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[morganp]

Hey everyone,

New here 20 year old from Albury, found this place whilst researching rental yields etc.

I recently (August) purchased a 2 bedroom unit in Albury to receive the FHOG of $14k and so that i can negative gear it for my Tax next year. The current rent is $130p/w although i will be increasing this after i move into the property as a requirement for the FHOG should be able to receive 140-150 p/w after doing a bit of work to the kitchen.

Anyways my real question is where do i go from here?

I made a $15k deposit on the house borrowing $110k and since have paid off another $35k, meaning i should have home equity of around $50k.

I am looking at purchasing another property although not sure if i should look at a house or another unit locally or look for a place in the city either Melbourne/Sydney.

Im relatively new to property investing and any help would be greatly appreciated.

Thanks,

Morgan

 

[Propertunity]

Hey everyone,
New here 20 year old from Albury, found this place whilst researching rental yields etc.

Hi Morgan

I recently (August) purchased a 2 bedroom unit in Albury to receive the FHOG of $14k

Ok congrats. I hope you did not buy for ONLY that reason. But if you chose well it should do well long term.

and so that i can negative gear it for my Tax next year

I assume this will be AFTER you stay for 6 months and then rent it out as an IP?

The current rent is $130p/w although i will be increasing this after i move into the property as a requirement for the FHOG

I think you meant after you move OUT (not into).....?

should be able to receive 140-150 p/w after doing a bit of work to the kitchen.

OK good

Anyways my real question is where do i go from here?
I made a $15k deposit on the house borrowing $110k and since have paid off another $35k, meaning i should have home equity of around $50k.

STOP paying off any of the loan principal for goodness sake. Convert to IO. Then draw down some of that equity and use the funds to buy another......and another......and repeat.

I am looking at purchasing another property although not sure if i should look at a house or another unit locally or look for a place in the city either Melbourne/Sydney.

Buy where you will get the highest capital growth. Maybe Melbourne first as it is only 3 hours away from you. Then maybe spread your wings to Sydney?

All the best with it.

 

[morganp]

Hey thanks for the reply.

It wasnt the only reason i bought the property although the FHOG bonus surely motivated me more to buy sooner.

Yep after the 6 months i will have it as an IP, going to do it up during the 6 months to increase value hopefully all work will be done myself, brother and father so pretty cheap.

At the moment ive been putting savings onto the loan although i am able to redraw this money when i want, but in the mean time its reducing the interest im paying.

I have thought about Melbourne quite a lot as i will most likely plan to move there in the next 1-2 years although i thought of purchasing another property locally in the mean time then when im ready to move buy an oldish house down there live in it and renovate and repeat.


As im relatively new to property investing im sure there are one or more issues with my plans thats where any ideas or tips are much appreciated.

What would be a suitable investment method to get the best returns?

 

[travelbug]

Hi Morgan.
I wouldn't think a property in Albury where you have paid off $35K would be negatively geared. I'm thinking it should be positively geared.

There also seem to be a LOT of 2 bed units for sale and rent there. And they are going up (as in building, not prices) like crazy. Be careful of over supply.

If you are considering moving to Melbourne I'd look there. CG would be stronger too. Houses in Melbourne are a lot more expensive than houses in Albury and prices are likely to move in 2 years.

Good luck.

 

[Propertunity]

At the moment ive been putting savings onto the loan although i am able to redraw this money when i want, but in the mean time its reducing the interest im paying.

You need to put the extra payments into an offset account - saves you the same interest as oaying down the loan but redraws are treated entirely differently from a tax perspective than using money out of the offset account. Have a chat to a mortgage broker.

What would be a suitable investment method to get the best returns?

Returns of the rental kind or the capital growth kind?

 

[morganp]

Hi Morgan.
I wouldn't think a property in Albury where you have paid off $35K would be negatively geared. I'm thinking it should be positively geared.

There also seem to be a LOT of 2 bed units for sale and rent there. And they are going up (as in building, not prices) like crazy. Be careful of over supply.

If you are considering moving to Melbourne I'd look there. CG would be stronger too. Houses in Melbourne are a lot more expensive than houses in Albury and prices are likely to move in 2 years.

Good luck.

Hey,

I would be using the renovations i am doing to offset my tax, im going to speak with an accountant soon to see what the best method of doing things will be though.

The unit is situated in an old estate close to the city center where there isnt much cheap housing in which units bring so hopefully demand will be higher than a similar unit in a new estate with 2-3 times as many options for renters.

You need to put the extra payments into an offset account - saves you the same interest as oaying down the loan but redraws are treated entirely differently from a tax perspective than using money out of the offset account. Have a chat to a mortgage broker.

Not quite sure what you mean by this, do you have a link or site that can give me a bit more info on this?

Returns of the rental kind or the capital growth kind?

I wouldnt mind trying both, using an interest only loan with CG for short term investment then also having rental properties for long term investment.

Is either of the two options better?

 

[Gools]

Quote:
You need to put the extra payments into an offset account - saves you the same interest as oaying down the loan but redraws are treated entirely differently from a tax perspective than using money out of the offset account. Have a chat to a mortgage broker.

Not quite sure what you mean by this, do you have a link or site that can give me a bit more info on this?

Morgan, if you are paying down the loan thenhow will you go about getting a deposit for the next purchase? You setup an Offset Account at the bank that links directly to the Mortgage. Any money you deposit into the Offset Account basically reduces the amount owing on the mortgage but you are free to withdraw money from the Offset Account at any time for what ever use you like (like your next deposit!).

They are a common bank product. Just have a look on your banks website.

