We currently live in a house which is currently valued at $525 k. The loan on the house is $471 k.
We are looking to buy our first investment property for around $300k.
Speaking to banks, I got to know that we have to have saving worth:
$10% of purchase price for IP = $30,000
Stamp Duty = $9000 (approx)
Bank fee/settlement fee = $2000 (approx)Total = $41,000
Is that really what we are looking at if we were to buy an IP for $300,000. We do not have that much cash in our savings. Is that any other way we can get into IP market?
Or are we missing something? Surely a normal working couple wont have that much money to buy the first IP. How do people like us get into market?
Hi Lotsy
Your figures look about right.
However, you could get away with contributing less if you managed to take out a 95% loan.
CheersJamie
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]
Jamie,
Thanks for your quick reply.
That means $41,000 – $15000 = $26,000
That will increase the LMI by a certain amount.
So, what it comes down to then is we have to have $26,000 in cash if we want to buy an investment property worth $300,000.
Hi Losty
Subject to your income and weekly budget the more you can afford to use of your equity up to 20% of the investment property IP the better your life becomes.
Remember that the bank will offer you the opportunity with a 10% deposit of the IP, but they will also consolidate the loan into one. Meaning if you fail on one you fail on both IP an PPOR.
Get advise from a well experienced property investment finance company.
Purchasing an IP is 95% about the figures!
Email me and I can put you in touch with such a company.
Regards
Kevin
0449 905797Unfortunately for Losty he's current PPOR is already sitting at an LVR of 90% so tapping into equity isn't an option at the moment.
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]
This is a problem most first time investors have and unless you have accommodating relatives or friends the only way to save a reasonable deposit is with a few sacrifices in the short term but eventually with time it becomes a lot easier wtih accumulating equity. Time in the market is a sure fire way to success.
Hi Losty,
An option is to pay down the PPOR as soon as possible then redraw with a LOC to be used as a deposit for an IP. It will take time however.
Another option is to seek out a vendor who is willing to offer a Second mortgage carry back on certain terms as defined by you and the vendor. You will only pay for legal fees and closing costs. You do need a good cash flow though to pay the bank for your IP loan and home loan and to pay the vendor.
Pros: time in market quicker
Gives you the option to purchase
Better ROICons: Increased interest payments
Higher interest rate on Second mortgage (in most cases)Rory Breaker wrote:Hi Losty,
An option is to pay down the PPOR as soon as possible then redraw with a LOC to be used as a deposit for an IP. It will take time however.Another way to acheive the same outcome would be to convert this loan to interest only with an offset attached – place any extra repayments into your offset account. You can than withdraw this money at any time at no cost and no hassle.
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]
Jamie's way provides greater flexibility in your situation for further options down the track.
Jamie M wrote:Rory Breaker wrote:Hi Losty,
An option is to pay down the PPOR as soon as possible then redraw with a LOC to be used as a deposit for an IP. It will take time however.Another way to acheive the same outcome would be to convert this loan to interest only with an offset attached – place any extra repayments into your offset account. You can than withdraw this money at any time at no cost and no hassle.
Thanks Guys for your replies.
Jamie,
Jut to make sure i got this correct – What you are suggesting me is to change my current property loan to a interest only and if i were to have, say, $30,000 in saving in next 4 months, i put it in the offset account linked to my existing loan.
If this is what you are suggesting, how will this help me getting a deposit for the investment property?
Hi Losty
For once i have to say I disagree with Jamie on this one.
In order to structure the loan for the most Tax effective way i would not switch the current PPOR loan to an interest only loan and then use the funds sitting in the offset account as deposit for the new IP.
By doing this you are only able to claim the interest on the new IP loan only.
I would carry on making P & I repayments on your PPOR loan and extra payments were possible.
Then i would get the current PPOR revalued cancel the advance repayments and set up a totally separate interest only loan as deposit for the new IP. (Do not use a redraw as previously mentioned and unless the interest rate is similar to an interest only loan dont take out a LOC).
Structuring the loan this way will maximise the deductible interest whilst reducing the non deductible debt.
Hate to disagree with a former poster but dont think you will find too many lenders / insurers allow / accept a vendor financed second mortgage so think you can forget this as a way to generate a deposit.
As the current loan is fairly highly geared I would also probably look to use a separate lender in order to reduce the overall LMI costs. A good investment orientated mortgage broker should be able to give you some options.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
No probs – that's the great thing about the forum!
I agree with Richard's approach (in terms of reducing the non-deductible debt). However, just make sure that your bank won't make life difficult when you do apply for the top-up (the new legislation can make things fun) and also ensure that they'll top-up to a high enough LVR (in your case 90%) in order to make it worthwhile. Also, how sure are you that your current PPOR will remain your PPOR for the foreseeable future? If you ever do decide to move out of it (and convert into an IP) you don't want to be in a position where you've paid down quite a bit of the principle (that's speculation though – this might not be your intention whatsoever).
Cheers
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]
Qlds007 wrote:Then i would get the current PPOR revalued cancel the advance repayments and set up a totally separate interest only loan as deposit for the new IP.Richard ,
Can you please explain this how will it work if i were to make a payment of $20,000 in my existing prop and then redraw for IP. Could you please explain this with some example numbers.
Thanks,
Losty
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