Hi Everyone,
I'm at a fork in the road. I read all your fantastic info but have never posted until now so here goes….Our situation is
Double income (no kids) $110,000 gross (joint) secure jobs
PPOR value $400,000
NO personal debt
mortgage balance is 270,000 (Required payments are 1,793 (month)…but we pay $4000.00 (month) At this rate we have 6 years left!
We do redraw from time to time for 'must haves' like the recently purchased upgrade… $15,000 car but I stick as close as possible to a budget.Do we keep paying off the mortgage or do we take the investment plunge. My preference would be a unit on the Northern beaches approx 380,000- $420,000. Is this too risky for us? (Not too sure how much we could borrow) or do I lower my expectations and jump in at a lower level …say $250,000-$350,000 somewhere else.
Love to hear your thoughts
kimc
Hi Kim,
It can be a scary moment taking the investment plunge, however as you have read it can be a very worthwhile exercise. There are a lot of things to take into consideration, however a very important one is time frame. Property is a long term investment, so providing you are able and willing to hold onto an investment for an extended period of time (say, 10 yrs) then yes – it's possible it's the right thing for you.
While the price is important, things such as it's age (and therefore tax deductibility) and rental yield will have an equal effect on it. Nothing wrong with spending $420k if you're going to get $450pw rent. From the sounds of things, if you borrow to buy, any negative cash will be affordable.
Is there any particular reason why you have a preference for the Northern Beaches? I'm not saying there is anything wrong with the area, however I'm always interested to find out how people decide on things like that.
PM if you want to go through any more personal info, or post back.
FinSpec.
Hi Finspec,
'
Many thanks for your comments….it seems one of the forks in the road has a very clear sign..'Just do it!'To be honest I have looked into alot of areas including western Sydney where we live (Parramatta/ area) There are villas near us $330,000, and renting for 340,00. It is so easy to become 'mind boggled' about the whole investment thing. My feet are firmly cemented in concrete at the moment. I'm dying to invest in property ( definately for the long term). I don't feel nervous about it but I feel anxious about making the right decision.
My first big decision was what to invest in…I came to the conclusion that although there is probably more CG to be gained in repeating what we have already done (house and land), our own home is high maintenance and I would rather invest in a unit where I can keep more of a handle on the out goings. ( that's my budget background clicking in!)
I know the investment thing is alot about due diligence, no emotion and numbers…but it seems like a guessing game for us newbies. I just thought lifestyle and demand in that area might help CG as well as rental yield….I could be very wrong. I would hope (see.. more guessing
that a tidy unit in a good location like that might not sit vacant for too long.Well, that's where I am but I could be easily persuaded.
Thanks again
kim
kimc wrote:Hi Everyone,
I'm at a fork in the road. I read all your fantastic info but have never posted until now so here goes….Our situation is
Double income (no kids) $110,000 gross (joint) secure jobs
Are you planning on having kids ?
This could affect your Double income or family payments if you own negative geared property.kimc wrote:PPOR value $400,000
NO personal debt
mortgage balance is 270,000 (Required payments are 1,793 (month)…but we pay $4000.00 (month) At this rate we have 6 years left!
We do redraw from time to time for 'must haves' like the recently purchased upgrade… $15,000 car but I stick as close as possible to a budget.Do we keep paying off the mortgage or do we take the investment plunge. My preference would be a unit on the Northern beaches approx 380,000- $420,000. Is this too risky for us?
There can be risk .
No capital gain or a capital loss
Land tax
Tenant damaging your property
You losing job
No rent being paid
Landlords Insurance can reduce some of these risks.
A sudden arrival of a new born baby.kimc wrote:(Not too sure how much we could borrow)You can find this out via a mortgage broker or visit your local bank and have a chat with the lending manager to find out what you can borrow before you plan on buying something.
kimc wrote:or do I lower my expectations and jump in at a lower level …say $250,000-$350,000 somewhere else.Love to hear your thoughts
What you need to look at is expected cash flow.
what is the expected rent for prospective property
what is the expected costs like council rates, water rates, insurance, loan repayment or loan interest
income / loss = expected rent – expected costs
what effect does an increase in interest rates have on expected cash flow ie say 10% p/a as a worse case scenarioHi Duckster,
No, Children will not be an issue.
Your information was also helpful. It really is all about number crunching and how much risk you are willing to take.
I will take your advice and contact a mortgage broker to see where we stand re: finance…..then do some numbers.thankyou
kimHi Kim
Yes numbers are one thing and any idiot standing on his head can punch a few figures into his calculator or laptop and come up with a borrowing capacity.
The trick is making sure the loan is structured correctly which is probably my biggest cripe when i hear how some Mortgage Brokers and particularly lenders structure a clients investment loan.
Dont where possible cross collateralise the securities and keep the loans separate. Set up an investment LOC or IO loan secured against your PPOR and use this to draw down the deposit and acqusition costs for the new IP.
Then using a separate loan / lender secure the balance of funds against the IP itself.
Sorry to rant on but mistakes they can be costly.
Richard Taylor | Australia's leading private lender
Hi Richard,
I have read many of your posts and the 'cross collateralise' and 'loan structure' will be one of the things I will be aware of…thanks to you and many others.
You might think you sound like a broken record but believe me, the more times we hear it …the more confident we will all feel when setting everything in place.We were told in 2005 that we could borrow an unbelievable amount for our PPOR but I did my own figures and told them what 'WE' wanted to borrow…..had we taken the money and run, we could very well be a 'morgagee sale' statistic…So I am very ready for the guy standing on his head punching the figures into his calculator!
Thankyou for this and all your posts
Much appreciatedRegards
Kim"While the price is important, things such as it's age (and therefore tax deductibility)"
… I never use tax deductibility to decide my investment choice.But I am not a qualified financial planner
Hi Kim
Good to hear that the word is getting through lol.
Also make sure the LMI component is on the IP loan it then becomes deductible.
Richard Taylor | Australia's leading private lender
Hi Richard,
That's helpful…..small bonus!
I read many ''For' and 'Against" …Re LMI. The way I see it…and this is just the opinion I have formed for my situation …if I want to get on the band wagon this year…it is just part of the price I need to pay. I want to be on the ferris wheel when things get going again.
Thanks again
Kim
True but the premiums between lenders can vary quiet considerably.
Richard Taylor | Australia's leading private lender
Ahh…I’ll watch out for that..
Thanks
kim
that a tidy unit in a good location like that might not sit vacant for too long.
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