Hello everyone!
My wife and I are new to Property Investing and wondered whether we could get some ideas on how best to proceed! Have recently sold our Principal place of residence (purchased via Loan 100%) with the intention of investing the proceeds $60k into our first IP.
My wife and I are both 29yo and have combined earnings of $180k pre tax pa and have the ability to save between $3k-$3.5k per month for deposits etc (after paying rent all and other living expenses). We are wondering whether it is best to use the monies we currently have to purchase an IP straight away at 80% LVR. We could then continue to save for our next IP which would take another couple of years. Would it be best however to instead purchase the IP at 100%/95% and put the savings into an offset account? (whilst saving for the other). I understand that LMI would apply here but my concern is that it would take a couple of years to save the 20% deposit for two properties.
Given our current level of savings/earning capacity and aim of having two investment properties within the next 6 – 12 months does anyone have any advice on how we could proceed to achieve our aim?
Your advice/help here would be much appreciated!
Josh
Personally i think I would be looking at gearing to a level of 90-95% paying some LMI and investing the balance of your savings into a 100% offset account.
Couple of points worth bearing in mind:
1) LMI is an opportunity cost and allows you to gear into a property now rather than wait until you have saved 20%.
2) Being a loan cost it is deductoble over the loan term or 5 years whichever is the shorter so at least the cost impact is reduced.
3) It gives flexibility in that your savings can sit in an offset account and the funds are not contaminated and can then be used for personal purposes with fear of effecting the deductible interest.Richard Taylor | Australia's leading private lender
Hi Richard,
Does this harm my ability of trying to borrow for my 2nd property? If I only put a 10% deposit down for the 1st one will they accept a similar deposit on the 2nd? I am hoping to make sure the structure I use is scaleable so in future can purchase a new property every say 2 years. I am also concerned if I put down less of a deposit say 10% instead of 20% this will give me less of an opportunity to negotiate with the bank on a better mortgage terms. Which again would represent an additional cost of not putting down the additional 10%. Do the banks differ much in their rates in this circumstance?
Thanks for your time here!
Peter
Peter,
The views Richard expressed are similar to what I would have said as well but perhaps I would not be as aggressive with LVR. Lenders are more comfortable with 85% than 90% and not many lenders are going to 95% without it being a very strong deal. It may also take longer for a revalue and refinance strategy to be effective, having to increase that extra 5 to 10%.In answer to your question, you use lenders that use different mortgage insurers for each to minimise the risk of a mortgage insurer saying 'enough is enough' or our exposure is high enough for you.Some lenders are pricing risk and the lower the LVR, some lenders have dropped their rates, conversely some have increased for the high end LVR's. However most lenders are still volume based, loans > $250k or $300k attract the discounts from standard variable.
Good luck
GregGreg/Richard
A belated thank you to you both for this information. Much appreciated and will definitely come in handy.
PeterbrisbaneJosh wrote:Hello everyone!My wife and I are new to Property Investing and wondered whether we could get some ideas on how best to proceed!…
My wife and I are both 29yo and have combined earnings of $180k pre tax paWith that level of tax, obtaining tax variations would greatly assist you guys obtain more cash flow. Here's some more info:
http://blog.rentwise.com.au/index.php/2010/05/08/tax-variation-what-is-it-and-how-can-it-help-me/
Qlds007 wrote:2) Being a loan cost it is deductoble over the loan term or 5 years whichever is the shorter so at least the cost impact is reduced.Quick question Richard, if you don't mind me hijacking this thread…
your comment about the LMI being deductible over 5 years caught my attention. I paid LMI on a loan for a property initially PPoR, and then living in for 1.5, then moved out and it has become IP. Does that mean I can claim a portion of the initial LMI paid once it was IP up to the 5 years?
damn… wish i knew that before…
can u claim retrospectively?
Wisepearl,
Check with a good tax accountant but my understanding is that you can apportion LMI over the period after it becomes an IP on the basis of 1.5 of 5 is private expense and 3.5 of 5 is an investment expense.If the LMI cost was $5k all up, for the first year you lived in the property, it is not deducible.
The second year, you lived in it 6 months, no costs are deductible, for the second 6 months as an IP, expenses can be apportioned and deductible. You should be able to claim $500 as an LMI cost for that tax year.
For the 3rd year, as a full rental property, claim $1k LMI as a deductible cost etc.The ATO allows you to make adjusted tax returns up to 4 years past, so you could adjust your tax returns and adjust these costs but again, check with a tax good accountant or the ATO itself.
Let me know how you go.Good luck
GregThanks Greg, appreciate the info. Will add to the list to discuss with accountant this year…
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