A doozy for all the gurus out there...

[nico76]

Hi All,

Long time lurker first time poster. I have a question regarding property investing I'd love some input on...

We own (are paying off) an apartment (our residence) we bought off the plan in Sydneys Inner West in 2009. An identical one in the block just sold for $600k & we owe about $400k.

We are looking to upgrade to a house around the $900k mark, however we always hoped that when we did upgrade that we could keep this apartment as our first investment.

We don't have any other savings (all our money is in the redraw) & the same apartments in our complex are currenly getting $550 a week rent.

Is there anyway the property gurus out there think we could finance a loan on both properties, taking into account the rent, deprecation & tax benefits from the investment apartment, or if a financier would touch us with a barge pole? =)

So to recap...

Current property value = $600k
Amount owing on current property = $400k
Equity in current property = $200k
Potential rent on current property = $550 per week
Age of property (for depreciation) = 4 years
Cost on 2nd property = $900k (this will be our new residence)


Any input appreciated & let me know if you need any further info.

Thanks in advance!

 

[Shaneelastic]

You forgot the most important thing, your income

 

[Shahin_Afarin]

If you are going to convert the current PPOR to an IP be careful you do not pay off the principle of the loan. If you haven't done so already set it up as an IO. By the sounds of it - it is P and I because you are saying you have redraw.

If your property is lets say worth $600k and your loan is $400k then you have $80k in equity at an 80% LVR lend more if you go higher but you would be paying significant LMI. Do the numbers and compare each scenario (with and without LVR).

In terms of finance there is way too much information to assess before saying yes or no like LVR, employment type, duration, entity structure and so on.

How much deposit are you wanting to contribute to the new purchase of $900k and is it in NSW?

 

[Peter_Tersteeg]

To purchase the new property, given that you don't have any savings, you'll need to use the equity in your existing property.

If you leverage up to 80% (avoid paying LMI) you'll access an additional $80k (on top of the $400k you already owe). Unfortuantely $80k isn't going to be enough funds for a minimum deposit and purchase costs on on the proposed $900k purchase price.

If you are willing to pay LMI and go up to 90% (you may get a credit), you access $140k. This would give you sufficient cash for a 10% deposit, plus purchase costs and possibily a little change.

From an equity point of view the proposed purchase looks acheiveable but there will be costs involved.

I would advise to avoid cross collateralising at all costs. The LMI premiums would skyrocket if everything was crossed. In fact due to LMI limitations and the amounts involved it may be prudent to use two different lenders for the purchase and the existing property.

The other figures you've quoted impact your affordability, but without information about your incomes, family circumstances and other outgoings it's not possible to make an assessment on this. If you've done a budget however and believe you can comfortably afford the proposed purchase, then there's probably a way to make it happen.

 

[Rolf Latham]

will be highly geared and will need careful lender and product selection.


ta
rolf

 

[alexlee]

Why is this a doozy again?

 

[Peter_Tersteeg]

Why is this a doozy again?

I suspect the reasons the poster thinks it's difficult aren't really a problem. It could be tricky due to the overall large amounts and the need for mortgage insurance. The rest looks like a piece of cake.

 

[Marty McDonald]

Hi Nico76,

Your pesronal incomes will be one key to the puzzle as you will need to show servicing on about $1,350,000 (rent and neg gearing can help a bit but you will still need pretty good incomes).

The bank valuation of your current home may also be a defining factor.

Hopefully you paid LMI on the purchase? If you did it won't be too expensive to access equity with the current lender on the exitsting property above 80%. This should give you the required depoist to achieve the new purchase.

A few potential issues but definantly not impossible if the personal income is there. Good luck with it all.

 

[Aaron_C]

All important questions but main thing is, as the others have said, is your income. Can you service the loan? You will have to pay LMI on at least one of the properties.

 

[Daniel121]

Hi All,

An identical one in the block just sold for $600k & we owe about $400k.
So to recap...

As another poster mentioned the valuation will be defining factor. Be aware that another apartment in the block sold for $600K doesn't mean the bank's valuer agree that. What happen if that sales was significantly higher than other sales? or if another apartment in the block sold for significantly less recently (say a distress sales), which could influence the valuation a lot. In particularly, you're going to be 90% LVR even if they take $600K... I would suggest to think again if you really want something at 900K for PPOR or may be get a few more IPs to grow your wealth (assuming you have an investor mindset) before upgrading PPOR IMO.

 

[Rolf Latham]

As another poster mentioned the valuation will be defining factor. Be aware that another apartment in the block sold for $600K doesn't mean the bank's valuer agree that. .

Often, valuers will actually purposely ignore the same or allied strata plan properties, especially in newer developments

ta
rolf

 

[nico76]

Thanks for all the replies!

Yes, I agree that the valuation is always an unknown qty. However the apartment that sold last week is the only one that has been re-sold in the block since they were sold off the plan in '09.

Our incomes are approx. $150k combined & the properties are in NSW.

Assuming it is servicable, can anyone recommend best way to structure ifthe finance?

Wouldn't I be better leveraging the refinance IP as high as possible (95%?) increasing tax deductability while releasing more funds to use as a deposit on our new home, which isnlt tax deductable???

Unfortunately the property has been P&I with our "savings" in the loan redraw as there is no offset account feature with our loan. I believe this may also work against us as redraw is considered further reduction of principle? Can anyone confirm how this works & a possible solution (can I simply pull the money out before restructure?).

 

[jonmardell]

The structure that i would look at is.

Current Property as security value 600K
Loan 1 - 400K Interest Only (this is your current loan that will be tax deductible)
Loan 2 - 140K interest only (this will not be tax deductible as the purpose is to buy a ppr)
capitalise the LMI on top of 90%

New purchase of 900K as security
Loan 3 - 800K interest only with offset account and capitalise the LMI (this would leave you with 40K to cover costs like transfer duty ect


so basically you borrow 90% against your current property and use the cash out as a deposit for the new property.

Thanks for all the replies!

Yes, I agree that the valuation is always an unknown qty. However the apartment that sold last week is the only one that has been re-sold in the block since they were sold off the plan in '09.

Our incomes are approx. $150k combined & the properties are in NSW.

Assuming it is servicable, can anyone recommend best way to structure ifthe finance?

Unfortunately the property has been P&I with our "savings" in the loan redraw as there is no offset account feature with our loan. I believe this may also work against us as redraw is considered further reduction of principle? Can anyone confirm how this works & a possible solution (can I simply pull the money out before restructure?).