Hey Guys,
With help from people on this forum I have decided to take the step into property investing.Here is what I have done and am doing so if you see something wrong then let me know…
I was in the process of building a house when I posted last (loan of $200000 P/I). The house is now finished and cost me a total of $350000-$355000 (house and land price). I got the house valued by some agents last week and fortunately it has come back a little higher than we first hoped for. It was valued at $440000. Now I understand that the price I actually get after negotiations and commission may be a lot less than this price. I hope to walk away with 50k from this deal but we'll see.
About a month before this house finished I found this beautifully renovated older property closer to town. It is a 3brm, single bath, carport style home. I put in an offer that was accepted. Sale price $245000 (loan $245000 I/O).
Now my plan is this: Im going to sell my newly constructed property and hopefully walk away with a 50k profit. I'll take my $250000 current equity and pay off the older property in full. I then plan to do one of three things. Option 1: older property again on interest only and sink a lot of cash into offset account on I/O loan. Option 2: Build a duplex and structure loan the same way as just mentioned. Option 3: buy the older property that could be subdivided and again go the duplex idea.
My wife and I are both 25 yrs old with a combined income of around $1400000 per year with fuel cards, phone bills and insurance paid for on top of that. I guess I want to own my own home first because I will feel more secure and have a little less stress on my mind. My strategy is really to own my own home and buy something that we can sink our money into by means of the offset account. Build up enough cash in the account to buy another…
It was all an idea up until I bought that second house the other week. That did what I wanted it to and pushed me to make a decision whether to sell my newly constructed property or not. Now I have to and I face investing head on.
This is my plan so if you think I am doing something wrong then please say as I have posted this up to hear peoples opinions.
Great work so far.
Was the first house built to live in originally? What about the second? Are you going to live in that? If not why are you paying down the loan? If you borrowed the full purchase price (100%) does that mean it's crossed with the other loan?
So the sell price would be $440K so you'd have $250K cash after sale? So if you don't sell the first one, you'll live in that?
If you pay off the second property what are you using for deposits and legals?
It's not totally clear how things are structured. More info please.
Firstly congratulations you sound like you have had a good win on the house you built. I agree with Catalyst, i think some more information might be needed here, by the sounds of things i think you might have a few other options on the table here that might involve not selling that house. I'm not as experienced as some of the others on here but I'm sure with more information there will be plenty of idea's thrown at you.
If you go the duplex route presell off the plan before you commit to construction. Takes most of the risk out of the venture.
Catalyst – Yes first house was built as a PPOR but then we bought the older property to live in for after the sale of newly constructed property. We bought the older property so that we could live mortgage free and then direct our attention to our first real investment.
So how did I come up with $250000 cash equity? Newly built property is worth $440000 and we have a loan on it of $200000. I subtracted that away from $410000( Approximate amount after sale and commission is paid). We then have a few thousand in an offset account. All up, after the sale of newly constructed property we'll have around $250000.
We will then use the $250000 to completely pay off the older property that we bought. This will be the property that we reside in once the sale has gone through.
What will I use for deposits and legals if I sell newly built property and pay off second one? Great question… We are self acting and leave my sister-in-law to take care of again. She works for movie gifts cars
well that's what we've paid her in the past for legals The deposit for IP is our next problem. I guess by owning our home outright it won't take much to get one together…OK You could get a LOC on the older property that will be your PPOR. Use that for legals and deposits. But make sure you do not contaminate it by using for private use AND investments. Keep private money separate.
Then each IP you buy get an 80% loan against that Do not cross them. Have each one as stand alone. You could get 85-90% loans but you will pay LMI. Some people say it's worth it to increase borrowing power. I don't but I haven't had the need.
Keep asking questions. You're on your way.
Agree with Catalyst's comments above. You need to make sure the loans are structured correctly at the start to save heartache later on down the track.
I would ask if you intend to live in the old house permanently or is there an intention of making it into an IP down the track? If there is a chance of turning it into an IP, you should leave the loan as is and place the excess funds into a linked offset account.
Cheers
Tom
Yep get an awesome broker on board. Pick from any of the following three gun mortgage brokers on these forums. Their userids are Qlds007, Jamie M and Terryw.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Wow that is a great start. Have you thought of keep them both and rent out the the new one as you get more depriciation on that one
You need a good broker one that has multiple investment properties otherwise the info wont be structed to your benifit
As you can only one principle place re capital gains tax if it is not structed correctly then there will be major tax issues
Pay one off qicker threre is a great calculator wth an extra payment facility that you can play around the figures with and work out the bes situaion with
All the besst
Thanks for comments guys. Some really useful information and food for thought.
I want to sell the newly constructed property as I want the equity out of the property so that's the reason I don't want to keep both. I also feel that if I was to keep both then it'd slow me down as cash flow would take a hit.
PLC – your info has made me look twice at the loan on the older property… You're right, I will eventually change this to an IP if I go down the duplex path so thanks for your comment and I will keep that loan as I/O. It was something I didn't give enough thought to but understand why you mentioned it.
This property will hit the market on the 1st Jan 2013. I'm excited because I see so much potential out there. For example: The next stage is due to open in my estate mid next year. My name is top of the list for land and if prices are anything like what they were when I bought this a couple months ago then I toy with the possibility of buying two blocks this time and building again… LOL too many ideas and need to finalise current deal before I let my mind go there LOL. I know I know… CRAWL BEFORE YOU WALK.
well that's what we've paid her in the past for legals 
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