Hi Guys and Girls
My name is Michael im 21 years of age and live in melbourne.
Currently working full time at the Commonwealth Bank.
I have been able to borrow 20k off my parents. I was originally going to invest in shares but have decided to purchase an investment property.
My aim is to try and purchase a property every 12 months over the next 5 years and then use the combined equity to help myself purchase a PPOR. Im happy to rent until that time. When im say 25.
Im not currently renting however will be moving out in 2 years time with my partner.
Now Im currently thinking of purchasing a property either a unit more prefferably a 3br house in melton or melton south.
I would loan about 200,000 and use my 20k I have borrowed of my parents as a deposit. Therefore I could spend about 210k on a property.
Im thinking of setting the loan up as interest only for the maximum length I can.
Im not to sure if I should use the FHOG as it would mean I would have to live there for 6 months. Do you think this is worth while? To recieve the grant and also the stamp duty concessions.
All of your advice and thoughts on the idea above are greatly appreciated.
I think the FHOG won't be around for ever, so you may as well use it while you can. Living in the property initially will also help making it CGT free.
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
Also dont forget you always take a 95% lvr interest only and put the surplus deposit, FHOG into the CBA non transactional offset account and save up for the next IP.
Sure LMI will be payable but will be a Tax deduction in the Tax year when the property is available for rent.
Richard Taylor | Australia's leading private lender
Michael,
I purchased my first property in the same manner as yourself, I bought three properties in my first three years whilst living at home. I retired at 34 off the back of property and a science teacher at Doonside High School. Drop me an email offline at http://www.birchcorp.com.au and I can guide you through my success. Otherwise, all the advice listed above is a perfect start…….
Thanks for your reply guys.
Richard I have a few questions for you
In taking a lvr of 95% instead of using the whole 20k as a deposit, since im loaning a larger amount the monthly payments will become higher and I would also have to pay mortgage insurance.
Is it correct that I could only claim 30 c in the dollar for the LMI?
Im looking at a purchase price of 210k and keeping the spare 10 k of my 20 k deposit for stamp duty and associated fees.
On a loan of say 200k i would be repaying 1041.67 a month @ 6.25%
I would gain a monthly rent of 900 a month.
Negatively gearing 141.67 a month.
However using your 95% lvr method
My loan would be 210k and I would be repaying 1293 a month
with rent of 900 a month
I would then be negatively geared 393 a month.
Thanks alot for your thoughts
Hi Mike
Is it correct that I could only claim 30 c in the dollar for the LMI – Almost.
LMI is a loan cost so once the property becomes available for rent you could claim the portion of LMI left over the 5 year period.
Like all loan related costs it will help you reduce your Taxable income so in effect you are getting a 30% Tax deduction on the premium.
Richard Taylor | Australia's leading private lender
Richard thanks for your reply on the tax side of things.
Im thinking I wont claim the FHOG as it would be to hard to live there for 6 months.
Can you shed some light on why I would go down the track of a 95% lvr for my loan instead of using my whole 20k as the deposit.
I did the calculations above being 393 negatively geared a month using your method compared to 141 negatively geared using my method of using the full 20k as a deposit.
Thanks richard
Michael,
by having the balance of your deposit in the offset account your loan is effectively reduced by by the amount sitting in the account, therefore you pay interest on a lower amount. For exampple if you have a loan for 210K and you ahve 20k sitting in your offset account you only pay imterest on 190k ie 210K-20K =190k loan amount.
i hope this makes sense
cheers
SonyaBecause the funds you dont use can be used as deposit on another IP or indeed as deposit for your own non deductible PPOR.
Richard Taylor | Australia's leading private lender
So your saying guys
I should loan 210k keep 10k for stamp duty and fees and put my other 10k in an offset account therefor reducing my loan amount to 200k anyway.
Wouldnt I be paying the same amount of interest as if I had of loan 200k and used 10k as a deposit to purchase a property worth 210k. Since the loan amount will be 200k either way I go. Therefor I would pay the same amount in interest in each case.
The advantage being in richards method I would have 10k or so to play with to possibly secure another IP down the track with some capital growth hopefully. However I would have LMI and if I used the 10 k as a deposit for another property I would then have higher interest payments if I hadnt paid it off.
Not sure about the CBA but I work for another major that offers their employees 90% loans with no LMI. This is likely to save you alot of money if you can access a similar deal.
Stamp duty? Are first home buyers subject to stamp duty in Victoria?
Yes but it is made up for with better FHOG. At the peak you could get grants of up to $32k in Victoria to compensate for the stamp duty.
Although rates and fees influence a decision don't let them direct you into a particular bank. i.e. if you used CBA what is your loan capacity on the next investment property if you choose to use the same bank????? You will find that CBA can quickly cripple you – too conservative v other lenders.
A couple of rules to simplify all above:
1. Interest is calculated daily on the outstanding balance (and billed monthly).
2. You are only as wealthy as your assets. By not using all your deposit as suggested above, you can purchase more appreciating assets. i.e. using 8% growth of $200k is $16k p.a , 2-properties = 8% of $400k = $32k p.a property growth.
3. LMI is simply a fee. If it costs you $3k – who cares, capitalise this charge, you never pay this back so your cost is the interest each year. When you are on $32k pa compounded – above example, then paying $126 pa after tax in interest each year will not effect your bottom line…….. approach the concept of wealth with an open mind. Some people never get the above and many other simple concepts that can shortcut your retirement……… Enjoy your first lesson. http://www.birchcorp.com.auHave you ever thought of renting to buy a home? Let me know if you'd like to know how?
0427 499 058Heh maree
You dont have anything in the Peninsula area Vic do you ?
Richard Taylor | Australia's leading private lender
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