Hi all,
This has the potential to be a very long post so I'll put everything down in point form, hope it all makes sense! My partner and I are at the point where we want to upgrade our PPOR and are wondering what we should do in terms of finance and structuring the loan etc. We don't want to cross-collateralise too much, at the moment the existing properties are. We are in Sydney.
– We currently have a PPOR and an investment property.
– PPOR value is approximately $240k.
– IP value is approximately $360k.
– Total loans from bank (St George) is $475k. We fixed our interest rate at around 6.7% with 2 years remaining.
– The loan for the PPOR is P&I, the rest is IO.
– Combined annual income (including super) is a total of $170k. Our combined monthly after tax take home pay is just over $9,500.
– Weekly rent from the IP (not taking property management and other expenses into account) is $260.Ideally we would like to keep the PPOR as an IP (we know we can get at least $250/week rent for it) but realise that this is probably not possible if we want to purchase a larger property. We are wanting to spend between $450k to $600k on the next property. Is this possible? I hope I've provided enough info and any help is extremely appreciated, thanks!
Cheers
Hi NewGen,
Further Investigation of your position would be required eg how much you owe on the PPoR. The main thing I can suggest is to not get to emotional regarding the new PPoR as it is easy to over capitalise. There are many strategies to follow when investing in property… which are for you are dependant upon your goals. Many investors that wish to acquire a larger property portfilio are choosing to not own a PPoR but continue to rent …. as it usually works out much cheaper to rent a nicer home and put more of your investment dollars into investment properties. At the rate that porperty is growing, it's easy to see why many investors choose not to pay off their property loans at all…. not to mention that due to the ever increasing size of our home loans…. debt reduction strategies don't tend to make much of a dent in the loans anymore…. unless you have considerable cashflow, in which case ….. the decision to buy more property would usually be made more easily.
There are some new investor loans that are set at 3.99% repayment I/O (for 2years) …. the remainder of the interest rate capitalises on the loan. It works out to about 7% capitalised over the two years. You nned to have an LVR of about 83% for this as a Full Doc loan to be able to capitalise it to 90% LVR. The overall interest rate is also very competitive.
Above all, you need to have a clear picture of what you want to achieve and a structured plan can be built around that.
You should also investigate any discharge costs of the St George before you consider any form of re-financing.
It would also be important to know whether you have a deposit aside for the new property or if you intend to use equity from the existing properties?
Regards
Hi John,
Thanks for the detailed response!
The amount owing on the PPOR is $109k, the remainder of our loans to the bank are the mortgage for the IP and a personal loan (taken out to do renovations on the properties). Our main goal at the moment is to move into a larger home while keeping the current IP (it's prime marina-front real estate which is 1 street from the beach in Glenelg North in South Australia). The reason we want to move into a larger home is more of a lifestyle choice, not really investment driven. We like to entertain, have dinner parties, barbeques etc, but our current property is too small for that. We also have regular guests visiting from interstate so the extra space would come in really handy. Another reason is that we are planning to get married soon and have children very soon after.
I have considered renting and getting a nicer property, but the rental market in Sydney at the moment is crazy. To rent a similar property, we'd be looking at a bare minimum of $500/week which I would rather go to a mortgage. I'm not a finance person though so I don't know which option would work out better for us. The investor loan you mentioned sounds interesting, I'll have to research that a bit!!
We don't have a deposit saved (we have an offset account tied to the loan for the PPOR but the savings aren't much). I guess we're after creative ways of financing so we don't have to expose our current properties to more risk. We also have the option of using equity from one of my parents' properties if need be.
The new property we would like to get will hopefully be an actual home with land and not a unit or apartment. This way once there is some equity in it we can look at extending it or knocking it down and rebuilding.
Cheers!
Congrats on the marriage NewGen!
Glenelg North is a great spot …. I use to live in Adelaide too! But…opted for Sunny Qld now!!!
Yes… it's important to strike a balance on wealth creation and lifestyle. Firstly, you should congratulate yourselves
for what you have achieved so far. You've done a great job!It is possible to get 100% or greater lends … but they usually come at a cost …. either higher rate, fees and charges and/or less flexibility. The higher you go above 80% the more LMI you will pay.
Based on my calculations you are cross-collateralised at about 80% LVR on the two properties. This means that you don't really have all that much equity available in the properties at this stage. Provided it wasn't going to put stress on the parents property and relationships, and provided the parents have suitable serviceable income …. many children do receive assistance from parents holding good equity in their property. Make sure everything is discussed though … the good, the bad, and the ugly …. so there are no surprises on both sides.
If you do some sums on a purchase for PPoR at $600K and assuming you borrow 90%…. that's a $540K loan on your home!
Just looking at interest only for the minute …. that is a repayment of $3600 p.m or about $830p.w not including principle reduction, fees and charges, rates, water, insurance etc etc. So $500 p.w or even $600 p.w is not really bad compared with the cost of a home that is not returning you any tax benefits???Remember, regardless where the borrowings come from …. eg parents property …… you still owe what you owe!!! And you still have to make repayments on all the borrowings.
It sounds like the decision for a new home is very much an emotional one …. Emotional decisions are where we can often make costly mistakes. Try putting yourself in the situation ahead of time if you were to get a $500K or $600K home and what sort of bills would you have plus the mortgage repayments?? Write them all down …. this might help your decision.
If you'd like to talk … I'd be glad to give you my number if you send me an email …. sometimes it can be better to discuss situations rather than type them!
Regards
Hi Newgen
Welcome to the forum.
You have a fair amount of equity in the PPOR and if you borrow the equivalent amount on a new home the interest will not be Tax deductible.
One consideration would be to look at selling you current PPOR into Trust and borrowing the full value of the home giving you approximately $130K deposit to put down on your new PPOR. Whilst Stamp Duty maybe payable it is certainly worth doing the calculation given your marginal Tax bracket.
This effectively turns over $10000 of interest per year into Tax deductible debt rather than leaving it on your PPOR as a non tax deductible expense.
In addition, your current PPOR is P & I loan which i certainly not recommended if you have other non tax deductible debt which you will.
Finally, given the ocverall LVR you might want to consider an altenative lender to SGB as the LMI premiums with SGB on a loan exposure over $1M will be XXX ee.
Happy to provide any additional information you may require.
Richard Taylor | Australia's leading private lender
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