All Topics / Help Needed! / Can I afford another IP?

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  • Profile photo of marcustmarcust
    Member
    @marcust
    Join Date: 2009
    Post Count: 3
    December 5, 2009 - 8:51 pm

    Hello,

    I'm fairly new to property investing and would appreciate any advice on whether I can afford another IP – and if so, how much can I afford.

    -I am a single 31yo in a stable job earning 60k before tax
    -My PPOR is valued at $545k. I owe $135k on it. Minimum repayments are currently around $800p/m
    -Three months ago, I purchased my first IP for $279k. I owe $223k on it paying IO which is about $1050p/m. I receive $295p/w rent before property management fees are taken out.

    After all my expenses, I usually find myself contributing approx. an extra $1000-$1200 p/m to my PPOR. This is on top of the $800 repayment.

    My borrowing power is quite low because of my low income.

    However, I believe I could probably redraw equity from my PPOR to afford a deposit on another IP. Is it wise to do this with the current interest rate rises?

    Appreciate any advice.

    Many thanks!

    M

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    December 5, 2009 - 9:34 pm

    Hi Marcust

    Firstly welcome to the forum and I hope you enjoy your time with us.

    You mention words like redraw which gets me nervous before we start as loan structure is parramount when it comes to ensuring that you can keep moving forward. I am also concerned that you borrowed 100% + costs on your first IP and assume that you offered your PPOR as additional security making tha loans cross collateralised.

    Certainly from a servicing point of view i believe that you can show sufficient income to support a loan however getting is set correctly it very important as i have mentioned and it might need a little untangling.

    I also assume that you are having your Tax coding adjusted each pay period to allow for the anticpated cash and non cash deductions to maximise your cash flow.

    Probably time to seek some good independant advice from an investment related mortgage broker.

    Richard Taylor | Australia's leading private lender

    Profile photo of marcustmarcust
    Member
    @marcust
    Join Date: 2009
    Post Count: 3
    December 5, 2009 - 11:54 pm

    Thanks Richard for your reply.

    When I purchased my IP, I took out a line of credit against my PPOR for a 20% deposit + costs. The bank manager told me that this avoids  cross-collaterisation. Is that correct?

    If was to contemplate a second IP, I was thinking that I would borrow against my PPOR again for a deposit. Would this be the best structure?

    ***I also assume that you are having your Tax coding adjusted each pay period to allow for the anticpated cash and non cash deductions to maximise your cash flow.***

    Nope….no idea what this means. Can you please explain?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    December 6, 2009 - 1:42 am

    Hi Marcust

    Yes taking out a LOC against the PPOR is the desired structure. Sorry your post didnt make that very clear.

    For the next IP I personally would either increase the existing LOC or take out a new LOC for the new deposit and costs.
    Then take out the standalone loan secured against the new IP.

    I assume you are employed and not self employed. If so have you had a QS report done on the property ?
    How old was the property and did it have modern fixtures and fittings internally. 

    Are you currently waiting until the end of the Tax year to lodge any claim for Tax variation ?

    Was going to say i am suprised the Bank manager didnt suggest the Tax variation but then on the other hand.

     

    Richard Taylor | Australia's leading private lender

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    December 6, 2009 - 1:48 am

    Repeated

    Richard Taylor | Australia's leading private lender

    Profile photo of marcustmarcust
    Member
    @marcust
    Join Date: 2009
    Post Count: 3
    December 9, 2009 - 7:48 pm

    Thanks Richard for your advice. Yes, I am employed. I have had a QS report created for my IP which I am waiting for end of financial year to claim deductions.

    I guess my next step is to find out how much I am able to borrow and go from there.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    December 10, 2009 - 5:40 am

    Wow, a bank manager that suggested you avoid cross collateralisation! They are rare.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of dnh83dnh83
    Member
    @dnh83
    Join Date: 2009
    Post Count: 81
    December 10, 2009 - 7:19 am

    Sorry to hijack your post Marcus…I'm a newbie who's needs some info…

    What is a QS report ??

    What is Cross Collaterisation and why should it be avoided ??

    Cheers,

    Darren

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    December 10, 2009 - 11:32 pm

    Yes Terry guess it wasnt bonus commission that month for loans that are cross collateralised.

    Darren drop me an email and I will email you my 10 reasons why you shouldnt do it.

    By the way QS = Quantity Surveyor.

    Richard Taylor | Australia's leading private lender

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