Hi all,
I would welcome your suggestions. Firstly, I just read Steve’s book last week and it answered all my questions about positive and negative gearing. So I am ready to go, have properties I can purchase but would like your input.I have one investment property, (a 2br house and 2 1bd units)My mortgage on this property is $154,000 and I receive gross $360 per week in rent. It is probably worth about $300,000 now. It is located in an inner city suburb of Adelaide
I have owned the properties for about 6 years, and have never had a vacancy.. in fact I never have to advertise cos tenants friends put their names down, so they never officially come on the market. I have an agent but deal with tradesmen personally. I think the reason why my properties are so successful is that my rent is low and they are neat and clean and tenants know the landlady cares.
I have a mortgage over my current home of $125,00and the property is worth at least $250,000. I want to use my equity and purchase other properties that will earn me money now and will also do so in my retirement.
I am considering purchasing two 3 bedroom homes for $65,000 each and the rental income for both is $340 per week. The owner has agreed to this and is expecting me to travel there in the next few weeks to inspect the properties. Both are tenanted.
I have enquired to various lendors and I am told that I can borrow the total $130,000 if they have a contract also over the house I live in. I just come up with the costs associated with the purchasing which I can do. I know the town, and I understand that it will not make capital gain, but it will make me a good income..
What should I do? One house makes $180 per week and the other $160.. I feel uneasy about a $130,000 debt but a $65,000 one is easier, especially if I could pay a 5% deposit and costs and the “banks” do not have a contract over my home..
I would be interested in your thoughs
NellHi Nell,
So the lenders want security of your investment property AND your own home? If I understood correctly then that seems a bit odd to me as I thought there’d be enough equity in your investment property to finance the new purchases (I could be missing something here.. a mortgage broker will probably come and corret me I hope!). The returns on the houses you’re looking at look pretty good too. I’m guessing your plan is to use the positive cashflow to cut down the mortgage on your own home (where interest isn’t tax deductable)? Goodluck and all the best
thanks for your response.. yes I must make the postive income work for me and pay off my home mortgage. An accountant told me this evening that I should make all my investment properties (including the two I am going to purchase) interest only.. use the “passive” income from all properties to help knock off my personal home loan … call it a working class mentality but I have a fear of interest only loans.. but I know I need to reconsider this at least until my own personal home loan is down a lot more cos it is dollars out the door…
I am also wary of lendors having a contract over a lot of property investments.. which is why I am lairy of the concept of one lender having ownership of 3 of my properties.. one being my own home!
cheers
NellHi Nell,
There is no need for the Bank to take security over your PPR,
I would suggest you access some of your existing equity from lender A for use as a deposit with lender B,
This will minimize the amount of security each lender has in your portfolio,I also agree with your accountant regarding non-deductible debt, do you have an offset attached to the PPR loan? Feel free to email if you require any assistance,
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:1800 820 500
VICTORIAPLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
Use smoke and mirrors, I do. 80% is the banks vanilla loan threshhold. Above this they get scared and you pay for their mortgage insurance as well as higher in repayments on the property too.
So give them an 80% lend on each and they love you to death. Ok so in a few years you have cap growth, pull the original 20% off title 1 out of the mix and use it again. As you base your 1.5/1 ratio calcs on the full purchase price anyway, what this means is that when you peel out the first title from the loan your new IP is actually mortgaged to 100% of your original purchase price.
If you have done this as your estimate of return, you have enjoyed a buffer off your difference(20% in your calculation model) which to date were covering your initial rates and BC.
When you peel out the original title this is when you should bear the cost of the rates etc in my standard model.
Is this clear? am I confusing you? can anyone explain it to me so I can now understand this? Oh well its fun anyway.
DD
Don’t sweat the small stuff,and it’s all small stuff!!
Don’t let the lenders take security over more than they need to! Of course they are happy to do this – it probably even means they get to refinance the PPOR too.
The way I structure my new IP loans is to pull a 20% deposit plus costs from another property. I use a split so it is clear where everything comes from.
I then take this deposit to a lender and take a new 80% lend against the new IP.
This way I have nothing cross collaterised so there is nothing to untangle should I wish to sell.
The others above have all described this method and it is quite a usual way to go.
Hope it makes sense!
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Always tell your bank manager what you want them to do rather than other way around.
Discover their guidleines, different lenders have different requirements, and present it to them so that it’s within their guidelines.
If you have enough security with them they generally will not want to loose your business. If you bank with NAB tell them westpac will write it in the way you want and NAB should get off thier behinds and go to bat for you.
Pssst. You’d be surprised what credit managers will approve on the “say so” of the branch manager.
Hi Nell
If you decide to only purchase one of those properties – can you give me the details of the other[specool]?
Seriously, they sound like they will be good earners, and while you owe on your PPOR, and Interest Only loan would be good for your IPs. You will be reducing your overall debt, as you would probably be paying all ‘extra’ money into your PPOR loan, thus reducing it.
As the others have said, you could reborrow some of your equity from your PPOR and use that as a ‘cash injection’ to fund the rest of the purchase price over the 80% lend you’ll get from your bank for the two new houses. The amount you borrow against your PPOR for this purpose will be tax deductible, and again, noting your comments, you would probably look at paying that off after you have paid out your non deductible debt!
Cheers
MelHi All..
Just want to thank you for your advice.. it is most helpful and appreciated. The idea of purchasing two more properties is exciting but really scary for me too, so what you all had to say was very helpful and encouraging.
I am visiting the town over the long weekend and plan to inspect some of the other properties for sale there. If you are interested I can post my thoughts of them when I return. Some of you might be interested in the cash on cash returns and personally if I can help my locals out with selling their houses I think it is a good thing.
regards
Nell
You must be logged in to reply to this topic. If you don't have an account, you can register here.
