Good morning to all,
I have been on this site for a few months now reading and learning. I have put together my goals and my financial plan, I have been reading every book I can find (despite the fact I hate reading – can anyone point me to some DVD's?). I still have lots to learn but lately I have been working on my purchasing criteria.
I have written a list of all the usuals however I find there is one primary need for me (mainly risk mitigation) here tis.
The rental income from the property must at least cover the cost of the borrowing.
In my mind this is sensible and definately what I want, amongst other things. My problem being that in order to achieve this I would need to be offering people about $100k+ less than they want for thier properties. (unless I buy in middle of no-where and I not want this either)
I want to achieve what I need but I dont want to sit on the sideline waiting for the impossible to arrive and then miss out cause I was ignorantly stubborn.
Anythoughts oh wise ones?
Hi Intrigue
Welcome!
There will be an abundance of ideas … are you ok with sharing a few more details to help us understand your situation and criteria?
Here are some things that will help us help you:
– How much cash you have in your bank account ready to invest with
– Whether the property you plan to buy is going to have a tenant in it, or will you be living in it
– Whether you are eligible for the First Home Buyers grant
– Which state do you live in (and town if you don't mind telling us that… helps us identify suitable areas for investment around you)
– Whether you own your own place at the moment, what you bought it for and how much is still owing on the loan (or perhaps you rent?? or live at home?? if you rent, is it an option to live with your parents for a while to save some money?)
– The current balance of your super fund (bet you didn't know you could open your own super fund, transfer that cash in there and use it to buy property….)
– Annual gross salary
– Any current debts and how much you have pay off them per month
– Your monthly cost of living
– Whether or not you've spoken to a bank or financier and if so, how much did they say they would loan to you?Answer none or some or all of these questions depending on your comfort level. Any answers will help us get an idea of how to help out.
Looking forward to offering some ideas
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Jac M,
20k ready to invest if need (currently offsett to home loan)
Looking for investment property to rent out, cash neutral ideally
not eligible for FHOG
Live in central QLD, whitsunday region
Currently own PPOR with bank (Debt 302k value 420k)
Super 40k
Salary 85K (not overly stable, but been steady for past 2 years)
No debts other than PPOR
Havent spoken to financier but believe I could borrow against the equity in my home.If you are able to borrow against your home, you'd still have to keep the LVR (loan to value ratio) at 80%. This would mean that you would be able to pull out around $33k for investment purposes. This is assuming you could service the PPOR as well as an IP.
You said the balance of the offset account is $20k. So is the balance of the homeloan $302k or $322k?
Hopefully Richard or Terry will contribute to this thread with their financing expertise. As you say, there's not much left of your salary after you pay your mortgage and living costs, so you'd either need to be creative or cautious
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks JacM.
The loan is 302k. After living expenses and current mortgage I have approx $1,000 per month available to service a loan on the investment. When I calculate these sums it is not to scary however if something were to happy to affect my job I would be in trouble.
Thus I am seeking a cash neutral property in the low 200k's. Thus while my income remains I am infront and if my income decreases I am still okay. Goal is to get starter style property cash positive asap in area of potential capital growth.
Hi Intrigue
I think it is really important to remember that when you have an IP, you need a spare wad of cash in case you have to wait for a tenant, or worse, if you have a problem tenant that stops paying rent and it takes a while to get them out. Any time you need to make an insurance claim for damages by the tenant will always leave you a little out of pocket too. Generally go by the rule of thumb that you should have a slushy fund to cover 6 months worth of IP mortgage payments, even when the property is tenanted. The IP would of course be on an interest only loan with an offset account…. a property worth $200k would require a slushy fund of about $8k just for the mortgage. Then there are council rates, insurance, water bills. So you're looking at needing about $10k "just in case" money sitting in an offset account. Which in your case means in the offset against your PPOR, since it is better to minimise this non-deductible debt.
