This is my first post on this forum, so here goes nothing
I am not sure how much info I should put… tell me if you need moreMy hubby and I have just purchased and moved into our first home (3br, double garage) five months ago. It was an off the plan building as part of the ACT's affordable home owner sceme, so we had no say on it's development besides choosing between three different colour schemes offered. It is a brand new suburb and ours was one of the first houses built. Anyway, we purchased the property with a 100% variable rate home loan. It cost us $308 000, the bank has valued it at $350 000. Other houses (on the same size land, which the same specs) being built in this new suburb atm are currently going for $400 – 500 000. The house next door is renting for $400wk – it is smaller then ours; this is pretty typical of rents in the area. Canberra's housing market really hasn't suffered much due to the economic crisis. We are currently paying off Double our minimum mortgage repayments (if we got serious budgeting we could pay more). My hubby and I are in our mid-20's. Other then this we have no other debt. Our house should be paid off completely in 7-8years.
Now, our goals are this:
*Upgrade our residential property (we have two young kids, one on the way and plan on another)
*build a rental investment portfolio that would support us in the long-term (ie, I am a SAHM so have no super, so we would like to be able to retire and travel on the income, as well as help with our childrens tertiary education in 15 odd years time, overseas travel.)We are not looking to get rich quick, but a long term stable secure way to support us and let us enjoy a comfortable lifestyle in the future.
So, I see to different ways to proceed from here:
1) We pay off our current residence, and then use it as our first investment property when we purchase a new property to live in. building up our investment properties after the purchase of our new residence.2) Invest in another property at this point, and worry about purchasing our next point of residence after we have established a small property portfolio.
If we go option 1 the risk to us financially is pretty much no-existant, but it would be a slower journey to our goals.
If we go option 2 the risk is greater, we would be much more limited in what we can invest in for our first investment property (we aould be eligible at this point in time to borrow aprox $160 000.), Our larger home may not happen for slightly longer period. But we may time end up having a greater portfolio over all.So, Am I missing another option I haven't considered?? Does what I have said sound right to everyone?
And most importantly, what are your opinions on my options??
thank you!
option one (modified)
Say the rent was 400 per week and expenses are $2,000 a year (Rates, Water, Insurance, Ect) Then $20,000 per year -$2000 is $18,000 in probable rental income. So $340 a week in income. If you had a 20 year loan and got the balance down to $140,000 the loan would cost you nothing as the repayments and interest would equal the rental income minus expenses based on an interest rate of 10.5%. So in option one instead of totally paying off the loan you pay it down to $140,000 you will have at least
$210,000 in equity ( $350,000 – 140,000 = $210,000 ) to use for an equity loan for the deposit on the next property. At the rate you are paying the loan down at that would be about march 2014.I have paid a house down but it took 15 years and I have reborrowed a small amount to invest in the share market. But when I was thinking about it in my head I would be better off with paying down a loan to a cash flow neutral state rather than breaking my wallet trying to pay off the loan completely on an investment property.
If you go down option 2
You will need to save up a deposit and stamp duty and legal costs.
It will be hard to borrow against property one as an equity loan will be based on 80% of the house value minus the debt owing
Where do you live in the mean time.
Property one will need a valuation done before renting it out for CGT records.
If you lose a tenant you could be under financial strain until you get another tenant.Thank you for your reply. I think hubby and I are leaning more towards what you are saying. It is just so tempting to buy into the investment properties at this stage, but if we leave that until after we have our bigger better home residence, then we should also be able to afford more towards the investment property as well.
As it is we are not really looking to invest in Canberra (prices here are absolutely rediculous), but in a regional town with a university. We know the area well (having lived there ourselves for years) and intend on investing in units to rent out to the uni students.
I am not sure how much info I should put… tell me if you need more
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