Need advice

You really need equity to build a substantial portfolio so I would sway more to the first option but then again its all got to do with your goals and end game plans. Are you looking to build a large portfolio? Have you talked to a broker you might be able to put down a 13% deposit and pay some lmi(it gets relatively cheaper at 87lvr). @coreybatt can probably help

Good to keep buffers in place, playing it safe is normally the best option :) good luck I’m sure you’ll achieve your goals :)

Hi Jprop,

Property 1 will provide me with a rental yield of around 9% (leased until Sept 2016) but will chew up all my extra cash if i purchase it.

Sounds like a really good start with a 9% yield. But what is it about THIS place that has such a good return? You say it will take all of your extra cash – is that because you will need to spend $$ on a reno soon?

Tell us a bit more about each option, and it may enable more focussed answers.

Also, have a think about the actual COST of LMI to you. Like the house itself, you are not having to find 100% of it upfront. As an example, let’s say you are looking at a purchase of a $400k house, and you are borrowing 80%. Your cash (or equity) input will be $80k plus other costs – so maybe $100k all up?

Now, if you chose to use LMI to get a 90% lend, what does this look like? An online calculator tells me the LMI costs $7k – but wait…..

Instead of $100k cash, you save $40k (it is a 90% loan now) so just $60k upfront. The LMI cost can usually be added to your loan, so that $7k LMI cost will add just an extra $350 a year in Interest to your mortgage.

So, my question to you is this – “Does it make sense to pay an extra $350 a year to be able to keep $40k available in cash?”

Of course, there is a downside too – i.e. your borrowings are 10% more than previous, and this might impact on future borrowings for other IPs. Right there is where a MB can help by running through these monetary scenarios, and helping you to see your options more clearly.

Hope that helps with another perspective !!

Benny

PS The $40k you saved can be kept in an Offset account against the primary loan – just having it there will save you around $2k per year in Interest – and of course you only need $7k in Offset to totally offset the LMI cost anyway. Howzat??

Hi JT,

Great work discovering 2 properties that interest you.
Please excuse this very lengthy entry – I’ve always struggled to explain myself concisely. I guess that readers can choose to skip this reply – it’s only text.

Understandably (as this is your 1st IP) you are looking at acquiring just one property. It seems that you see independent advantages with both choices. One choice provides you with income immediately & the other provides you with possible future capital gains (I am guessing).

Have you asked yourself how you can have both properties & calculated the result? I think you should do that.

The reason I ask is that only acquiring Property 1 (from your view point of not owning any IP’s) leaves you with no spare cash & only acquiring Property 2 (from your view point of not owning any IP’s) will provide you with some extra money.
That linear attitude is fine but I think that you’ve left out at least one other important calculation / decision.
ie: What is your overall position if you acquire both? Does the total calculation result in your total investments being positive/negative/neutral etc? Do they meet your present & near future needs & wants? Can you afford them? Can you eliminate the option of buying both?

I’d also like to add that the only person that can decide which property is best for you to purchase is YOU
No one knows your circumstances & aspirations better than you do. You can ask a specialist & members to help you document & understand what it is that you desire from investing but everyone invests for different reasons.

The answer to a question like: which property is better to purchase will only get you an “entire spectrum” result……..the result will be that you get all possible answers to the question posed. Some say never buy property, others say always buy, some will say buy Property 1, others will say buy Property 2 etc. Doesn’t really help you narrow down & choose a property when you get all possible answers but that is the human condition – there is no “bad” or “good” buy for everyone together, if there was, the property market would be polarized & it is clearly not polarized.

I don’t mean to put you off or confuse you with this long reply. I don’t want to sway you into making a specific decision, just want to highlight that finding your answer is dependent on what the property provides & how that relates to you. (The exact same property may work well for someone but will cause financial issues for someone else). Learn what it is that you want / need & then choose properties that meet your need. Continually re-evaluate your position because your needs will change over time therefore you will sell/buy other properties to suit you.

I am sure that some members will agree with the above, others will completely disagree & others partially agree. Which opinion is correct? Probably the opinion that tells my to finally shut-up & wrap up this boring novel. lol.

The members & specialists on this site are great. You’ll find that the most experienced members will ask you questions about your circumstances before they give you their opinion on a matter of concern to you.

I believe that due diligence is looking at all the options, else it’s not due diligence. A “micro & macro” approach has to be far superior than only one or only the other.

Cheers & good luck. Wishing more wealth to you.

Thanks Benny, much appreciated.

It’s always a pleasure reading your posts – lots of respect for your experience & for your opinions.
You are a very wise person.

Well done for going through it all – that’s not an easy task during this fast-pace life.

Keep well.

It shouldn’t affect anything plenty of houses have sewerage pipes running under them. Congrats on the first IP. The first is always the favourite of the portfolio :)