Hi,
Have just started reading the forums over the past few days and found them really helpful and informative, so thought I would use it to seek some advice.
Our (girlfriend and myself) situation is as follows. We are currently renting, both working, and have just over 100,000K in the bank, so keen to get this money working for us. The plan is to buy a property in the inner west of Sydney (close to where we live now and convenient for work), move in for about 6 months to get the first time buyers grant, and renovate the property. We would look to put about 80-90k of our money down as a deposit, in order to decrease our mortgage and interest payments by as much as possible. We would then look to rent out the property and return to renting somewhere else our selves, and with the rest of our savings, plus the equity on our home, start to buy further, cheaper, and regional investment properties. My questions are as follows:
1) For our first property, with the aim of building our property portfolio as quickly as is realistically possible, is it best to buy somewhere to rent or to live in, or a bit of both as we have planned?
2) Is the best use of our savings to put the majority of it into a deposit for a house, thus reducing our interest payments, or should we spread it across a number of investment opportunities?
Any advice would be very welcome.
Damien.
Hi Damien,
I would suggest you make a time line of how frequently you wish to purchase your subsequent IP’s do an analysis of how much you can save in between, and consequently how much you will need in the bank. You need to align your available cash with what you will require to complete the purchases.
If you can put 20% into the first property (to avoid LMI) and put the rest into an offset account. If this means that you will have a cash shortfall for the next property put in less and pay LMI, again put the balance into an offset account. The basic reasoning behind this is that you don’t want exxcess capital tied up in properties with deductable interest.
Another factor you should take into consideration is when you will likely want to purchase a more permanent PPOR. When this time arrives you want to have as much cash as possible as the debt on it will not be deductable and so far more expensive than your investment debt.
I hope I haven’t confused you.
Regards
AlistairHi Damien,
Sounds like you’re on the right track. My only concern is that 100K sitting in the bank earning bugger all. A conservative managed fund would’ve returned around 10% in the last 12 months. Coupled with a margin loan you could be seeing quite a return on that 100K. Even if you hedged your investment and put 50% into a managed fund; though it depends entirely on how soon you plan on getting into the property market. I would speak to a couple of financial advisers (be careful as they will want to sell you one of their products) to see what they suggest and work out what seems the best that fits with your lifestyle and risk profile.
I am with Alistair.
Use a 20% deposit. Have an IO loan and save money in an offset account.
This is all absolutely vital if you plan on renting the property in future.
I would also consider somewhere else to keep your funds before then. Perhaps a managed fund is not apporpriate given your time fram. But investigate gearing into a fund or share portfolio with any funds left after buying the property.
I am no advisor and you should seek professional advice.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
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.
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