New to investing with not much capital

Hi and welcome aboard.

Cross coll is rarely a good idea – and if an IP can be purchased with cross coll it can also be purchased without it.

How are you calculating your available equity?

Cheers

Jamie

Hi Kurtuk,

  And welcome !!   Depending on how long you have lived there, and whether you might have bought for a discounted price, the property value might not now be $540k.  We appear to be coming out of a 7 year slump in Brisbane (when prices hardly moved overall), and there are indications that values may be heading North, or have already started to do so…. 

  I agree with Jamie re x-coll (i.e. it is rarely a good idea….) but it can make the difference in specialised cases, so let's not write it off altogether – yet !! 

  If you can add a little more to your story, those extra pieces of information might turn the whole ship around.

  Do you have a particular area in mind for purchasing an IP?

Benny

Your current LVR is 93.5%. Some lenders will let you go to 95%. Add LMI into the mix which usually caps out at 97% cant see you have much room to move? 

It will always seem like you are going to miss the boat if you don't jump in now, but really the deal of a lifetime comes along every week.

Personally I would concentrate on building up your equity – paying down your loan if you don't intend on renting the house out in the future, or manufacturing equity through reno's etc. Before you know it you will be more educated and more cashed up – win/win.

As Warren Buffet has said "Wealth is the transfer of money from the impatient to the patient".

It is hard, and I am definitely guilty of it but what he says is true.

Good luck anyway.

Hi again,

  Yes there are….

  You may not like some/all/any, but here are a few thoughts that might guide you in one way or another.  I’ll summarise each, but if one particular option seems to sing your song, then jump back in to ask for more info re that one, OK?

First though, in what area is your PPR (in case others can add a comment re the location)?   Can you find what similar properties are selling for there (e.g. via RE agents, websites, media articles, homepriceguide.com.au, your bank, etc).   This should have you finding a “value range” in which your place sits right now.  Many variables will affect this, including location, land size, condition, # of rooms, garaging, etc.

Next, did your master bathroom really NEED an upgrade, or was it to suit your wishes?  If the former, then it is likely an older home in a settled area, and the upgrade would hopefully have added $20k+ to the value.  Kitchens and bathrooms are the major “put-offs” to many buyers – so your purchase price maybe allowed for “spending on the bathroom”, thus was under market value at the time. 

Could it be that your place today is really worth between $560k and $590k?   If so, that changes the whole dynamics of your situation. 

But  let’s take a look at some other options:-

1.  Cross-coll – always an option, but can be a b*tch to unwind later…  And if your home value is really nearer $540k, there is little advantage in considering it anyway.  Others first eh?

2.  Find data that supports a higher value for your place now – e.g. the upgraded bathroom, any recent comparables (similar houses sold in your area and their prices), completed works (or plans) from Council that may indicate a lift in local values overall.   Talk to your bank re getting a valuation for finance (and tell them what you wish to do).   They will likely talk cross-coll (of course) and will maybe suggest a “bank valuation” for purpose of releasing equity in existing.  Don’t sign up with them yet, but bring the results back so that some of the great people here can add even more up-to-date answers.

  BTW, I do agree with those who have said “You don’t have enough Equity right now”.  If too skinny, you would be creating a rod for your own back.  BUT, if a bank val comes in at $570k or higher, that could shed a whole new light on the situation. 

4.  Research the idea of moving out of existing, but keeping it as a rental.  Then rent somewhere else for yourselves.  This then opens doors to assistance from a rental income, depreciation, tax concessions, etc.   This can improve your Servicability out of sight (you say it is already good now).   But then LVR (equity) is your current sticking point, not DSR (serviceability) – so can you add value to your PPR right now ?  Pretty up the place – ahead of a bank valuation….   Does it need a paint?   A small (few thousand) investment in appearance can add tens of thousands in perceived value !!

5.  Whatever else happens, KEEP ON reading and learning.  Buy some good books too (I prefer books, as they are easily portable, and you can scribble on each page, highlighting important bits).  

There will be an answer – and it will show itself to you, so long as you keep looking for it !!   Do get back to us with any further thoughts/questions, etc.

Benny

Hi Kurtuk,

  Good work !!   I think a valuation will add a bit more certainty to your current situation. 

 A quick Google told me a little about Eatons Hill –

 http://www.realestate.com.au/neighbourhoods/eatons%20hill-4037-qld

  I was particularly interested by the number of "buyers looking" in that suburb.  Sounds to be a bit sought-after – which can only be good news for your valuation.  Note the rental return is less than 5%.

  Also, re Deception Bay, your earlier words, plus a Google :-

http://www.realestate.com.au/neighbourhoods/deception%20bay-4508-qld

  …tell me it appears to be of similar demography to my area on the South side (Logan City – esp Kingston, Woodridge, Marsden, etc).   Houses/units were over-developed in the early 1990's which led to prices stalling for many years until early 2000's.   Then whoompah – they all shot through the roof, primarily because of the better rent returns (I know several investors who cleaned up by buying in these parts back then).  

  Note the gross rent return in Deception Bay compared to Eatons Hill…  more chance of being cash-flow positive – but then, a higher return often comes with higher risk, so one to consider…..    Gross return is yearly rent divided by cost as a percentage, so:-

   Deception Bay = 310 x 52 / 285k = 5.6%   vs   Eatons Hill = 4.3%

  That gross return is a "place to start" when evaluating how well a property might do when first looking.  Of course it is a simplistic go/nogo method of sifting through chaff to find the wheat, and not much more than that.   Similar to Steve's old 7 second rule, it is easier to call a year 50 weeks – so simply halve the rent per week and multiply by 1000.  e.g. 310/2 =155 x 1000 = 155,000.    This comes to just over half the cost of the house, so just over a 5% return.  Steve would look for a 10% return back when he was starting, thus looking for the 7 second rule to bring a number equal to the cost of the place.  

  This worked well in some areas (e.g. Kingston, Woodridge) in the late 1990s and early 2000s.  Investors could buy in for $75k (or less) but get better than $150 a week rent.   My first purchases back then (in Redlands, Logan) were around 8 – 10% without having to look very far.   Will those times come again?   I'm sure they can/do in some areas, at some point if the property cycle.   Watch for it…..

  Good luck with the val, 

Benny