Hello all,
Does anyone have any ideas on buying one's first home vs buying one's first IP?
I'm 22 and wanting to get into an IP, but I have yet to buy my 1st home. I've saved up 110k through years of casual jobs and have just started a new full-time job (50k pa before tax). I'd like to keep 30k in equity shares for the company I work for (dividends > 15% pa) and 10k in managed funds. So my deposit is realistically 70k.
My fiance and I will soon move in together. (He earns 45k before tax, not many savings.) We could rent, or buy our 1st house. If we bought our 1st house, we'd be looking at a cheapy 2 br townhouse or villa, maybe 400k in Sydney. While this seems the logical conclusion, it will be more than 10 years before we can pay off the 1st mortgage and save up a deposit big enough for the 2nd IP. Just wondering how people manage to purchase properties one after another on an average salary?
I'd love to hear your ideas
Hi there, this is what my wife and myself did. We bought IP’s, well, I started to get myself educated in investing, attending seminars reading books, etc and then bough a few IP, on an income of $40K, bought in regional centers , properties that were cash flow +. The banks were happy to lend to me because the more I bough the more income I had.
When they went up in price, I sold 2 of those, and put it as a deposit for our house, if we wouldn’t have done this, we would not have been able to afford where we live now. Yes, we were lucky to be in the market on the biggest boom in history…
This is a very personal question and you should do what your heart tells you. Home ownership is a great savings plan, and it is exempt from CGT (tax). In hindsight I would have bough my own home sooner, however investing in property first allowed us to live in a “better” area, close to my beloved surf.
Some people say renting is better, etc, etc, however you have to make sure that the money you save in not paying a mortgage (normally, twice of what you would pay in rent for the same property), you do invest in appreciating assets, otherwise you will end up in square one, no House, no IP.
Remember it is not how much you make, is all about what you do with what you make. See, for me, when I was earning $40K, I had not debt, cero, nada… My accountant back then told me that I was in better financial shape than most of his high income earners as they all had big pay cheques, however big mortgages, debt on the car, boat, toys, etc.
Follow your heart and you will always be right, also make sure you go see an advisor for the finer details.
All the best
As Jonchu said Its is a very personally question,
I myself started investing in property when I was 21 and am now 25 and own a fair bit of property, But even still I am still renting.
The main reason's I rent are that I have always moved around a fair bit so I haven't been in a postion where I can settle, and also I have always invested mostly in areas around Brisbane that I believed had higher growth potenial than the areas I have been living in sydney, which has been true over the last few years.
the good thing about renting your home and investing is,
– you can invest in areas outside where you want to live with higher growth / returns
– Interest is tax deductable
– you can claim deprieation
– you could invest in a better home than you could normally afford to pay for yourselfthe good things about buying a home,
– no capital gains tax
– first home owners grant
– you can really settle in.
I think you could almost do both….buy your PPOR, then access the equity again to buy your IP..good luck!!!
Handy Andy wrote:I think you could almost do both….buy your PPOR, then access the equity again to buy your IP..good luck!!!Andy does have a good piont,… with such a large deposit you could by a modest home then use the equity to by an investment.
Be sure to use the large deposit against the home though as that loan isn't tax deductable where as your investment will be. so you want the your home loan as small as possible and the investment maybe at 110% LVR,
thanks so much for the responses. i am leaning towards buying our PPoR and then an IP maybe 2 years later.
just a few questions, let's assume we take out a mortgage for the PPoR and make 2 years worth of repayments ($3000 per month for 2 years = $72,000)
1. to avoid LMI, we'd have to stump up another 20% of the value of the IP. I doubt we'd have saved 60k-70k as we're constantly making repayments for the PPor. So, how can we "re-draw" this 60k-70k from the PPoR mortgage? Would we have to get an offset account for the PPoR? Or do we just go with the same lender and let them sort it all out (somehow?!) ?
2. If we want the IP loan to be as large as possible, do we turn that into an interest only loan while making repayments against the home?
Thanks again
still learning…What about buying a PPOR now, getting the FHOG and Stamp duty concessions while they are still there, and live in it for 6 months. Then move out and rent it while renting yourself. Under s118-145 of the Income Tax Assessments Act you can still class this property as your main residence for up to 6 years while it is being rented out. And you can claim all costs associated with it as per normal investment property (rates, interest etc). Then if you sell this within 6 years, provided you have no other main residence, it can be CGT free.
After renting it out for a while the value will hopefully increase and then you can use the equity build up to leverage into the next ones.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
you will have quite a bit of equity in the PPOR and you can use this equtiy to get the loan for the IP rather than a cash deposit,
as long as the total "loan to valuation ratio" doesn't go above 80% you shouldn't have to pay mortgate insurance,…
but still having said that I wouldn't let paying mortgate insurance get in the way of investing,…. even if you had to pay $2000 insurance would you let that stop you doing a deal where you could possible make a $50,000 capital gain,…. waiting till you have a larger deposit just to save a few $$$ might mean you end up paying thousands more for the property in the future and paying thousands more in interest on this bigger loan,
another piont is that I would rather use any lump sum of cash I had to pay off the PPOR rather than use it as a deposit on an IP because the PPOR loan is not tax deductable where as the IP is,… so you want to maintain as much of your debt on things that are tax deductable,…. I would have the IP with a 110% Interest only loan till I had paid of the PPor
Thanks all for the advice. I'm a little nervous about dipping my feet into the property market as I have only been involved in share trading. I'd have to sell most of my shares/managed funds to invest in property. Ideally I'd like to own a PPoR and IP but I don't want all my eggs in one basket, I still want to maintain an exposure to shares (since the returns seem to be higher these days). I'll probably buy the PPoR first, then a small IP 3-4 years later depending on how my fiance and I go with our incomes…
Terryw wrote:Under s118-145 of the Income Tax Assessments Act you can still class this property as your main residence for up to 6 years while it is being rented out. And you can claim all costs associated with it as per normal investment property (rates, interest etc). Then if you sell this within 6 years, provided you have no other main residence, it can be CGT free.After renting it out for a while the value will hopefully increase and then you can use the equity build up to leverage into the next ones.
Hi Terry,
I'm a bit confused. I once read from a Noel Whittaker column that if a loan was taken out to financed a PPoR then in the event that that same property is rented out – you CANT actually claim any deductions, or you CANT claim it as an investment. The ATO supposedly looks at the original intention why the loan was taken out… if it was intented to be a PPoR even if it was rented out later, the rates, interestes will not be deductible.I migh have misunderstood the article. I hope you can clariffy on this.
thanks
tess85 wrote:Thanks all for the advice. I'm a little nervous about dipping my feet into the property market as I have only been involved in share trading. I'd have to sell most of my shares/managed funds to invest in property. Ideally I'd like to own a PPoR and IP but I don't want all my eggs in one basket, I still want to maintain an exposure to shares (since the returns seem to be higher these days). I'll probably buy the PPoR first, then a small IP 3-4 years later depending on how my fiance and I go with our incomes…Your right a well balanced portfoilio of shares and property will always out perform a pure share or a pure property portfoilo,
If I was in your situation I would sell all my investments and use the money for a deposit to buy a modest home, probally the cheapest one that would suit my needs, your loan to valuation ratio will be quite low.
then I would take out an investment loan using the property as security bringing your loan to valuation ratio up to 80% and use this money to invest in the stock market, you may even be able to use some of the blue chip shares you are purchasing as security to lend even more.Borrowing to invest will multiple your returns.
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