Am I on the right track

[Missmolly]

Hi All

This is my first post, so apologies in advance if I seem a little green! - I do not own any property at the moment but have a fairly good deposit. I would like to purchase a house in NZ around $600k (this will be rented out while I am living in Australia and be treated as an investment property - don't know when I will go back as I am a sole trader) I plan to put $300k down as a deposit, rental will be approx $500 p/w with additional cash here of around $200k.

I would like to to pay out this property asap as if it was PPOR (but keep it as an IP - purely a security for me) and then use the equity in that property to purchase another IP in NZ.

Would appreciate your thoughts on whether I am on the right track by planning to pay out asap - as you can tell I don't have any experience in this area other than reading books and forums - I am thinking of getting a PI loan- what other things should I be considering in structuring this?

Thanks

MM

 

[jerrybee]

Interest only and park the excess payments into an offset account. You can treat it like a PPOR in terms of how fast you attack it (assuming you don't have an actual PPOR that you should be hitting first), but don't actually pay down the loan.

 

[Terry_w]

That is one track - there are many different tracks all getting you to the same destination, but some are shorter than others.

 

[alexlee]

Would appreciate your thoughts on whether I am on the right track by planning to pay out asap

There's no right or wrong, but..... your saving as much as you have without buying something until now, and wanting to pay out the debt first, is very safe and very slow.

There are less safe but faster ways, such as buying with a higher LVR, interest only and refinancing and borrowing more whenever you can. You have to decide how 'safe' you are comfortable with, but you also have to consider how 'slow' you are comfortable with as well. Given your goals (whatever they are), how long would it take to achieve with your current plan? Conversely, with your current plan, what will you achieve by the time you want to stop working, and are you ok with those results?

You'll find some people don't agree with the 'pay out the PPOR loan ASAP is best' idea. Yes, PPOR loan is more expensive because it's not deductible. That just means you do the opportunity cost calc with a different rate.

 

[Missmolly]

Thanks all

I probably wasn't very clear, I don't intend to use this property as a PPOR - I am living here in Australia but want to eventually return home to NZ - so as I am turning 45 I need to start building a portfolio, I have shares but cash in bank is doing zero and not working at all - now that I feel comfortable with the money I have saved, I am ready to purchase my first property.

With the $300k deposit, I would treat this as my first house purchase as if it was my PPOR (only my own safety net by only borrowing 50%) should things change workwise (not that I see that changing anytime soon) for tax purposes I am not living in it and it will be a rental so costs will be deductiable from income earnt here. This would leave me with approx $200k cash in bank and ongoing income earnt here with the rental earned on the property of $500 p/w- continue to save further $$ so I know I have the funds to pay out loan should I need to

When reading Jan's book I thought I needed to built up equity before I could think of investing in more properties - so my goal was to have this paid out within 2 years and then use some of that equity to purchase an IP, the goal would then be to continue to investment in IP as I am able to generate further income - would I need to ensure my first mortgage is structured properly - ie an offset account or a line of credit - to be able to draw down some of the equity should I decide to buy an IP before the full loan is paid out?

I am pretty green on this - have just continued to save hoping that I could oneday start investing in property and I feel like I have a few funds now to do this..

Thanks!! MM

 

[DoAndroidsDream]

Welcome Missmolly!

I'm a newbie too, but I have a couple of questions for you...

1. Why have you chosen NZ specifically? Is your plan to move there one day?

2. Have you considered using your 300k as a deposit on 3-6 properties instead? For example, you could use 50-100k over the next 3-5 years and actually buy more property (and sooner), and continue to rent them all out?

With your deposit, I'd seriously be considering option 2 but perhaps diversify my portfolio a little and buy properties across AU and NZ. Check out SS threads for some leads.

Just my 2 cents. All the best

 

[alexlee]

I am pretty green on this - have just continued to save hoping that I could oneday start investing in property and I feel like I have a few funds now to do this..

Think about what you're saying. Do you really think the thousands and thousands of people who own investment property did it only after they saved 500k?

At this point, you have to decide whether you're willing to take more risk, or for that matter whether you need to.

 

[impala67]

Thanks all

I probably wasn't very clear, I don't intend to use this property as a PPOR - I am living here in Australia but want to eventually return home to NZ - so as I am turning 45 I need to start building a portfolio, I have shares but cash in bank is doing zero and not working at all - now that I feel comfortable with the money I have saved, I am ready to purchase my first property.

With the $300k deposit, I would treat this as my first house purchase as if it was my PPOR (only my own safety net by only borrowing 50%) should things change workwise (not that I see that changing anytime soon) for tax purposes I am not living in it and it will be a rental so costs will be deductiable from income earnt here. This would leave me with approx $200k cash in bank and ongoing income earnt here with the rental earned on the property of $500 p/w- continue to save further $$ so I know I have the funds to pay out loan should I need to

When reading Jan's book I thought I needed to built up equity before I could think of investing in more properties - so my goal was to have this paid out within 2 years and then use some of that equity to purchase an IP, the goal would then be to continue to investment in IP as I am able to generate further income - would I need to ensure my first mortgage is structured properly - ie an offset account or a line of credit - to be able to draw down some of the equity should I decide to buy an IP before the full loan is paid out?

I am pretty green on this - have just continued to save hoping that I could oneday start investing in property and I feel like I have a few funds now to do this..

Thanks!! MM

My boring advice would be to see a financial planner and at least speak to your accountant for some specific advice on your situation, incorporating as questions what has already been suggested.

 

[ramblin]

I think given your stage in life it would be beneficial to have a think about where you want to end up in terms of earning income and work backwards to find the best investment strategy for that.

Also bear in mind your willingness to take risks etc. I have asked advice on this forum a few times and while a lot of it makes sense on paper, at the end of the day, we all have different levels of comfort in terms of risk, not to mention different lifestyles and ultimately I have gone with different advice based on what I feel is best for me. Making money is great but I can't do it at the expense of my mental health which I am very aware of. We are all different