Hello everyone, I just discovered this site. I am waiting on the book..but before it comes I have a question.
After we pay our mortage, and all monthly expenses, my wife and I have approx $4000 – $4500 a month left over. For the past 12 months we have used that primarily to reduce our mortage (paid approx an extra $45,000 in 12 months). Unfortunatley, sometimes we just spend it on stuff because we can.
Our home is valued at $430,000 and our morgage is now at $215,000. We have no loans or credit card debt of any kind.
My question is this – are we better off continuing driving our mortage down or is this a good time to purchase an investment property? I am keen to invest – have been looking at new house/land packages in a grwoth corridor in Melbourne (Dorren/Mernda) for roughly $350,000. Alternatively, we would look at an apartment closer to the city (but not in it).
As a rule of thumb, what would the general advice be?
Thanks in advance to all.
Hi Chrissd,
Here is my general advise – Yes. Investment in a property.
With at least $4K left over a month, that is a fantastic amount to be saved. I wished my partner and I was able to save that amount a month.
Your available equity from your home is $129K ((80% of $430K) – $215K). Keeping your gearing to 80% avoids LMI. With this amount, it depends on your own strategy from here on, because with $129K as a 20% deposit, you could get a property worth around $645K.
Alternative, you could use your equity as two 10% deposits of $40K each, purchase 2 bedder units in inner-middle suburbs to seize on the factor that there will be a rising number of single / dual couple / small families into the future. The reminder of your equity ($49K) can be used for stamp duty and / or paying or quick renovations on those properties.
A 3rd idea would be to increase your equity to 90%, and this would give u even more money to renovate your investment properties to a decent standard to attract high-paying tenants.
Just some ideas to get things started.
All the best.
Daniel Lee
Hi chriss
Firstly welcome to the forum and I hope you enjoy your time with us.
Unless you definately wish to reside in your current PPOR for even and a day i would certainly not be doubling your loan repayments or channelling extra funds into the principal reduction.
Look at changing the loan to an interest only loan with a 100% offset account and direct the extra income in the savings account.
Utilise the equity on your current PPOR to funds the deposit and acqusition costs on the new IP / 's.
Keep the loans totally separate and avoid cross collateralising the loans.
Richard Taylor | Australia's leading private lender
Make sure you don't use your cash to invest just keep paying into your home loan and borrow the equity to invest as Daniel mentions. You can also set up another loan to pay the investment expenses and interest on your investments to speed up the paying off of your home loan.
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
Well thank you very much Daniel, Richard and Terry. I appreciate your advice.
A wonderfully informative site – no doubt we will 'talk' again soon.here are some figures to think about
(I have assumed the following: interest rates @ 7%, you continue to add $45k pa to your mortgage, you bought 12mnths ago, initial mortgage $260k, 25yr mortgage, min payment 1838/mnth)Scenario 1-pay of your home ASAP and save your money
You pay it off in 4.5yrs (from12mnths ago). You save $247k compared to min repayments.Scenario 2-pay off your home ASAP and buy IP, paying it off ASAP, and continue
Assuming property values double every 7yrs, rents do the same and are worth about 0.1% of the property value, allowing 40% of the rent for various expenses, depositing 20% on each IP (to avoid LMI) and saving this up. You continue to pay $5588/mnth plus the surplus from the rent. After 21yrs (from today) you will own your own home, plus 2 investment properties. Each property worth approx $3.44MScenario 3-refinance your PPOR to buy 2 IPs immediately. Every 7 years buy 2 more IPs, using IO finance on all except your PPOR after 21yrs you would have 6IPs. Assuming your 1st 2 IPs were worth the same as your 1st property, and all double every 7yrs, all worth approx the same value. Each property would be worth $3.44M after 21yrs. You could own your IPOR, owe $6.3M on your 6IPs. As you can see, you could sell just 2 of your IPs to owe nothing and still have 4 IPs to retire on.
Unreal,
Do you use a software package to do these calculations, or just excel?
If software package, what one?
Cheers,
.
just excel and annuity formulas
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