Hi all 1st time post and will likely ask similar questions to those who have gone before me. Nonetheless would really appreciate some support and advice.
I currently have a PPOR which I am renting out for $310 a week and it's worth $320,000 with $254,000 thousand owing ($42,000 of the loan is a guarantor loan). The loan is a Principal and Interest loan. The interest rates for both loans are 5.15% with Commbank. I am renting out the house as I have been saving money for my wedding in February 2014. After February 2014 my wife and I will move into the place.
I am really stuck when it comes to investment strategy. One thing I know for sure though is she has a passion for design and aims to one day start her own interior design business. I love projects and we are both really interested in renovations.
My plan so far is to get the opinions of two local agents and an independent evaluator re what reno works we should do to the place as it is an old, run down, but structurally sound entry level property. We are keen to ensure we get the appropriate advice to ensure we do not overcapitalise. We then want to upgrade the bathroom, kitchen, laundry, paint the outside and gain council approval to replace the worn down pagola outside.
Post renovation I am stuck about strategy and loan structuring. The logistics after renovation become confusing.
Ideally I would like to churn over a few deals so i could build investment capital so i do not go into investing with too much debt but not sure how i should proceed. Do I:
1) reno, sell, move into a private rental, invest in another property?
2) reno, rent it out, move into a private rental and try use equity in home to buy another investment?
Also given my plan is to sell or rent out the house in the future, after we move in, do i refinance to interest only now?
Any of your advice would be greatly appreciated
Thanks
Joel
If I can add another point. Keen to develop a system that I can repeat two to three times over and also considering using a local buyers agent here called Property Wizards to help me locate, negotiate and buy undervalued properties.
thanks
Hi, a few questions.
What are your long term goals?
Why would you rent? Can you rent for more cheaply than you can in your PPOR? If so that can save money.
You need to crunch some numbers with each option.
If you want to build a portfolio, selling at the beginning may not be the best option. BUT it depends on the property. Can you get enough equity out to buy again? If you rent elsewhere will this allow you to save more deposit?
Where are you located? Buyers agents can help but be careful of those that actually have properties to sell. There may be a conflict of interest.
if you are considering renting out the PPOR change to an interest only loan so you have the excess to invest again. Get an offset to park extra money. If you plan to sell, it's not so critical. Speak to a good mortgage broker for loan set ups as mistakes in the beginning can put a halt on your investing in the future.
Cheers.
Hey catalyst thanks for your reply.
My long term goal is to replace my salary in passive income – 70000. Essentially to develop a positive cash flow property portfolio.
guess I would consider renting as I would likely save money each fortnight and would not have to pay annual bills. I definitely have not confirmed costs yet though but rent in my area is around 800ish a fortnight. My current p and I repayments are 730 a fortnight however if they were interest only perhaps I would save? Hmmm maybe you do have a point though.
there is currently 70000 equity in my home however still remains to be seen how much more I could manufacture through renovating the home. Could perhaps renovate, hold and use that equity to purchase another?
So my rental is in falcon, Mandurah, Western Australia. The house is 3×1 and the buyers agent is in Perth.
Thanks for the other pointers catalyst
You're welcome. Yes I'd suggest crunching numbers. Remember if you hold it though you can't pull all the equity out. You can borrow more to bring it to 80% of the value (maybe 90%) so you won't have $70K. Even if you sell you need to deduct selling costs. If buying something else there's stamp duty etc. It costs a fair bit to sell and buy again. Will this erode any gains made??
Work out your cashflow on the PPOR after ALL expenses (interest, rates, insurance). What is the projected CG over then next 5 years. If it's at it's peak maybe sell. Only you know these things so I can't comment on that.
If your aim is for cashflow look at what you need to do to get you there. If you do sell, what will you do with the money that will bring you closer to your goal.
What timeframe do you have for reaching this goal? In order to make it a reality you need to have a definitive goal. How much, when, how etc. By doing that you can start working towards it.
Enjoy your journey.
Hey man,
I know you are looking at the 70k a year positively geared investment stuff. I would tell you one thing that is for sure. Never sell your property unless you are in 2007 or another situation. There is one thing I have learned property investing and that is:
1) If you don't have the equity for a 20% down payment, don't do it. Don't expose yourself to risk.
2) Over the long term, property always increases in price.
3) Pay interest only on your loans. Use an offset account to dump your income onto your loans whilst saving up the next 20% down payment.
We build ourselves a $300+ positively geared property a year. I have a thread in here about that but it doesn't matter how you do it. It'll take you 10 years or so to get to yoru goal of 70k a year passive income, but dedication, hard work and sticking to your core investment principals will get you there.
Hey all thanks a lot for your replies. I feel I am getting a lot more clarity about some generic strategies to roll with. Feels a lot better to have a stronger sense of vision for the future hey.
Hey Sean can you please direct me to your post. I tried to search for it but could not find it.
Also do you recommend paying IO on my current PPOR if it is my intention to build a 70k cash flow in 10 years? Also not quite following with putting money into offset as I thought that would reduce the interest you pay, therefore your tax deductibility? Interested to know how I can keep LVR low. Perhaps through putting into P&I on PPOR or by offset? Sorry – still need a little clarity on that one.
Cheers
If you have a non deductible debt (ie your PPOR) always pay that first. Park the extra money in an offset against your non deductible debt. You can use this later if you want for deposits (or a holiday, whatever you like).
OK just realised you are renting it out so it is deductible at the moment. But better to pay less interest and lose a little tax benefits than to havbe it in the bank (at lower interest) and then pay tax on the interest).
The way to reduce your LVR is to put extra money in and when prices rise and your properties are worth more, or if you manufacture equity.
Joelcolley wrote:Hey catalyst thanks for your reply.My long term goal is to replace my salary in passive income – 70000. Essentially to develop a positive cash flow property portfolio.
guess I would consider renting as I would likely save money each fortnight and would not have to pay annual bills. I definitely have not confirmed costs yet though but rent in my area is around 800ish a fortnight. My current p and I repayments are 730 a fortnight however if they were interest only perhaps I would save? Hmmm maybe you do have a point though.
there is currently 70000 equity in my home however still remains to be seen how much more I could manufacture through renovating the home. Could perhaps renovate, hold and use that equity to purchase another?
So my rental is in falcon, Mandurah, Western Australia. The house is 3×1 and the buyers agent is in Perth.
Thanks for the other pointers catalyst
I'm very close to you in Mandurah too. I would be intersted in any tips you have for people you use in the area as I am looking at buying an investment property in the area too. I have emailed you. Good luck.
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