Hello to you all!
I’ve been a member of this forum for a while, but have only been on during hot flushes when flirting with the idea of an investment property. With the addition of a small family and the goal to retire in approx. 20 years, I’ve really been thinking about getting a toe in the investment pond and most importantly have the support of my previously reluctant partner and am looking to start things off!
I’ve been researching for a few months and noticed a window advertisement for a property and upon enquiring with the selling agent was advised that this property was purchased at approx. 50k below the advertised price by a fellow real estate agent (around 200k selling price). This got me really looking!
Being based in Adelaide, Im keen to stick to local areas and have picked a few suburbs that are the located near public transport, shopping, schooling, 5-10kms from the CBD, are located next to ‘good’ suburbs and Im noticing some redevelopment and aim to be part of this suburb becoming the NEXT ‘good’ suburb, which I believe we did with our PPOR!!
Essentially I am looking to list what my intentions are and have the support or suggestions provided by yourselves, who are more experienced, knowledgeable and have walked in my shoes before and can share helpful tips or advice to learn from your positive or negative encounters.
At this stage we have our PPOR that I anticipate value of approx. $600k with a third still mortgaged.
I have considered +ve CF, but this appears to be in more regional areas and only minimal amounts of $10-$30pw). Therefore I’d like to stay local in Adelaide, in the vicinity of $250 – $350k (not entirely sure how current equity will work) for an existing home on >700sqm that will allow for small repairs (blinds, carpets, small garden, poss. Kitchen, etc) to breathe life into the existing home, rent and to allow CG to do its thing for approx. five years, depending on the market.
From there, I’d like to consider a subdivision constructing two dwellings with features, which I consider important, such as substantial off street parking, etc. Building our PPOR, I have a vague idea of what’s involved, but would research as the time approached. Ideally would continue to rent or sell dwellings, depending on tax details and any other IP’s purchased in the meantime.
So that’s the first part of the goal!
What I am also looking to do is mix up the mortgage details. I’d look to change current mortgage to an offset account with interest only towards PPOR (allowing for the offset to reduce at the same rate, but funds to actually remain available as required/buffer).
Then have a separate mortgage for the IP with both C&I being addressed.
We’d purchase the properties in our own names, as I haven’t been able to determine the benefits of trusts, etc at this time and the aim would be ideally to maintain the properties.
Wow, it feels so good to get that onto paper and into words!
So yes, if you’ve taken the time to read, thank you and I’d appreciate further advice of tips in relation to purchasing details, mortgage establishment, equity or anything else, that would be great!
Robert.
G’day Robert,
Congrats on getting a potential strategy down in writing – this means you’re motivated to pull the trigger!
Your investment strategy seems sound to me and appears to allow for learning the process along the way i.e. doing a buy and hold prior to jumping straight to a sub-divide and build.
Just a comment on your mortgage proposal however. You note that you wish for your PPOR to be an IO loan and your IP loan to me P+I. It is usually best to do this the other way around. The main reason being is that the interest on your IP is tax deductible however the interest on your PPOR is not. This means that it will be more tax effective to pay down your PPOR mortgage rather than your IP mortgage.
You have some seriously good equity available to you with your PPOR so borrowing against this to get a 20% deposit plus closing costs may be a good way to go unless you have other cash as savings. Then you can get an 80% loan for the IP, do the reno’s you would like and hopefully end up with a not too burdensome cashflow. Keep in mind that if you borrow money from your PPOR mortgage and use it for an IP then the interest from this portion of the mortgage becomes tax deductible. Interest is tax deductible based on what it is used for rather than what it is secured by.
If you haven’t already, get in touch with a Mortgage Broker as sorting out the finance side of things is going to be your first step.
Good luck and don’t forget to come back and report your progress!
Plummer
Simon Plummer | SP
https://www.sp.com.au
Email Me | Phone MeSP
Hi Robert
With respect to title ownership / trusts, the main object of the exercise is to containerise the investments so that one adverse event does not jepodise your entire portfolio.
Simply speaking, The trustee of the trust is a PTY Company so has limited liability. You as the owner on the other hand, are liable to the full extent and can loose all assets.
Companies can borrow against assets etc but I have seen company directors loose everything including their PPR due to having signed directors guarantees or putting up the PPR as collateral.
Always keep in mind that we are in rising property prices for a sustained period and high price of housing that is almost unmatched around the world, always consider your strategy in a price recession, Finance providers are in no way benevolent and will extract their pound of flesh.
Good planning and strategies for all scenarios ensure future prosperity.
Good Planning beats Good Luck every time.
Ozman
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