreciation figures, but could well be another $4k or so per year. Maybe these are rolled up in that $27k figure (???)

On your numbers, it does appear that you start off positive geared. And you will be even more positively geared after your “non-cash deductions”.

Benny

Hi Maya,
I am sure this is different state to state. What state are you looking at to buy?

Benny

Hi Chuck,

I think that this is a great strategy to put a pin in the real estate bubble. Would be very interesting to see what happens then!

To find out what happens, simply go “Back to the Future” circa 1984-86. Labor did the same thing back then, and turned the whole rental market on its head. It amazes me that they would want to “try again”….. but maybe they have forgotten the lesson that was taught at that time.

Benny

The Search for members does still exist. I have always found the Members Search this way :-

First click on your name – this takes you into the “members” area, but specifically into your Profile. The url will show this:-
https://www.propertyinvesting.com/members/jacm/

Now, in the address bar, simply delete the last five characters – jacm/ – and hit Enter. This takes you up a level into the “members” area where you will find Search in the top right-hand corner.

Benny

Thanks for that link @mirwin – much appreciated !!

Benny