Hi all,
I would love to get some of your opinions on my current situation. Basically a few years ago I had an investment property that I bought and was renting as CF+ when I met my future wife.
We decided to sell the house to fund our deposit on a home to live in. We bought in the Eastern suburbs of Melbourne 3 years ago for just over $400K with a loan of around $315K.
We knew we were going to have kids so payed as much off the loan as we could prior – have a loan of around $220k (70k in the redraw), are back to one wage with a baby and I want to start investing again as the realisation that paying our mortgage off will take a minimum of 10 years if we live a very very frugal life.
The problem we have is that being on one wage which is only a lower middle class wage banks won’t lend us money so I here is what I am thinkingOption 1
– Sell current PPOR for $510-530K which would leave us with around 285-300K after closing
– Purchase one property outright in rural Victoria outright as an investment for $240-260K with rent of $250-260p/w
– Purchase second property in rural Vic (similar specs to above) using the remaining amount to fund the deposit with a $220K loan
– Rent a house for ourselves for as cheap as we can $350-400 p/w (we have a dog so need a back yard)
– Pay as much as we can off the second property with the aim to have it paid off within 8 yearsThe idea is that the second house rent pays majority of the loan and the first house pays for the additional payments to push the mortgage in front. Ultimately we would end up with 3-4 properties paid almost completely off before we purchase our own home again. This allow the passive income to help fund our own home.
Option 2
– Keep the status quo, keep paying our mortgage as much as we can then after 10 years when it is paid off start investing then.I really don’t like option 2 as it means that we really are no further ahead in the long run.
Apologies if a similar question has been asked before but would love some opinions from those who have been there and done it in a similar boat.
Thanks
Hi,
Generally speaking, I would personally definitely go with some variation of option #1.
One of the main advantages of property is the leverage. If you own only one property (and PPOR is even worse in that sense), it doesn’t really help you if the value doubled over 10 years because all the houses doubled (more or less) so in that sense, you are not really better off. But if you have 5 houses that doubled, well… That’s a very different story 👍😎
Waiting 10 years is a very very long time. The houses you’re talking about may be double by that time, so sooner is generally better than later IMHO.
The main thing I would change in option 1 is the outright buying bit. There are advantages of being more flexible with your funds (I.e have them sitting in redraw or offset account) vs having them 100% locked-in in a house. Although maybe you had that idea because of borrowing power issues? Would definitely check that bit (your borrowing power) before doing anything else 👍😎
Hope this helps?
Cheers,
EthanEthan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
Thank you for the reply Ethan.
That definitely makes sense and is good to know that I am not ploughing down a path that seems odd.
The main reason for the outright purchase as you say is for the borrowing power, as my wage isn’t really that great I had spoken to a broker who pretty much said they won’t lend anything over $225K, so my thinking was if I own one outright and have rent coming in from that it will help with providing a higher disposable income to help with repayments for 1-2 additional properties (on top of the one I will purchase outright).Thanks again.
hey real-newbie – totally agree with ethan and option 1 as 10yrs is a really long time to be on the sidelines when you could have your money working for you, and you wouldnt be the only rent-vester out there. cheers, john
Thanks for that John, sounds like we are looking at going down the right track.
Really appreciate it
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