Hi Guys,
I have been reading these forums intently over the past few hours and am amazed at such a community and valuable source of knowledge exists! I wish I had found this site weeks ago!
Anyway, I was wondering if I could get some ideas about how I might get the finance for my 1st IP. I am just in the process of buying my 1st PPoR in NSW, which will be just under $500k. I am looking at a 100% loan with the LMI capitalised on the loan. Now I currently have access to about $15k savings, of which I will probably use about $2k on expenses. I am currently in the high wage bracket, and I am buying this property alone.
I have a partner who is in the middle wage bracket who also wishes to buy a place for investment purposes. I will not have any financial involvment with this purchase.
I guess that I need to know what my options are for buying an IP in the $200-$300k range would be and realistically how soon this could be achieved? Could/should I get another 100% loan for an IP straight away or would my current borrowing preclude me from that? I am planning on renting out one of the rooms in my PPoR for a 2 yr period to help me increase savings potential. Also my partner will be paying me 'rent', can these be counted as income? Would I be better waiting until I have the equity in my PPoR before buying an IP? Is 100% loan for an IP a bad option anyay?
One other thing…. Should the loan on my PPoR be IO or PI?So many questions!
Thanks in advance for your help.
JG
Hi jonglen – and welcome to the forum. Based on what you have posted, one idea may be as follows. Normally 90 or 95% LVR loan is good for an IP – 100% is possible with some lenders, but there are often conditions, and it's a big chunk of LMI you will get stuck for. As you mentioned you are on a good income, saving up a bit more to add to your deposit sounds like a plan, and maybe aim for having a 5 or 6% deposit as a minimum – on a $200k property, you would only need a few grand extra now to cover that, with stamp duty and LMI.
WHile I/O on your own home will keep your repayments lower with the option to add more as you are able, as it is your own home, and thus non deductable interest, and is highly geared and you are on good income, P&I would appear to be the logical option for you in my books, with interest only on your IP when you get it, with any spare funds going into your own home. It sounds like you will have your 1st IP real soon too at this rate – go for it, and good on you.
Just remember depending where you are buying your investment property, usually if it is a high growth / expensive area your rent return is a lot lower than say regional or cheaper areas. Don't over extend yourself, you should keep in mind interest rates may go up and your IP will be negatively geared anyway. Depending on what sort of investor you are, remember Higher capital growth areas equals more money out of your pocket each mth to cover the loan (even if it's interest only) and regional areas attract a bigger return but still usually only about 5-8% but don't usually have the same capital growth.
I am only offering this insight due to your PPOR being 100% loaned (and this is considered Bad Debt) where as IP's are considered Good Debt (especially if you are on a high income) but i think only if you can safely cover both.
Good luck, (i guess it's up to the mortgage lenders anyway as to what they will let you borrow)
Have you got a interest offset account linked to your home loan, if not consider getting one to hold the $15,000 in so as to offset your interest, after all you said you were in a high tax braket so if you have that $15,000 "earning" interest it will be highly taxed however if you have it "saving" interest then the benefit from it is tax free, ( my personal opinon is that your ppor should always be P/I)
if you do go ahead and buy an IP make sure it is interst only, so that you can put extra money of your home loan, which is not tax deductable,
You should be using the $15000 on the PPOR. It will reduce your LMI considerably.
Then you can do the 100% borrowing on the IP and deduct all those ugly fees.
If you don't have enough equity yet then there is no problem with holding off a little while.
The rule of thumb is that you don't use any of your own cash for investing whilst you have consumer loans (PPOR) left. Thats where cash belongs!
jonglenn
Welcome to the forum !
Good advice to open the interest off set account, and save your I.P deposit there.
You said your going to rent a room for 2 years and your Partner (are you married ?) is going to pay you rent as well to live in your PPoR.
You also mention your partner will buy their own I.P and you will not contribute financially to their I.P.
I don't know the legal issues with this set up but I would be concerned with asset protection if any thing ever goes wrong.
You may find your partner has claim over your PPoR and any investments you acquire, but you will not have rights to hers leaving you open to an unequal distribution of assets if things go pear shaped in your relationship. I hope they never do , but since you obviously have the intentions to separate your investments from your partners and Visa versa then it makes sense to protect your investments in the most advantageous manner possible.
Maybe think about setting up a trust and company structure and use this structure to hold your PPoR and any future I.P's and paper investments you acquire.
Also use it to bill the tenant of the room you intend to rent and also the rent you receive from your partner. You will need to consult an accountant about this, me I would get my PPoR changed to an I.P as soon as was practical( if at all possible ) so you can take advantage of the rent received and the deductions allowed , again consult an accountant to investigate all your options.
Make sure you have proper lease agreements written up and have them signed by your two tenants (partner and who rents the room) so that you have proof for tax purposes and any contingency that may come up in the future.
I know it sound very negative to consider things going pear shaped in a relationship and I hope it never does and you have many happy years together, but since you are keeping assets separate its best to do it with in a structure that gives you the most protection and not leave it to faith alone in believing whats yours is yours and whats mine is mine ….and the other person will share your belief. with money it always pays to have things in writing.
good luck and again welcome to the forum !
cheers .I didn't see a mention of stamp duty that would be payable on purchasing the PPOR !
2k for expenses doesn't sound like stamp duty has been factored into the costs.
Don't want you to get a nasty surprise expense
it would be worth looking into what the stamp duty will be on 500 K property in your state.OR if it is a new property GST may be a cost incurred as well as stamp duty on land transfer.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
