First IP, loan structure and long term strategy?

[Sunnytimes]

Hi everyone,
I've been reading the forums, and have made an offer on my first IP.
Would definitely appreciate any advice and opinion, especially regarding any major flaws in my plan.
Its such a big sum of money, so I am treading very carefully.

I am dreaming BIG.

Myself:
I am 30, on a steady income, with almost certain continual payrises.
I save 50K each year.
I own my PPOR worth 500K. I have 250K in a high interest bank account.
I have made an offer on a 700K IP which will be neutral CF.


My long term plan:
buy one IP annually, all approx CF neutral.
I am guessing I can afford $2m worth of property before I run out of deposit/servicability. (I may be wrong on this)
(is there any way for me to work out how much I can borrow? I know about the simple online calculators that don't include rental income)

Hopefully by then, the CG in my portfolio and my pay will give me enough additional equity + cash each yr to purchase the following IP.
($2m portfolio x 5%CG + 50K saved, = 150K = 20% deposit for next IP)


My loan for my 1st IP:
I am thinking:
Loan one: 20% + cost loan from my PPOR equity.
Loan two: 80% from IP one, with offset.
My understanding is that the "professional packages" would be appropriate to my needs? (please comment)

Is there any problems with going with Police and Nurses credit union for the loan?
How important is it to look for a low servicability lender at the moment?



Just starting out.. but glad I'm making the first step.
Any comments much appreciated!
And if anyone would like to offer or recommend services relevant to this plan, I am happy to listen, e.g. brokers/accountants, etc.

Sunnytimes

 

[Shahin_Afarin]

1. Why isn't the $250k parked in an offset against the PPOR? How much interest are you earning?

2. Change the PPOR loan to IO if not already and start accumulating the funds in an offset. Are you planning to convert the PPOR to an IP?

3. If you are going to purchase something for $700,000 then you will need a minimum of $170,000 deposit. Even though you have more to contribute - I would keep it at an 80% lend and use less cash.

4. Different lenders lend different amounts of money and this is somewhat dependent on the scenario so best to engage a broker on this part. You cannot use online calculators - you need the lender's actual calculators (which brokers have access to) to calculate this.

5. You are right re the set up noted - make sure they are interest only. Have all rental going into the offset against the PPOR since it is not tax deductible and disburse funds from this account accordingly (such as paying the loan for the IP). Keep IP at highest levels at all times. Based on the loan amounts suggested - best going with the lender's Professional Package

6. P & N are ok but very conservative when you want to do things remotely out of the box. I honestly think you should be able to have a more robust structure with several other lenders.

7. Make sure you do your numbers properly when calculating CF. I think you are only taking 80% of the loan when calculating.

 

[Aaron_C]

The only way to work out what you can borrow is to ask a broker. Getting the credit union for your first loan might be fine, depending on your situation.

 

[HD_ACE]

1. Why isn't the $250k parked in an offset against the PPOR? How much interest are you earning?

2. Change the PPOR loan to IO if not already and start accumulating the funds in an offset. Are you planning to convert the PPOR to an IP?
g.

Myself:[/U]
I am 30, on a steady income, with almost certain continual payrises.
I save 50K each year.
I own my PPOR worth 500K. I have 250K in a high interest bank account.
I have made an offer on a 700K IP which will be neutral CF

Sunnytimes

I read it as his ppor is owned outright.

Cheers

 

[Sunnytimes]

1. Why isn't the $250k parked in an offset against the PPOR? How much interest are you earning?

HD_ACE is correct: I own my PPOR outright.

2. Change the PPOR loan to IO if not already and start accumulating the funds in an offset. Are you planning to convert the PPOR to an IP?

I intend to sell this PPOR in a few years, then use the cash to buy another PPOR.

7. Make sure you do your numbers properly when calculating CF. I think you are only taking 80% of the loan when calculating.

Can you explain why you think I am not calculating CF right? Is it because it is not positively geared? If that is the case, then yes it will most likely be positively geared, just that I am very cautious with my calculations.

Regarding the P&N, would it be wise to stay away from them right from the beginning since I am dreaming of a big portfolio?

