Hello everyone,
I’m posting about how to have the best of both worlds. Please understand that I know I can’t exactly, but it’s getting to the time that I need to consider buying a property to live in.
I have an investment property which I bought in 2009 which is doing ok. Really flattened out during GFC but didn’t drop much. I owe a bit under $230,000 and it’s worth 255,000 approx now. Rented $265 per week. This doesn’t meet the 11 second formula so well, but after tax savings and depreciation it doesn’t cost much either. I’m thinking of using the offset to make it neutral, but I’m not sure how to calculate it.
This isn’t the main point though.
My next house I live in I want to own. Now, I can probably get it in my name only. Looking at $500,000 to $600,000 approx. I earn about $120,000 per year. No debt. Want to save about $60,000 before looking. I want it in my name for future borrowing. If I can’t afford it what are my options? My partner earns good money too but I want to make this purchase alone as I think it’s better for investment reasons. That said its still 50/50.
So, things I’ve thought of to reduce Future IP BORROWINGS.
1. Rent a room.
2. Rent a granny flat at the new property.
3. Do both
4. Pump savings into the first property.Am I missing something really creative?
Can I rent a part to my spouse? I don’t think I can, but that’d be really helpful.Basically buying a new PPOR is going to reduce my future borrowings and that will put the brakes on, incidentally does anyone know how much I could borrow after I buy the PPOR. Probably nothing haha.
Thanks for your help and advice in advance,
Alisdair.Hey Walkingtorun,
First, welcome to the forums!! Im sure you will learn a lot from here. :D
Regarding your situation, it is best to talk to your mortgage broker first regarding the borrowing capacity. They can tell you exactly how much you can afford, and how to structure your loans correctly that will suit your goals. This should be your first stop before looking at properties, no point searching around re.com.au for properties around $600k if you can only afford $400k. With your income alone and no other debt, serviceability won’t be an issue.
Cheers!
PHP | Mortgage Station Pty Ltd
http://www.mortgagestation.com.au
Email Me | Phone MeGive us a call or send us an email for a free residex report.
Hello PHP,
Thanks for your fast post. I suppose I didn’t write that so well and a bit vague. You are right and I will write to mine now, but it’s more the other questions I’m interested in. How to beat that mortgage problem when we buy our house.
For the sake of example, say I bought a $550,000 home with 5% down and LMI.
What clever ways can I get my borrowing power back up? I don’t care if my investments are $250,000 so long as I can new granted the loan.
regarding borrowing power, this varies from different lenders as each lender assess your borrowing capacity base on their lending policies which again, could be unique to each lender. they need to verify that you can service a loan so this is directly connected to incomes. unfortunately, I can’t answer your question in specific detail without knowing your financial situation. Some lenders have strict policies and some are not that strict so therefore the order of lenders needs to be considered in structuring your loans.
For a “clever way” to get your borrowing power back up: increase your income stream.
PHP | Mortgage Station Pty Ltd
http://www.mortgagestation.com.au
Email Me | Phone MeGive us a call or send us an email for a free residex report.
You don’t want to reduce future IP borrowings but the non deductible PPOR loan. Don’t worry about making the IP cashflow neutral by depositing cash in the offset as this will cost you money in more non deductible interest.
What you want to do is keep the cash in the IP offset temporarily and when you buy the PPOR work on a debt recycling strategy.
Don’t forget you can own the PPOR in one name but have both of you are borrowers.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Walking To Run,
It might be a un-creative but the easiest way is to not buy the PPOR.
Why do you want to own the next house that you live in? Real question. Is there something specific that you are looking for that you can’t get by renting? Perhaps you want to make the property just perfect to your tastes etc. If so, I completely get it.
The reason I ask the question is that in the past I have had the urge to put my money into a property for my partner and I but have decided against it. For us, it makes far more sense to rent a flat in an area that we want to live in and not be tied to the burden of the finance attached should we choose to buy it.
If we were to buy the flat we’re living in we’d be up for mortgage payments of around £2,500 / month. Renting, it costs us £1,300 and we deploy the surplus cash to savings for deposits on other CF+ properties.
Part of our strategy is to delay the purchase of our PPOR for another 5-10 years. For us this makes sense financially and we also enjoy the mobility and freedom it affords us. Yep, there are some downsides in renting but so far we’ve coped well with these.
Cheers
Mike
Mike
Email MeTerry,
Say that again, property in my name but we can both be borrowers? Will that help for future loans or make little difference as I’m still 100% accountable for the loan?Thanks PHP,
But I don’t think you’re listening to the whole question and focusing on just one part.Increasing my income stream? Yes, no kidding? This is what I’m talking about. Do YOU have a creative idea?
Forget the finance, how can I reduce the impact of taking on a PPOR mortgage?
Michael,
Thanks, but also no thanks. My question is not should I get a PPOR my question is how to get one and reduce its impact. I. Not going to go into why, I’m not inexperienced with renting, I have been renting for about 18 years.
So, now that we understand I’m buying PPOR, good that you have worked out your strategy it is of course better an easier to do it that way. It’s also easier to earn double my income. But I dont.
So back to my question. What can I do with the scenario I’ve set in e original question.
Thanks terry for being the most helpful.
Any info links on where to find a debt recycling stratergy?
And what you described with IP offset is pretty much what I had in mind, just redraw on that when I need.
I guess I’m wondering mostly what I can do with my partner in a clever way to use her income in some way.
Thanks.
Hi Walk,
I apologise for the rather generalised response.
Increasing income streams could be one or a combination of these things, I just don’t know if you can consider this creative though:*Focus on cashflow positive properties, lenders take rental income into consideration when determining your borrowing power.
*Connected to point 1, avoid heavily negative geared properties, the short fall for each negatively geared prop affects your serviceability.
*Balance your portfolio, some people get two positively geared IP for every 1 negatively geared IP. this will sort of balance the portfolio.
*As mentioned above, if at all possible, focus on +cashflow IPs for now so you will have a few income streams helping you paydown your PPOR.Hitting the financial brick wall can be and should be avoided by planning ahead. make sure you discuss this with your finance person as what you have mentioned already, this will put heavy brakes on your accumulation phase early on in the game.
PHP | Mortgage Station Pty Ltd
http://www.mortgagestation.com.au
Email Me | Phone MeGive us a call or send us an email for a free residex report.
Terry,
Say that again, property in my name but we can both be borrowers? Will that help for future loans or make little difference as I’m still 100% accountable for the loan?Yes a non owner spouse could also be on the loan. Deductions will fall to the owner.
It s not a good idea to do this unless you cannot borrow on your own to get the property as it will double the risk and hurt serviceability
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks PHP,
that’s a forum worthy answer, you sound like someone who knows what they’re talking about now. Some great ideas there.Thanks Terry,
I think I may just scrape in without her income but a good option if we need it thanks. I’m just trying to be creative,min thinking maybe she should develop her own portfolio unaffected by my PPOR. I was hoping I could do something clever like somehow split her income and add it to mine through renting to her or income split tax wise. Basically I need to get back to neutral as soon as I can.
Walking to run,
One approach would be to look for a PPOR that you were both happy to live in and offered the opportunity to add value. This could kill two birds with one stone… 3 actually…
In your original post you mention “2. Rent a granny flat at the new property”. Finding a property that offered you the opportunity to build the granny flat (or an extension) would allow you to create equity that you could increase your borrowings against for new IP(s) as well as provide an income stream.
So you get your PPOR, an income stream to alleviate the cash flow burden & increased equity to borrow against.
Mike
Email Me
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