Start small on 1st IP or wait

Hi Mark 

Welcome aboard.

Have you considered using the equity in your PPOR rather than your own savings to purchase your investement property?

Accessing equity in a PPOR to kick start an IP portfolio is one of the most common scenarios we come across.

There's two good reasons why this would benefit you.

Firstly, the equity that you access will be tax deductible (whereas the cash that you use won't be). In fact, using cash from your offset will only bolster your non-deductible PPOR debt.

Secondly, you'd be able to extract enough equity to cover a 20% deposit and costs so you won't need to pay mortgage insurance on the investment property purchase. If you were to use a small cash deposit – you'd be up for mortgage insurance.

With accessing equity, it's important that it's structured correctly so that you don't cross collaterise your PPOR with your investment property. It's also important to structure it in a manner that enables you to identify your tax deductible debt (the equity release) from your non tax deductible debt (your current home loan).

Hope that helps.

Jamie

No worries.

You don't necessarily have to use a different lender for your IP to avoid cross collaterising.

You just need to make sure that the bank doesn't list both securities on the application and the loan offer docs.

Cheers

Jamie

For something different. How about you sell your own home for 575k (assuming your 450k equity and 125k loan). Go rent somewhere for 300-500 a week and use the 440k ish (after sales costs) plus your savings and income of 130k per year to buy some neutral/positive cash flow properties. The reason why you would sell over redraw as a loc on your home is that you're maximum borrowing power will get limited by your income. Let's assume roughly 1.5 million with a 130k joint income. Plus rental income.

Selling would enable you to quite easily borrow over 2 million at under 80% LVR. That could be the difference of another 1,2 or 3 properties depending on your price points. If you did target neutral/positive properties the surplus funds could go toward paying for your rent and or another PPOR in the future which could be paid for by your property portfolio. 

Hi again Mark.

If your property is worth $600k and you have a mortgage of $125k then you've got $355k of useable equity. This is calculated by taking 80% of it's value and then subtracting the current loan amount. Some lenders allow you to access equity up to 90% of the properties value but this isn't really relevant in your situation as $355k is plenty to start with.

Without knowing the specific details of your situation, the first step would be devising a longer term plan and working backwards from that. What is it that you want to get out of property investing? ie. a certain level of passive income by a certain age? From there, you can work out what sort of properties and the size of the portfolio that's required to get this done.

Once you know where you're heading – it's a matter of putting the plan into action.

The first step will be accessing some equity in your current PPOR.

How much to access will be dependent on your longer term plans and is something that should be discussed with your broker/banker.

Once your equity release is set up and you've got an idea of exactly what sort of properties you're looking to purchase, you can start shopping.

A decent finance person will structure your loans in a manner that ensures you don't hit a borrowing capacity wall too early, that your properties remain uncrossed and that your loans are structured in the most tax effective way. 

You'll be surprised at what you can accomplish with a bit of knowledge and a large chunk of equity.

Cheers

Jamie

Also how long are you planning to be in your current PPOR?

Regards

Shahin

Every investment decision comes with an element of risk. 

I understand where you're coming from in terms of highly negatively geared properties impacting on future serviceability but the fact is, without some capital growth the portfolio is going nowhere. 

Cheap properties in the sub $100k mark are generally found in rural/remote locations with little chance of future growth. After you take into consideration holding costs – even a $100k property with a healthy yield isn't going to provide enough cashflow to let you retire.

You'd need to have dozens of these to even come close – and at that point, you've got dozens of tenants to keep happy which feels like a job in itself.

Cheers

Jamie

No worries – and I've responded to your PM.

Cheers

Jamie