Almost ready for first IP, a bit scared

[Thann]

Ok, almost ready to start the IP ball rolling.

We have our PPR which we bought 10/2006 for $250,000 with $215,000 currently owing as fixed rate until 10/08.

Domain.com lists the trend at 8.8%, so if I understand this we should have about $30,000 in equity.

The Plan:

IP offer of $110,000 (renting for $180p/w)

Loan 1: $30,000 against PPR. Variable IO with Offset as PI deposit
Loan 2: $90,000 against IP. Variable IO with another lender

Any money not used and the rent collected will go into the offset.

The medium term plan is to get rid of the $30,000 loan against the PPR first.

Anyone with any thoughts?

 

[Rolf Latham]

Yup

Kill that PPOR loan first in most circumstances.

Most would argue to have that as IO with an offset acct, an thence pour your cash into the offset

ta
rolf

 

[MichaelW]

Hi Thann,

And just to clarify on what I think Rolf is saying... He's not saying kill the PPOR loan before buying the IP, just as the first priority in your loan reduction once they're all in place.

I don't think he was advocating waiting until you've paid off your PPOR before moving forward with the IP purchase plan.

I wouldn't be banking on any short term capital gains in your equations. But make sure you very carefully model your cashflows. It seems like you will be in a highly leveraged position once you own both properties, so I trust you've modelled the cash flow carefully and servicability is comfortable for you. Mind you, with that yield you look like you'll be fine.

Maybe PM Rolf with your situation and ask him if he can source you a better loan product too. Never hurts to ask a broker, and Rolf is one of the best.

Cheers,
Michael