Aaron_C
Getting the credit union for your first loan might be fine, depending on your situation.

Can you tell me a bit more about possible factors affecting this?

Thanks for the responses!

 

[Terry_w]

Hi everyone,
I've been reading the forums, and have made an offer on my first IP.
Would definitely appreciate any advice and opinion, especially regarding any major flaws in my plan.
Its such a big sum of money, so I am treading very carefully.

I am dreaming BIG.

Myself:
I am 30, on a steady income, with almost certain continual payrises.
I save 50K each year.
I own my PPOR worth 500K. I have 250K in a high interest bank account.
I have made an offer on a 700K IP which will be neutral CF.


My long term plan:
buy one IP annually, all approx CF neutral.
I am guessing I can afford $2m worth of property before I run out of deposit/servicability. (I may be wrong on this)
(is there any way for me to work out how much I can borrow? I know about the simple online calculators that don't include rental income)

Hopefully by then, the CG in my portfolio and my pay will give me enough additional equity + cash each yr to purchase the following IP.
($2m portfolio x 5%CG + 50K saved, = 150K = 20% deposit for next IP)


My loan for my 1st IP:
I am thinking:
Loan one: 20% + cost loan from my PPOR equity.
Loan two: 80% from IP one, with offset.
My understanding is that the "professional packages" would be appropriate to my needs? (please comment)

Is there any problems with going with Police and Nurses credit union for the loan?
How important is it to look for a low servicability lender at the moment?



Just starting out.. but glad I'm making the first step.
Any comments much appreciated!
And if anyone would like to offer or recommend services relevant to this plan, I am happy to listen, e.g. brokers/accountants, etc.

Sunnytimes

Sounds like a good start and a good situation to be in.

You should consider getting some legal advice on asset protection strategies, especially since you have paid off your home loan and have a large amount of cash available.

When you do put your current PPOR on the market make sure you get further advice as there would be further strategies available to increase protection.

you may also want to consider setting up a trust to own future investment properties as well.

 

[Sunnytimes]

Thanks Terry,
I will definitely take those points into consideration.
Another list of things added to my to do list!

 

[Shahin_Afarin]

Looks like you have plenty of equity which is great.

CF should take into consideration all the upfront and re-occuring outgoings. Example of upfront is stamp duty, legal, etc expenses. Examples of ongoing are the loan interest based on 105% of the purchase not just the 80% loan, building insurance, pm fees, water rates, council rates, etc.

P&N are actually a great lender and I have used them several times so I can't bag them but it really needs to fit in with your long term plan. Processes tend to take longer, their servicing is very conservative, etc. If you have an aggressive longer term plan then you need to choose a lender (or lenders) that will accommodate that.

 

[jclegg]

Due to the value of properties you want to accumulate I would research the land tax issues. We have properties in a trust and I didn't realise how severe land tax would be. Sounds like you need some asset protection but be careful of the implications. We have diversified into different states for a few reasons, land tax being one of them.

 

[Sunnytimes]

Due to the value of properties you want to accumulate I would research the land tax issues. We have properties in a trust and I didn't realise how severe land tax would be. Sounds like you need some asset protection but be careful of the implications. We have diversified into different states for a few reasons, land tax being one of them.

Wow, thx.
I didn't know about the land tax and the mrit until now. Geez! 1.22% above 2.2mill. If ur net yield is 3% there goes 1/3 of ur marginal profit. Talk about massive disincentive.

Too early for me to be concerned about it ATM,
but anyway to get around it?

 

[Terry_w]

Wow, thx.
I didn't know about the land tax and the mrit until now. Geez! 1.22% above 2.2mill. If ur net yield is 3% there goes 1/3 of ur marginal profit. Talk about massive disincentive.

Too early for me to be concerned about it ATM,
but anyway to get around it?

Don't forget land tax is just on the land component not the whole value. You could get around it or reduce its impact by a few methods, the main one being buying in different states. Each state has its own threshold. NT has no land tax from memory.

In some states such as QLD you may be able to set up new trusts and get multiple thresholds as well.