Panicking!
Enthusiastically purchased our first investment property two weeks ago using the equity in our PPOR. (PPOR worth $227,000, owe $158,000. New IP cost $205 with rental of $230pw. Not high income tax bracket) Still waiting unconditional finance, but looking very likely it will come through in the next couple of days.
Ignorantly did not speak with an accountant about our plans to purchase as I guess I wasn't clear on what his role would be - I thought his role would be more to assist us with finance set up and managing the tax affairs after the purchase.
Mortgage broker recommended I speak with him, so did so today.
He basically looked at our financial set up (the loan arrangement) and said "if they knock you back on your finance, it won't be a bad thing". Could have knocked me over with a feather.
Basically, he has a number of concerns. These are:
I am worried, of course, because it means if we go ahead with this purchase, we will be going against his professional advice.
We have the cash flow to hold the property. However, we have seen a $20,000 drop in value (according to bank valuers though) of our PPOR in the last 5 years since we purchased it. It is in the same regional city as our new IP. He used this as an example of what might happen to our IP.
Our IP has potential to subdivide. It also has capital growth potential, but is in a regional city, so CG not as likely to be as significant as capital city or metropolitan areas.
I don't think we can get out of this purchase regardless of what we want to do. If finance comes through, we have to proceed.
He has made me question all the understandings I had about purchasing an IP - all the benefits. I don't mind being challenged and I will listen to him but..... I know he can't predict the future. I know he is being conservative. I know he is telling me what he believes to be true and based on his expert knowledge and experiences. I don't want to believe him but I also want to listen to him IYKWIM.
What to do??? I don't know what information I can obtain that will help make this decision (if there is one left to make) easier.
Can anyone reassure me or will you tell me to listen to him?
Enthusiastically purchased our first investment property two weeks ago using the equity in our PPOR. (PPOR worth $227,000, owe $158,000. New IP cost $205 with rental of $230pw. Not high income tax bracket) Still waiting unconditional finance, but looking very likely it will come through in the next couple of days.
Ignorantly did not speak with an accountant about our plans to purchase as I guess I wasn't clear on what his role would be - I thought his role would be more to assist us with finance set up and managing the tax affairs after the purchase.
Mortgage broker recommended I speak with him, so did so today.
He basically looked at our financial set up (the loan arrangement) and said "if they knock you back on your finance, it won't be a bad thing". Could have knocked me over with a feather.
Basically, he has a number of concerns. These are:
- We are borrowing 95% of the loan (though technically could increase our mortgage on our PPOR another $30,000 and then have a 'deposit' which would reduce our borrowing percentage)
- The market is flat and he believes it is likely to go into decline based on what is happening in Japan and USA.
- We will be negatively geared - I work it out to be around $65 a week. Quite affordable for us, but he claims we may be propping up a property that may still decline in value due to GFC.
- He doesn't see that the capital value will necessarily increase at the rate of our negative gearing costs (holding costs) - even over 20 years.
- We have equity of around $67,000 in our PPOR which is what we are utilising as our line of credit to purchase our IP. He said he'd like to see us reduce this loan even further before considering an investment property.
- He's concerned that we (AUS) may be heading for a recession/depression that we may not recover from - so property price could decrease while we are still out of pocket trying to hold onto it. We have a 20 year investment plan, ie, not to sell until retirement and only if necessary.
I am worried, of course, because it means if we go ahead with this purchase, we will be going against his professional advice.
We have the cash flow to hold the property. However, we have seen a $20,000 drop in value (according to bank valuers though) of our PPOR in the last 5 years since we purchased it. It is in the same regional city as our new IP. He used this as an example of what might happen to our IP.
Our IP has potential to subdivide. It also has capital growth potential, but is in a regional city, so CG not as likely to be as significant as capital city or metropolitan areas.
I don't think we can get out of this purchase regardless of what we want to do. If finance comes through, we have to proceed.
He has made me question all the understandings I had about purchasing an IP - all the benefits. I don't mind being challenged and I will listen to him but..... I know he can't predict the future. I know he is being conservative. I know he is telling me what he believes to be true and based on his expert knowledge and experiences. I don't want to believe him but I also want to listen to him IYKWIM.
What to do??? I don't know what information I can obtain that will help make this decision (if there is one left to make) easier.
Can anyone reassure me or will you tell me to listen to him?