Hey Guys,
I love reading about what people are doing, so I thought I'd post up my most recent movement in property investing.
Been interested in it for forever now but studying a degree ceased to provide me with a steady and good enough income to invest the way I wanted.
My wife and I have been building a selling properties and making tidy little profits here and there but recently we moved to property investing instead of property trading and here's where we are at.
PPOR – $316000 purchased with a 20% deposit (using a term deposit) – Will eventually rent it for $380
Investment property purchased in September 2012 – $245000 (renting to excellent tenants @ $300 p/wk) just had valued at $275000. (Using a 20 % term deposit)
Duplex land: $150000 currently under contract. (20% Term deposit)
Duplex itself 1 x 3 bed & 1 x 2 bed – build cost $300000 (estimated value after completion – $540000. (20% Term deposit to get the loan)
My plan is to save my butt off for another year and then move into one side of the duplex and perhaps start a family shortly after. Ill move all the term deposits into my duplex and split the duplex loan (which Ive already discussed with my bank). By the time I do this I should own my PPOR (one side of duplex) outright which will then form the security over the other 3 properties that will be rented out.
I know this is a different strategy and many will be against owning the PPOR outright instead of using it for further purchases, however, I'm 25 at the moment and about to turn 26, so I want some security in my life and owning my PPOR outright provides this.
G'day,
Nice to see that you been so active in investment so early, you will do well.
I like your strategy, about having paid out PPOR. Maybe because we are the same, it provides a fall back plan if something goes wrong.
One advice is to watch your cash flow! Your returns are in the range of 6.5% meaning that you are running at the loss on your investments. Do not factor tax return in to the calculations, employment status can rapidly change and affect it, I worked it out the hard way over the years. What worked for us is to create a buffer in off-set account of the value of over 20% of all outstanding debt. This allow you to quickly come up with cash when there is opportunity on the market as well as critical buffer when starting a family.
Remember to check your financial state with stress test. I calculate my ability to meet the repayments at interest rate of 10-12%. If you can live with it for some 2-3 years, you are in the safe range.
As a side note, I have figured out that investing in myself pays better than investments in property. Meaning if you are young engineer for example, spend money on study first, work hard on experience and connections – second. Then spend even more money on creating your own business – third. This will later on buy you any qty of properties, cars or anything else you wish to spend the money on.
Property then becomes just an type of inflation adjusted savings account.
Hi Simple,
Wow, I'm really motivated you mentioned the buffer account as that's exactly the language we have been talking. I told my wife that we'd get into the unit, own it outright and then get all 3 investment properties neutrally geared. From the moment they are neutrally geared we would create a buffer account so that we are protected should interest rates spike. From here it's a simple managing process where we add funds in or withdraw funds out of the offset accounts based on what the interest rates do.
I see it as a simple, safe and protected process of being able to attain further properties in the future. If the buffer account gets too high then we can buy another property or if rates start jumping then we can redirect our attention to the offset accounts.
If you pay out the PPOR (I'm assuming the duplexes are on 2 titles? otherwise it's not possible to own half) and use it as security for the 3 other properties you are cross collaterised to the hilt. A good way of losing everything should you have cash flow problems. This is the opposite of security.
It also sounds like you are mixing investment loans and personal (PPOR) loans. This will also make the tax man VERY unhappy.
I suggest you speak to a good mortgage broker before you do this.
Catalyst – Duplex won't be strata titled and after speaking to the bank twice, I have been informed that the loan on the duplex can be split into two separate loans. You're right about the properties being cross collaterised, but I'm happy for this to happen in order to form securities. We are both on great incomes and I'm confident that we can manage cash flow over the coming years while we work on building up those offset accounts.
All properties are I/O loans. I have done this on my current PPOR as we only plan to live in it for a few months while the units are being built. Then we'll have tenants in it. I also have a chunk of money in the offset account of the PPOR that is obviously offsetting the loan, but will also serve to pay off one of the units when it becomes my PPOR.
If it's one property and you have split loans you don't really own one. You technically own half of the property. I'd check with an accountant to see if this is legal to claim that you have paid down the PPOR side of the loan with regard to claiming interest.
So how do you claim the PPOR exemption when it's half rented? How do you put that on the land tax exemption?
Also can you still claim the 6yr rule on the PPOR side?
Hope I'm not sounding critical. Just curious. We were thinking of building a duplex ourselves to live in when we downsized but went a different way.
Have you thought how this structure will affect future purchasing?
Sounds very messy to me and scary. But if it works for you and the tax man is OK with it why not.
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