Buy first IP or renovate

[EstatePreneur]

Hi everyone, it's been a while since my last post on this forum.

I've made that first giant step (bought my PPOR) in mid last year, and now I'm having this dilemma...

1. Renovate
Build 2 extra bedrooms + 1 bathroom as part of the house extension, and rent these rooms out to students
This PPOR property has land size up to 610sqm which leaves lots of space for extension

2. Buy an IP and rent out the whole house
Looking for a house in the $350k - $420k range

And at the moment I have $100k in savings.
Current total earning is $55k gross per annum, still single fresh & young
No debt except the current mortgage which is $200k.
My overall expenses per annum is around $15,000 (just rough figure)


So with my situation, I was wondering what should I do to maximise that $100k and the 'wasted' land at my backyard?


I'm situated in the Sunnybank Hills area, I think there's not much growth in terms of price in this area over the past few months/years?
So if buying my first IP is the way to go, then I definitely need to look at other suburbs in Brissie, don't you think?

Hmm, I really can't wait to make my next/2nd giant step

 

[boomtown]

What gives you a higher yield (post tax)?

 

[SupaRex]

Do you really want complete strangers living in your back yard? Personally, I'd be going the second option.

 

[EstatePreneur]

Hi BoomTown, thanks so much for your reply.

I guess, it depends on the type of IP and location of the IP?
I.e. if it's a 4 bedroom house (IP) then it should give higher return

While as the 2 bedrooms resulted from the reno of current PPOR would be not too bad either considering that I wouldn't have to deal with RE agent (no agent/commission etc), no property maintenance fees, water bill, council etc.

I don't know exactly how the maths work in terms of which one gives higher yield (post tax). Any idea?

 

[EstatePreneur]

Do you really want complete strangers living in your back yard? Personally, I'd be going the second option.

I'm currently living with 2 students as well, I think I'm pretty used to living with 'strangers', they'd eventually become friends anyway

So no problem on that one, at least not until I have a family

 

[vbplease]

The ATO can send you out a booklet explaining what you can claim as deductions when renting out your PPOR. This can help you do up a budget to find out which will give you the better yield.

You may also want to consider what you can claim for depreciation once you've renovated?

 

[boomtown]

Well you need to start by figuring out how much each one will cost and how much more rent you will get from each one. No use guessing

 

[Buzz]

Your back yard will always be there, how about leveraging into a new IP and diversifying the risk by buying in a new area?

If there is little growth in your current area then you could pull out equity from your home (if there is some) to launch into a new IP which, depending on where you buy, will be in a growth cycle and when that finishes you could then assess access equity to do it again.

In the meantime keeping your cash in an offset, reducing the monthly repayments on your IO loan and keeping that cash to do up your home when the opportunity is best to action. This way you have a chance to maximise your cash and minimise your tax. Obviously you could use your cash on the IP if you wanted.

Just a thought. This strategy gives you 2 properties in the market, not all your eggs in one basket.

Jane

 

[Rob Williams]

Nice strategy Buzz (Jane). That's the path I'd be going down if I were in that situation.
I'd be looking at other cities, not just other suburbs in Brisbane, too.
Like sunny Adelaide

 

[Buzz]

Nice strategy Buzz (Jane). That's the path I'd be going down if I were in that situation.
I'd be looking at other cities, not just other suburbs in Brisbane, too.
Like sunny Adelaide

Rob how is the market in Adelaide, is it starting to come off? I started stearing clients that way for their DD early last yr after some mining reports I saw and a talk from John Edwards. Wondering if you are seeing the second stage of sales, ie those who bought 12mths and greater now selling or is the underlying growth still carrying the market forward?

Jane

 

[Rob Williams]

Rob how is the market in Adelaide, is it starting to come off? I started stearing clients that way for their DD early last yr after some mining reports I saw and a talk from John Edwards. Wondering if you are seeing the second stage of sales, ie those who bought 12mths and greater now selling or is the underlying growth still carrying the market forward?

Jane

Hi Jane. My 19 year old daughter just got an offer accepted on a 1 bedder in one of the "leafy" Eastern suburbs. She had to chase that one to around $5k over asking price. She's missed out on others recently, even offering more than the list price. That's reminiscent of the market here 18 months or so ago.
I specialise in a particular type of property in a particular area, so my comments are limited to my area of expertise (for want of a better word).
What I can say is that little has come on the market for a while, but some "spring" listings are coming online over the last couple of weeks.
I'm seeing properties listed for, say, mid $300's that I might have thought would have listed for mid $200's a year and a half ago. Maybe $350 is the new $250?
Feel free to PM me if you like. By the way, your website is really cool!

Rob