Hey guys
Coming up to the end of the financial year I was thinking about my current property portfolio and what my plans to the future are – I was wondering if anybody had any advice etc on what to next if it differs to what I had in mind:
Current situation (all loans around 90-95% LVR with mortgage insurance capitalised)
IP 1: $314,000 owing (320/week rent 1700/month IO loan)
IP 2: $263,000 owing (290/week rent 1300/month IO loan)
PPOR: $268,000 owing (1700/month P+I loan attached to offset account)
My income: Around $70K now but possibility to move into higher duties within 12 months to approx $95K including overtime
Partner's income: $40-60K casual, depending on workload per annum.No plans to start a family or get married any time soon, around 5K in savings (will have quite a boost from neg geared tax return and a wage increase backpay owing from 3 years ago) minimal owing on the credit card, no car loans, only approx 5K owing on a 24 month interest free plan for some fixtures in the PPOR which is on track to be repaid within 18 months.
I've made the decision to submit a tax withholding variation to the ATO to help with the cash flow (savings got battered after we bought our PPOR) and we aren't spending any money on things we don't currently need (just repairs and vet bills!).
IP 1 is a potential development site and I'm working with a project manager to slowly get plans/approvals in place. I would like to develop the site within the next few years, and continue to buy/develop sites down the track as finance permits. IP 2 has a 30 year old kitchen and I would like to put a new kitchen in worth approx 2% of the property's value. Our PPOR is fairly modern but I would like to reno the bathroom and update the kitchen down the track and hopefully create a few modest equity gains.
Does anyone think I should do any different? Is there a strategy that I may not be aware of, or an alternative way to go about wealth creation?
Many thanks
Hi David- it looks like you are pretty heavily geared and with little in the way of savings, and at 90-95% LVR there is little room for setting up a line of credit.
I would start saving more money so you have a buffer in case interest rates rise or you have any other unexpected expenses. A income tax variation would help with that.
And due to this I would hold off on spending money on development plans until you have some more cash stashed away, as I don't see any point in getting the ball rolling if you don't have any intention in developing the properties any time soon.
Cheers,
LukeAlso another thing to keep in mind… Your tax rate will change with your higher income from work so it’s a good idea to keep track of where you are going to end up with all of your income. Are the properties bought in both names or in your own name? I think what Luke has written above is good advice looking at your LVR, with the world potentially going in the toilet and the market in a lot of places being relatively flat, now is possibly not the best time to be having such a high LVR. Would you consider selling one of your investments and using the equity to pay down the loans on your PPOR or other investment property? Having said that i’m pretty conservative when it comes to this sort of stuff.
Do you have a financial advisor? It maybe worth you while going to see one and talking about your current portfolio and what your next move could be?
Good Luck!
Only have $5K cash would worry me. If one property is empty for a month or you need to replace a hot water system or the like, you're in trouble.
Do you have an offset account. I don't like useless cash sitting around while you're paying interest but an offset account can help with that. That way the money is saving you interest but is sitting there for emergencies.
Don't want to scare you but I have a friend who lost everything because she was heavily geared and when the market dipped the bank wanted some money. She didn't have it so had to sell in a hurry.
I think your current situation will actually slow you down in the investing world as you have no room to move and need a property boom to dramatically increase your equity. Don't know where your properties are but this could be some time off.
I would convert your Principal property to interest only payments for the moment until you build a greater cash buffer.
I like properties which can be developed as it opens many opportunities, instant cashflow or hold 1, sell 1 or 2 properties.
I would consider selling the IP that can not be developed as a way of increasing your servicability with a view of developing your IP down the track, of course this all comes down to whether the deve site stacks up in terms of returns, on sale price etc.
Cheers, WI
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