I’m soon going to have about 500k to play with to invest. ( this will be outside of being able to own our own home out right, we’ll sort of. Wife will be borrowing from our own trust.) PPOR is going to be in wife’s name who is stay at home mum.
This leaves me with my income of about $85k gross to be able to go guarantee on loans as plan to invest through trust/company. As there is a need for asset protection.
My question is.( and I know there might be different opinions on this one). Am I better off to put deposit down of more then 20% to make the place cash flow positive. Or is it not worth it.
As an example. If I put $200000 down on $500000 property. I calculate a gross cash flow of $10,000 ( after rates and other fees) or a 5% return on my money. (As I see it). Average growth in the area is 3%.
Now am I better off to say buy 2 properties like this. Then keep some money aside to do renovations to possible flip one and hopefully then be able to do 3 properties. ( creating income of $30,000). Giving me money to then renovate and flip to buy number 4. ( and so on and so on.
Or am I better off just holding back looking for better profit margin.
As I see it by doing the above. I could hopefully be able replace my income in under 10 years. Giving me the option to stop work if I choose.
Guess the real question are bigger deposits worth it if you have the cash available.
At this stage not wanting to use PPOR as equity. As I have a secure job. And will have over a million in super in 15years so wanting to keep that side of things safe and seperate
There are plenty of opportunities with current interest rates to be cash flow positive with as little as 10% deposit. Regional and Capital city minus Sydney/Melbourne/Perth markets unless you know what your doing. Depends what your risk appetite is though. I personally would split it into as many deposits as possible, more fingers in different pies. You don’t want too much equity tied up with one property. Flips are very dangerous in this market so be wary of that. Hope this helps just my personal view.
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
I understand a higher grown rate area would be beneficial was just using the suburb I’m currently living in as an example.
There are better suburbs around me. Would want to invest near me so I have the ability to renovate myself
Hi D.Stonefield,
Your question: “Am I better off to put a deposit down of more than 20% to make the place cash flow positive. Or is it not worth it?”
I believe that anyone can artificially make any property “cash flow” positive by increasing the deposit outlay but that’s not what is really meant for an investment to stand alone as being cash flow positive. Eg: Have you also calculated the opportunity lost $ amount that the extra money could be earning if you parked it into an interest earning bank account rather than put it into the purchase deposit?
See what I mean, there are other factors to be considered. I think 20% deposit is a bench mark for many / all lenders to offer a loan so I would work from that. Is it still cash flow positive after calculating the expenses & deductions etc using 20% deposit? That’s how I would determine it. Others may determine it using 10% deposit & paying LMI – that’s still fine, LMI is seen as a cost of doing business.
Also, nothing stops you from parking the extra money into your loan offset account rather than enlarge your deposit. Remember, it’s difficult to get that money back from the bank once handed over and you will also be reducing your loan amount (if you supply a bigger deposit) thus limiting the potential amount that would be considered detectable.
On the flip side, let me also say that the cheapest way to buy property is with 100% cash. This also has it’s disadvantages, no tax concessions, lack of liquidity etc – I am making the point that you have to buy it your way. 10% deposit & paying LMI is great if you find the right property & only have 10% deposit. 20% deposit and avoid LMI means that you save LMI costs but you have also doubled your equity buffer if things go a little pear shaped early in your loan. You also have a little more breathing room.
There is nothing wrong with investing in suburbs near your place of residence but don’t just think of the easiness getting to and from it etc. It can be a good idea to buy close because you would know the area well, have more confidence & knowledge is power when its used correctly. It also has its disadvantages, your properties are close by so if there is a slump with one, it’s almost guaranteed that there will be a slump in the other. Is that a bad thing for you? Some people prefer to have some protection from that. Maybe you can find a place to buy that’s close enough to travel to but not so close that you share the same property cycles. I’ve purchased property 2 / 3 suburbs away from my home & it’s been fine. Your wife owns your PPOR because you are not putting all your eggs in the one basket for asset protection, it’s similar with buying in the one location – you have to decide to accept the risks or find some-place else.
I hope that I’ve assisted you.
Cheers & more wealth to you.
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