Hey all, i am semi new to these forums, just purchased my first property about 4-5 months ago in Como, W.A. It is a 2×1 townhouse, 2 story strata and is on the river side of the highway bout 5 mins from the cbd. I paid 350k for it and did a p&i loan only because i want to actually own something . The repayments of my loan are what i consider to be quite high (about 600 odd dollars) a week in repayments. I am currently living in it at the moment but in 3 months time i plan on moving out and renting it out. I know i can get $300 easy as it will be fully furnished, maybe pushing $350 a week for rent which still leaves me around $300 short for the loan repayments.
In the next 6 months i plan to sell off some of my assets cars etc and try to purchase a second IP, my question is what type of property should i be looking at buying? I was thinking of getting maybe a 1×1 unit somewhere where i can possitively gear it to make up some of the repayments for my other house, but on the other hand if i do that i may not see much appreciation in either of the 2 propetys valuve leaving me stuck finacially if i want to buy a 3rd house?
Would appreciated anyones advice or opinion.
Cheers, Pete
Hey Pete,
a few options come to mind;
First, it would help with the cashflow if you can convert the loan repayments to interest only. This still gives you the option of paying down the principal when you want to.
The interest on you loan will become tax deductible when you turn the property into an I.P, as well as all of the other holding costs such as repairs, insurance, rates, property management, etc.
Second, if your property is built after 1987 you will be able to depreciate the building and the fixtures/fittings, so check this out and get a Depreciation Schedule prepared by a Quantity Surveyor. This will cost around $500 but is tax deductible and will pay foritself in the first year thorugh the extra tax you will save.
This is an important point for your next purchase as well. Look for something built after 1987 with the next one to help with the tax returns and overall cashflow. Go for an interest only l.oa with that one.
One bed units can appreciate too, but it depends on the area and rental demand as to whether you will get good rent returns and good cap growth.
It is harder to find any pos geared properties around at the moment, so you may want to look at a property that you can hopefully add value to through renovations. This can also improve the rental return for you.
Look for an area that has not recently gone up a lot in price, but might in the near future. The research you will need to do on the areas you choose will help to show you the likelihood of this happening. Things like improvements to the local amenities such as new schools, shopping malls, hospitals, improved roads, new housing estaes being constructed – these sorts of things are good signs of population increasing and demand for housing.
Lastly, you can only afford to buy when you can afford to buy, so don't be in too much of a hurry to get that 3rd one unless the figures are good for the property and your overall financial position. We all hear the stories of people buying multiple properties in a year etc, but remember that this occurs in boom markets, and usually in areas that are cheaper and have good rent returns to begin with.
Hey thanks for the quick reply marc! I think i still have a lot to learn, maybe i shouldn't jump the gun and weigh up all my options. I found it interesting to know about the depreciation that can be claimed. I also understand an interest only loan would reduce my repayments by a lot however i was wanting to actually own a piece of property after the 30 year period or would i just be better off changing it to an interest only loan to lower my repayments and get closer to the breaking even mark??
Hi Pete,
An interest only loan does not stop you from making extra repayments towards the principal.
Lets say you have a $300k loan on your $350 property and the property price doubles in 10 years. Assuming you make interest only repayments for 10 years (without increasing your loan amount), the loan amount at the end of 10 years will still be $300k but the property value will be $700k. The LVR will drop down to ~42%. This means you own 58% of the value of the property. Take yourself into the future another 10 years, property value = $1,400k and the loan is still $300k. New LVR is ~21% and you own 79% of the value of the property. So the question is, what do you mean by actually owning a piece of property?Hey property power, excuse my ignorance as i'm only 21 and just getting into the whole property investing scene but what is LVR? I meant actually own a property as in at the end of my 30 year loan i wont have to pay a cent anymore where as in your example with the interest only loan i would still have the same loan amount after 20 years or so. I know an interest only loan would better suit me at the moment as the p&i loan still leaves me $300+ out of pocket even when i have a tennant in it but yea i'm just thinking of 30 years into the future i could theoritically own the property, have paid the loan out and use that propery as an income? I duno maybe it's my young mind but is this what i should be doing or changing it to an interest only loan? I'm open to all opinions!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
