Hi there. Only new to the forum i've been reading many posts about people's investment stories and the many questions that people have asked about investing in property. For me it's certainly the way to build up wealth, but it's just a matter of knowing what to do next. Which brings me to my post.
We have a PPOR 2brm apartment in Windsor Melbourne since Dec. 2006. Seen very good appreciation since then with the property market. We refinanced in August 2007 under the advisement of a Broker that was recommended through a good friend at the time and bought off the plan an IP in St.Kilda which is due to be completed in Mar. 2009.
The brokers idea was to have something that would allow us to have 12 to 18mths of capital growth, which come October this year it will commence that period of growth.
Personally it would be fantastic to keep our IP. We've been guaranteed $340 per week rent for the first 6 months after settlement which is a bonus. The only way i can see we could keep this is by utilising the Equity we have hopefully gained since refinancing our PPOR last year. I understand everyone strives for CF+ IP's, but depending on what Equity we may be able to use our IP would initially start as negative.
Certainly up for ideas of what to do if anyone would like to give some much needed advice.
Options that I see for us.
a. keep living in our PPOR and sell the IP and hope to make a nice gain to purchase another IP.
b. keep living in our PPOR, keep the IP and utilise as much equity as possible to reduce costs
c. sell PPOR, keep IP and we rent a place to reduce outgoings and enable us to purchase another IP thus having 2 x IP and no mortgage with a our PPOR
d. anyone elses different adviceLook forward to all your thoughts.
Cheers.
If someone would like to email me instead of replying to the forum post, you can do so at [email protected]
Don't take financial advice from a mortgage broker unless the mortgage broker is licensed to give financial advice under the FSRA act 2004 as regulated by ASIC.
http://www.fido.gov.au/FIDO/fido.nsf/byHeadline/CA08-06%20Are%20you%20getting%20the%20right%20advice%3F?opendocument
"keep living in our PPOR, keep the IP and utilise as much equity as possible to reduce costs"
option A will incur capital gains tax and when you sell an IP you have legal fees, selling commission to the real estate agent and stamp duty to buy the next IP.option B
To utilise as much equity as possible means you either have to borrow money from the first PPOR Loan as a line of credit loan to use as a deposit (interest charges will be incurred and this must be seperate from PPOR for tax reasons which doesn't reduce the costs)
or you are referring to using the PPOR as security for the second loan and lowering the LVR to avoid or reduce the mortgage insurance on the IP loan. (if you can't pay the 2nd loan you lose PPOR security as well)Another thing to think about is what will the rent be after 6 months ?
Option C
With the lowest vacancy rate in more than 20 years for rental properties you will experience a long and difficult hunt to find a rental property and rents are quite high due to this demand. They open rental properties for inspection and at least 20 people come hoping to secure the rental property in inner Melbourne.What amount of risk are you prepared to tolerate as you could be risking over committing with a third loan and run out of cash flow from an unexpected interest rate increase or loss of income or tenant income?
I can't give you specific financial advice and am hoping the above questions will reveal some of the risks involved and how much risk you can tolerate.
A good financial planner would need to be licenced and know your financial situation and future plans in your life to be able to give you specific financial advice.
Mortgage Brokers makes their commission from you taking out a loan.
Duckster,
Thanks alot for responding. Some valuable information to consider.
From what I know of the Broker we used he's also a Financial Planner. I guess it's always good to get a third or fourth view.
Whichever way we look at the situation we're going to incur costs of some sort. If we keep the property, we are going to have to pay roughly $200 per week from our pocket unless within the next 9 months rental prices go dramatically skyward for 1 bedroom apartments. If we sell the IP, we incur CGT + Agent fees etc and will most likely walk out with what we started with our $15,000 deposit. Nothing gained at all. The more I read through Steve McKnights book "0 to 130 properties in 3.5 years " the more I get confused about trying to go forward with property investing, when if you don't have some sort of capital behind you to start off, you're always going to be in a negative situation and be in the 92% who own 1 or 2 properties and continue working hard for the rest of their working lives to pay for them. Not my idea of fun.
I look at different property for sale around different parts of Victoria and apply Steve's 11 second rule to see if it would create positive cashflow and with the market the way it is, finding that is very difficult. I fully understand aiming for positive returns to create a passive income, but initially how can you start out positive if you only have equity to work with ? I've studied the Negative Gearing tables in the book and it all makes sense, but Steve still claims that it's not really the way to go for long term wealth if you want passive income. I totally agree, but how do you get a start then ?
Would like to know how other people have started furthering their portfolios without starting from a negative situation.
Cheers.
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