Would you be looking at getting income protection insurance?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
The more I think about your position, the more I think you'd really have your back to the wall if you purchased an IP right now. Realistically, you'd have to buy with less than 20% deposit and therefore pay LMI (lenders mortgage insurance). It'll also mean your monthly loan payment obligations will be quite high, between your PPOR and IP. If I were in your shoes, I think I'd sit on my hands for a year and shovel money into that offset account like crazy, and re-evaluate in a year. Alternatively I might shovel money like crazy into my superannuation fund, enjoying the low tax rate of 15% and with the intention of opening my own SMSF through which to buy property in a year or so.
Of course, others will have different views. Anyone? Terry? Richard?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks for thinking of me JacM, this too is my concern and I am stuggling to get a hold on the sensible vs silly as the topic suggest.
At present I am comfortably paying my PPOR loan (just changed to IO to build up offset but still pay in as per PI)
I am also comfortably putting away an additional $1200pm
If this were to continue I feel quite secure however I feel I cannot invest based on this income because it could change if my work changed or I fell pregnant or etc etc.The way I see it I have 20k in the offsett to the PPOR – as my reserve buffer
I can set up an LOC with the equity on the home to the value of $33k being enough for a IP deposit and likely a buffer if I purchase in low $200's and pay the LMI. (thinking better to pay the LMI and have a buffer than avoid LMI and have no buffer).If the property I purchase pays the cost of the borrowed funds then I only have to kick in the rates and maintenance etc (which my current $1200 per month would do easily as well as grow my buffer). I would also look for a property whereby I could in future improve to improve the rent so as to get it cash neutral asap. (so I can breathe again)
My other buffer is my partner who could offer say $1,000 per month if needed. I feel that if I buy right and consider that the property must earn enough to cover the cost of funding I am pretty much okay.. No???
My area is very close to the bottom of market if not already. I dont want to miss out by being affraid to take the risk. Having said that I dont want to be silly either or put undue stress on my/our lives.
Thoughts?
You are right to have some caution in your actions. Indeed something could happen to your income, interest rates, or indeed you could fall pregnant. Mortgage yourself up past comfort level and perhaps you'll have a heartattack from stress and the whole exercise is then pointless.
I would not rely on your partner's money… his/her name will not be on the title of either property so he/she has no vested interest to pitch in. And you could break up or something. Do this thing with your own money.
Yeah ok I see where you're going with it. A property worth low 200s… pitching in a 10% deposit plus stamp duty would require $20k to get in, plus about $1k for legal fees. You have $20k, but this is your buffer money. So sounds like you need to wait a little longer till you've saved another $20kish or take out a loan against your PPOR. I think it would not hurt you to just save up for a few more months and then buy in. In the meantime you could target and monitor a suburb so you know the right property when it comes up.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
… and when you are ready to buy, track down Richard Taylor. Username Qlds007 on this forum. Very knowledgeable broker. He'll make sure you get the loan structure right
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Good morning kids – come and play….. please
ps Richard is based in QLD. TerryW, also on this forum, very knowledgeable.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
hi
you are fairly highly geared. But many people are. ideally, It is good to have a buffer as Jac says, I think you should sit down and make up some scenario spreadsheets and projections and see how you would go in terms of cashflow.
Getting the loan may be possible if you borrow high, and I would suggest you don't use the offset money but to deposit this into your home loan and then set up a large LOC. If you just were to use the offset money this would mean higher interest on your home and less tax deductions.
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
Thanks heaps for your thoughts Terry
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Intrigue wrote:The way I see it I have 20k in the offsett to the PPOR – as my reserve buffer
I can set up an LOC with the equity on the home to the value of $33k being enough for a IP deposit and likely a buffer if I purchase in low $200's and pay the LMI. (thinking better to pay the LMI and have a buffer than avoid LMI and have no buffer).Yep, that's how I'd structure it. I'd use the $33k towards a 90% loan. $20k would be used for a deposit (assuming purchase price is $200k) and the remaining $13k could be used towards completion costs (stamp duty, legals, etc) and you should have some change let over for a few renos.
All the best
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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