Hi,
I currently own a 2br apartment in Sydney worth $525,000 ($325,000 Mortgage and $200,000 equity). I also have a share portfolio to the value of $50,000.
Therefore my total equity is $250,000.
To fund my second property, I would use the equity from my first property totalling $105,000 (20% of $525,000, so mortgage is at 80%) + the $50,000 in shares. Giving a total of $155,000.
Now if I buy a second property for $500,000 that means I would have a loan of $345,000 ($500,000 – $155,000), + a loan of $420,000 (80%) on my original property.
My income is $75,000k gross. Although I will be getting rental income, in these markets it would not be positively geared, especially when taking into consideration other expenses like strata, and I havnt even assumed any buying costs.
Managing these kind of mortgages, even with rent and a 75k income is a pretty tough job! At the moment I live in one of the bedrooms in my current place and rent out the second.
Does anybody have any tips for managing these situations or advice on how to tackle the above?
Thanks,
Brendan
Hi Brendan
Firstly welcome to the foumr and I hope you enjoy your time with us.
As far as financing the deal is concerned what you have stated is almost the way to go however i would look to pay down your PPOR debt by the $50,000 realised after the sale of your share portfolio and then borrow the same amount against the PPOR by way of an LOC or interest only investment loan.
Secondly i think i would be looking to switch your current PPOR home loan to an interest only loan with 100% offset which will reduce the repayments as well provide you with added flexibility should the nature of the property change down the track.
Obviously no one would suggest you ever over comit however couple of things you can do to reuce your risk exposure:
1) Consider a fixed rate albeit not so palatable in the current climate.
2) Look at obtain a Depreciation schedule on the new investment property upfront and lodging a PAYG Tax variation from day 1.Depending on the age of the property and the internal fittings you may well be suprised as to the Tax credit you will receive and therefore the difference between the rental income and the outgoings maybe fairly minor.
Get your Mortgage Broker to split the loans for you and structure the debt to maximise your interest and Tax savings as well giving consideration to Asset protection.
Richard Taylor | Australia's leading private lender
Hi Brendan,
Firstly well done on buying your first property and building up such a good equity base. Everything Richard said is good (he know’s his stuff).
My suggestion would be to think about what you want to achieve from your investment portfolio. Yes you want to be ‘rich’ but break it down and define it more. For me my goal with property is for it to generate me passive income to fund my lifestyle. So I look for cash flow first and capital gains second.
I just see people stuck in the trap of capital gains and never getting to enjoy their money. For example, someone buys a house that costs them money each money to own, but they scrape by and in a few years sell and make a whopping $200,000!!! They think “this is awesome” and they go and buy a bigger property that costs them more to own. They are getting rich, but in the meantime they are living off baked beans.I want to enjoy my riches and I grow them. Not everyone wants this.
But with only $75,000k/year eventually you are going to be capped with negatively geared property because you won’t be able to buy any and afford to live. Before you buy your next property and be paying more each month in interest (and rates are still going up). Think about what you want to achieve. If you don’t mind scraping by thats fine, just know exactly what you want and whether the next property will get you there or not.
You don’t want to end up being a poor rich man living off baked beans but owning a few million dollars in property.
Ryan McLean | On Property
http://onproperty.com.au
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