We purchased our first IP in Nov 05. Its a nice house in Blackburn Melbourne and returning $240 pw rent from excellant tenants. Now valued around $350 k .We owe $300K. Our family home is payed for. Although I have a share portfolio I have no cash. We were thinking of getting a 2 br appartment in the inner suberbs for less than $250 K as they are good buying at the moment. Would it be too brasen to do this now or should we wait? Newbie. John
John Groeneveld
That’s a question only you can answer…but you’d need to do extensive due diligence before making that decision.
If you’re asking, does everyone think that you’ll make money by buying now, that depends on so many things, including future events like when prices in that area will rise, and also your personal circumstances, and goals. What is your plan for this new property? You are taking a risk that the property prices will rise in a certain time frame. How long do you intend to hold it – 5 years, 10 years, forever etc etc.
If you owe $300K on a $350K property, you are already 85% geared on that property. You don’t say how much your PPOR is worth. Presumably the new IP would be 100% geared?
If I was considering this idea, I would do worst case scenario planning – i.e. calculate how long you could pay the loans of both the current and future IP’s if they were both vacant for extended periods. If you were comfortable with that idea, then you could look at a normal (not best case) scenario – vacancy of 4 weeks a year, possible unexpected repairs etc.
What other prospects does this potential IP have – is it near transport, shops, schools, near a major employer or near a hospital? Are there any planned infrastructure developments nearby?
Any downside – does the IP need renovation, is it near a major road (traffic noise), does it compete with other apartments in terms of facilities – residents gym, pool, security?
All this and more you’d need to consider, as well as the likelihood that we are in an interest rate rise environment.
However, if your numbers and research stack up, and you can afford to hold even thru a worst case scenario, then the choice is yours.
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