Building Equity in PPOR - advice?

[2ndTimeRound]

Hi everyone, this is my first thread, sorry its a novel!

I'm just looking for some advice on our PPOR to improve our financial position down the track. We have an IP which we purchased several years ago, and in November last year purchased our first family PPOR which we have partially renovated. We expect to be here for around 8-10 years.

I am looking for suggestions on how to improve our equity and buying power so that we are ready to strike with a 2nd IP as soon as possible. We have limited funds after renovating and our equity across the 2 properties is only 10%

My main idea is to capitalise on our homes in-out northerly aspect (5m of sliding doors to the living-room) by landscaping our tired but large courtyard to encompass outdoor kitchen/alfresco with built-in bench seating, plus a grassed area for kids on a lower level. (It's currently dominated by a too-big and dated pergola)

We are at the point of being mindful not to overcapitalise yet understanding that as its our home we want to get the enjoyment out of it that we imagine we could have. With that in mind, we want any further improvements to count in terms of increasing the property's value.

So I guess I'm looking for feedback on the soundness of this strategy or other suggestions as to how to improve our position so as to give us greater purchasing power for our next property.

Our strategy is buy & hold with a goal to afford our long-term family home when we move the next time and to continue to fund our lifestyle Into retirement.

Looking forward to your contributions

 

[The Y-man]

What is your serviceability like?

No point having equity if you can't service the debt.

The Y-man

 

[2ndTimeRound]

Thanks for the response The Y-man. At present our serviceability is extremely limited. When we are able to purchase another IP we hope that our wages will have improved (I don't work at present due to caring for our daughter, but this may change with kindy), as well as the cash flow from the existing IP combined with a (hopefully) positively geared 2nd IP.

We just want to make sure we're doing everything we can now to get our ducks in a row, so to speak.

Does that help clarify my question?

 

[Rolf Latham]

We have limited funds after renovating and our equity across the 2 properties is only 10%

this tends to imply that your existing loans and securities maybe cross collateralised ?

seven is one aspect that may hinder you moving forward

Thanks

Rolf

 

[esh]

I think fresh coat of paint goes a long way. I wouldnt do it if it already looks good. what condition is your property in??

 

[MRO]

Speak to a good broker. Many lenders will do a 'desktop' review that in some cases can be manipulated anyway. This means that any improvements may not really increase you borrowing capacity though any added value to your PPOR.

If you are having serviceability issues I would keep your money in the bank in case of emergencies and just live in your property until it is the right time to spend a bit on it.

 

[2ndTimeRound]

Thanks everyone!

Rolf, the 2 properties are financed separately. Is this acceptable for our situation and goals?

Esh, the property has been renovated through the bottom level (including fresh paint) with 2 bedrooms, study and 2nd bathroom yet to receive any attention.

MRO, we do have a good broker, although we aren't ready to take on more debt at this point. Are you suggesting that I would gain the "equity" (on paper at least) without having to make any further significant improvements to the property?

 

[MRO]

Thanks everyone!


MRO, we do have a good broker, although we aren't ready to take on more debt at this point. Are you suggesting that I would gain the "equity" (on paper at least) without having to make any further significant improvements to the property?

I am suggesting the opposite of taking on more debt. I mean the bank may not place any value on the improvements you are making to your PPOR. If your plan is to increase equity in your PPOR by renovating with the intention of borrowing more later this may not be the best plan. You also don't want to stretch your serviceability otherwise it will take longer to get to the next IP.

 

[2ndTimeRound]

Thanks MRO, a good point which makes a lot of sense.

So the consensus would be to focus on improving serviceability and let equity take care of itself with (hopeful) capital growth over time?

 

[Aaron_C]

You really need to think long-term here. The issue here is that most renovations do not increase the valuation above what the reno cost. Thus, if you are paying for the reno out of your own cash, you are sucking up valuable cash which you most likely will not get back out via a loan increase next time. This means that careful structuring of your finances is important from day 1 to ensure that you do not max out your equity / serviceability due to the reno as this will set you back considerably with large opportunity costs.