Buy PPOR or IP's as first purcahse

[xpress]

Hi All,

I am relatively new to property and this forum. I currently don't own any property and I am looking for feedback/input for my situation.

I have approximately 80k in savings and I am considering either purchasing a PPOR or IP's. The PPOR would be a house in the $550k-$600k mark in Western Sydney, either in Rooty Hill, Minchinburry or Blacktown. However, I feel that I wouldn't get good value in this price range as prices have appreciated considerably this year.

The other option would be to purchase 2 properties for no more than $300k each. I have done some research and properties in this bracket in suburbs like Mt Druitt are fairly close to being positive/neutral cash flow (for P + I). I could then rent a similar property to one I would like to purchase as a PPOR in Blacktown or Parramatta for considerably lower rent than the equivalent mortgage repayments on that property.

My overall goal is to enter the market and participate in future capital gains. Also, I notice a common theme for most IP purchases is to pay interest only but I would prefer to pay down the loan asap if taking this option.

I would appreciate any thoughts you may have on the benefits/pitfalls of either options.

Cheers,
Xpress

 

[alexlee]

I notice a common theme for most IP purchases is to pay interest only but I would prefer to pay down the loan asap if taking this option.

Explain your thinking around this bit. What is your concern with debt? Is 600k in property 'enough' to achieve your goals? If not, and you intend to take out more debt in the future to buy more property (especially if it's supported by an increasing asset base), why pay down a couple thousand or something that you would be paying off on the P&I?

Do you understand that having the full amount of debt + money in an offset account is just as safe and in fact more flexible than paying off the debt?

 

[Terry_w]

Hi All,

I am relatively new to property and this forum. I currently don't own any property and I am looking for feedback/input for my situation.

I have approximately 80k in savings and I am considering either purchasing a PPOR or IP's. The PPOR would be a house in the $550k-$600k mark in Western Sydney, either in Rooty Hill, Minchinburry or Blacktown. However, I feel that I wouldn't get good value in this price range as prices have appreciated considerably this year.

The other option would be to purchase 2 properties for no more than $300k each. I have done some research and properties in this bracket in suburbs like Mt Druitt are fairly close to being positive/neutral cash flow (for P + I). I could then rent a similar property to one I would like to purchase as a PPOR in Blacktown or Parramatta for considerably lower rent than the equivalent mortgage repayments on that property.

My overall goal is to enter the market and participate in future capital gains. Also, I notice a common theme for most IP purchases is to pay interest only but I would prefer to pay down the loan asap if taking this option.

I would appreciate any thoughts you may have on the benefits/pitfalls of either options.

Cheers,
Xpress

Plan ahead a bit.

You can do both - buy a PPOR and live in it shortly then rent it. Benefits = CGT exempt and you get to claim all deductions (if set up right).

 

[xpress]

Explain your thinking around this bit. What is your concern with debt? Is 600k in property 'enough' to achieve your goals? If not, and you intend to take out more debt in the future to buy more property (especially if it's supported by an increasing asset base), why pay down a couple thousand or something that you would be paying off on the P&I?

Do you understand that having the full amount of debt + money in an offset account is just as safe and in fact more flexible than paying off the debt?

To an extent it is inexperience dealing with a debt of this size. For now I think $600k is enough as it won't over extend my finances however, with an increasing asset base I would consider more purchases down the track.

I didn't realise I could set up an off set account for interest only loans, I assumed this was only an option for principal and interest. This option makes more sense for funding a future purchase through the offset account by keeping deductible debt to the original level.

A further question I have is what would be a good contingency plan in an environment where prices are stable/not rising?

Thanks.

 

[xpress]

Plan ahead a bit.

You can do both - buy a PPOR and live in it shortly then rent it. Benefits = CGT exempt and you get to claim all deductions (if set up right).

I have considered this option but I don't think I could live in the properties I am considering around the $300k mark. I understand with this option I would need to stay in the property immediately after purchasing, are you able to tell me how how long that period needs to be?

Thanks.

 

[Terry_w]

I have considered this option but I don't think I could live in the properties I am considering around the $300k mark. I understand with this option I would need to stay in the property immediately after purchasing, are you able to tell me how how long that period needs to be?

Thanks.

There is no minimum period in the legislation. You must simply establish it as your principal resident for a period before becoming temporarily absent.

 

[travelbug]

The other option would be to purchase 2 properties for no more than $300k each. I have done some research and properties in this bracket in suburbs like Mt Druitt are fairly close to being positive/neutral cash flow (for P + I).

Cheers,
Xpress

I doubt it! Even IO on $300K is $288 a week and then you have rates, insurance etc adding about $40 so that's $328pw. Then you have to pay management fees so you'd need rent of at least $360 a week to break even on interest only (assuming you have no maintenance etc).

I know you're going to say you have a deposit but you are forgoing interest by not having that in the bank so needs to be counted. Plus you have stamp duty and solicitors costs to add to that purchase. So you'd only get a house for $290K approx on a $300K spend.

 

[vaughan]

My overall goal is to enter the market and participate in future capital gains. Also, I notice a common theme for most IP purchases is to pay interest only but I would prefer to pay down the loan asap if taking this option.

Leverage. That's what buying for capital gains is all about.

You get a small amount of your money, then borrow other people's money to buy property (this is the leverage). The property gains in value, you sell and give the other person back their money, and keep the rest.

With this plan, the less of your own money you put in the better. The ultimate situation is you borrow ALL the money and use none of your own.

It works wonderfully when the market grows steadily but all comes apart spectacularly if the market flat-lines or falls.