Gools

 

[morganp]

Morgan, if you are paying down the loan thenhow will you go about getting a deposit for the next purchase? You setup an Offset Account at the bank that links directly to the Mortgage. Any money you deposit into the Offset Account basically reduces the amount owing on the mortgage but you are free to withdraw money from the Offset Account at any time for what ever use you like (like your next deposit!).

They are a common bank product. Just have a look on your banks website.

Gools

Ill give the bank a call today or tomorrow to inquire about an offset account although i may actually have one at the moment as i know i can easy access the payments ive made on the loan although it occurs a $50 fee.

So if i was to buy another property i could withdraw the amount ive paid on the loan.

 

[Gools]

Morgs, sounds like it might not be an offset account. Sounds more like a normal account that you can redraw from with a $50 charge. The beauty of an Offset Account is that it keeps the funds seperate from the actual lone which makes for easier tax recording.

I hope they can add an Offset Account post the mortgage being setup.
Anyway, no big dramas, you can always get one created on your next IP Mortgage if you can't get one created now.

Regarding your last sentance, that's correct. Redraw the money out of your current loan and use it as the deposit for your next property. So long as it's for investment purposes it will make your record keeping easier. Speak to the bank and see what you can do now though.

Gools

 

[morganp]

Thanks for your help Gools,

Will get in touch with the bank tomorrow, shouldnt be an issue if its not though as like you said i can just redraw it to use as a deposit on next IP and set-up an offset account with that property.

Planning to speak with an accountant soon about how to target the tax issues the best and how i should go about getting a loan for my next IP.

Ive read a lot about using a different lender for each loan/IP is this recommended?

Im currently with CBA and to be honest they are a bit of a pain, they take forever to get anything done. Almost cost me the property i bought in August as there was 1-2 other buyers in line to grab it if things fell through.

 

[travelbug]

I wouldnt mind trying both, using an interest only loan with CG for short term investment then also having rental properties for long term investment.

Is either of the two options better?

Hi Morgan short term investment and CG usually don't go hand in hand unless you are doing MAJOR reno's.

I'd advise reading everything you can get your hands on to gain more knowledge and decide on the strategy you wish to use to move forward. Go into the Information Resources section and look for books people recommend.

 

[morganp]

Just bought my subscription for API should help me with a few tips each month plus a good motivation source, going to stop in at the book store and look for a few good reads. Moving into my first IP in the next month or so to receive the FHOG so im not sure whether ill look at buying another IP in the next 6 months or wait til im back living at home with no rent to buy.

Ive done a bit of investing in online real estate (domains) currently own around 200 of them and had good success reselling and happy to sit on my portfolio now until the USA economy restores, looking at increasing my IP numbers now.

 

[s.w.i.s]

Hi Propertunity & Gools,

Your comments regarding setting up an offset account are excellent suggestions. However I have a question - I have 3 loans with my bank but my bank will only allow me to have 1 offset account with them.

2 x HomeMorgage & 1 x InvestmentLoan which i plan to use as a deposit on my first IP.

For which loan should I attach my offset account to? The home morgage loans or the investment loan?

 

[Gools]

Your PPOR loan so you can reduce that non tax deductible debt. If you don't have a PPOR debt then I can only assume you would want the Offset account against the largest mortgage so it gives you the greatest amount you can pay into the Offset and reduce your IP debt the most.

But yes, on the Deductible Debt loan is preferable.

Gools

 

[Propertunity]

Well if that was the only choice, I'd be putting the offset against the non-tax-deductible PPOR loan.

But in a wider sense I'd be telling my bank to give me 3 offsets or I'm walking to some other lender who will do what I want.

I'm one of those disloyal to bank customers

A MB on here might be able to assist?

 

[s.w.i.s]

Thank you Gools & Propertunity. Such advice is invaluable!!

If i understand you both correctly, i should attach my offset account to the largest loan on my PPOR becuase its non-deductable?

That way i can withdraw any savings i have accumulated in the offset account to allow for a another deposit on a future IP#2.

So if I have:
1 loan @ $500k PPOR (variable rate);
1 loan @ $250k PPOR (fixed rate till 03/2010); &
1 loan @ $200k IP (IO loan),

Then i should attach my offset account to the $500K loan?

Would anything change if all 3 account allowed free re-draw's?

 

[Propertunity]

If i understand you both correctly, i should attach my offset account to the largest loan on my PPOR becuase its non-deductable?

Yes, because the interest on PPOR debt is not tax ded.

That way i can withdraw any savings i have accumulated in the offset account to allow for a another deposit on a future IP#2.

Yes

So if I have:
1 loan @ $500k PPOR (variable rate);
1 loan @ $250k PPOR (fixed rate till 03/2010); &
1 loan @ $200k IP (IO loan),
Then i should attach my offset account to the $500K loan?

Not necessarily. Is the fixed rate PPOR $250K a higher or lower IR than the variable PPOR $500K? Put it against the higher IR loan.
Are you sure ALL the $750K debt is PPOR only? or did you increase it a bit for the IP?

Would anything change if all 3 account allowed free re-draw's?

I thought we decided we were not using redraws?

 

[s.w.i.s]

Thanks Propertunity! Your guidence is invaluable!!!!!!!

......Is the fixed rate PPOR $250K a higher or lower IR than the variable PPOR $500K? Put it against the higher IR loan.

The fixed rate PPOR $250K is higher than current variable rate but is due to go to variable rate from March 2010. Should i still put it against the lower value loan? Or becuase its only 4 months away from becoming a variable rate loan, place the offset account against the $500K PPOR loan?

Are you sure ALL the $750K debt is PPOR only? or did you increase it a bit for the IP?

Yes its all for PPOR.