Buying an IP - Calculations

Hey guys,

So I bought my first house a while ago, and now I want to set some goals to buy my first IP.

Current situation:

Income: Low 40's
PPOR Value: $330 - $340,000
Loan: $250,000

So I was wondering if some one could tell me the goals I need to set myself to buy another property at roughly the same value of my current PPOR.

If you need any additional information, let me know.

Thank you for taking the time to read my post, I hope it makes sense.
 
Hi Infest,

Well done on your initial purchase!

Just wondering how you will service the additional loan on new IP?

How much are you looking to spend?

Sorry :eek: not sure what you mean when you say 'goals'...do you mean what steps do you need to take to get to the purchasing property stage?

Regards,
M&M
 
I think you need to speak to a broker, but...

If you wanted to buy another 350k property, using equity as a deposit, bank will need you to be at an 80% loan to value ratio.

So if you were to do it now, 2 houses worth 350k = 700k, 80% of that is 560k which means you would need 140k in equity. So you would have to come up with about 50k

But you also have to be able to pay the interest on the loans, and on an income of 40k, you'd have to think about a positively geared property.
 
So if you were to do it now, 2 houses worth 350k = 700k, 80% of that is 560k which means you would need 140k in equity. So you would have to come up with about 50k

That's sort of what I was looking for. By goals I meant, what I would have to do to be able to get another house under my current circumstances.
 
"So if you were to do it now, 2 houses worth 350k = 700k, 80% of that is 560k which means you would need 140k in equity. So you would have to come up with about 50k"

Do you need to subtract the current loan of $250K from the $560K gooram calculated that the bank will lend?
 
Hi, Infest,
If You are looking for $350K IP, You need 80% as deposit (70K) but if you are happy to pay LMI, you can borrow up to 95%. In that case you need only 35K less equity (22K) plus purchase related expences.
You can redraw @ 22K equity from your home. If you use that equity to buy another property, you will need (35K-22K+purchase related cost)
Please someone correct me, if it is not possible.
Your property is $340K, 80% of that is $272K, your loan $250K. So your equity is 22K.
Thanks.
 
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I'm on that kinda income too Infest. If you had 2x 350k properties with about 500k worth of loans between them, this (back of envelope) 3K a month in interest, assuming PPOR is IO. Sounds iffy - depends if you have a partner who earns as well, you have other investment/income sources, or if you just live pretty frugally.

I think stating what you're actually trying to achieve would help the above responders give more accurate advice.

I would be (and I currently am) looking at investing a bit further out into the metro area in order to get a cheaper IP - say 250K, to enhance SANF vs a 350K one. Most probably easier to convince the bank, also. You could also look into rural or dual occ property for higher yield, too.

Some example numbers on that would be:
340K PPOR
306K IO (increased from 250k, so 56k in offset)
250K IP
225k IO - the other 25k (250 minus 225) came from the 56k - you'd also need around $8k for someone in a government department to glance at it whilst he's sipping coffee. Some/most of the rest of the 56k would be needed for LMI.

This then wouldn't require any/much of your own cash to establish. Depending on yield shouldn't require a whole heap out of pocket each month either. Us 'lower' income earners need it that way.
 
Interesting, I guess the big question would be whether the bank would let me go through with it, due to my income..

EDIT: If I got a rental appraisal for my house, would that help my cause?

And to answer your question Dave, I am looking at renting out my current house and moving into another. Trying to start my portfolio. Although I only just turned 20 :p...

Cheers, Michael.
 
Interesting, I guess the big question would be whether the bank would let me go through with it, due to my income..

EDIT: If I got a rental appraisal for my house, would that help my cause?

And to answer your question Dave, I am looking at renting out my current house and moving into another. Trying to start my portfolio. Although I only just turned 20 :p...

Cheers, Michael.

Once you rent out your PPOR, provided you can rent cheaply yourself (ie cheaper than the rent you receive) then your servicibility should improve. Note that , in general, banks will only consider roughly 80% of rental income when making their calcs.

Simply telling the banks that you intend to rent it out probably won't be enough...sort of putting the cart before the horse and banks don't do that. The borrowing calculators should take your income into account from a mathematical point of view. The lender will also look at your employement history (read income security) etc. Might your parents be willing to act as gaurantors on a loan ? This could seal the deal for you.

I think it would be worth your while to sit down with an accountant / planner and map out the path you want to take. Building a team (accountant, broker etc) who have prop inv experience will help to take you along that path.

I applaude you for making a start at 20. It's harder playing catch up in your 40's. But do-able ;-)

As my sig says, amateur. So this is amateur advice.
 
Good on you Infest for taking the time to find out HOW you can make this possible instead of just assuming its not possible due to a lower income or age. Congrats. I'm an amateur myself but I can certainly appreciate your efforts. Choosing to rent out your current PPOR and rent something cheaper is something i have also kept in the back of my mind for when things get tight financially, but not just yet. Have to enjoy a little bit of my own piece of paradise first :)

The advice you've been given so far looks good to me. Always helps to put forth as much information as possible for the forum to assist.

Good luck!
 
Choosing to rent out your current PPOR and rent something cheaper is something i have also kept in the back of my mind !

To paraphrase my broker "Now if you were renting this place (PPOR) out I could get you heaps of money"

I will be doing exactly that very soon
 
I think it would be worth your while to sit down with an accountant / planner and map out the path you want to take. Building a team (accountant, broker etc) who have prop inv experience will help to take you along that path.
Good advice.

You may make some mistakes you'll regret later otherwise.. once you take equity out of your PPOR and then turn it into an IP only your original loan amount is tax deductable.
 
but you still need somewhere to live :p

I live in a rather unique residential complex (used to be a lunatic asylum, everyone tells me that's very appropriate ). I've told the agent that manages the lions share of rentals in the place that they can manage mine when they find me a rental to live in, in the same complex. The ball is well and truly rolling.
 
Simply telling the banks that you intend to rent it out probably won't be enough...sort of putting the cart before the horse and banks don't do that.
But that's generally the only option ... you can't rent out or sell (being the other option) a house without somewhere else to live. And for some of us, renting is a huge amount more expensive than buying (I'm building a house that would rent for $330 a week and its going to cost me $145 a week)

We've been told that intent to rent and a PM apparaisal is enough, but we're still going to attempt to sell our current house rather than rent it out, just on the offchance the stars align right. Problem is the builder wants finance approval well before we'd even be thinking of putting the house on the market. Now THAT is putting the cart before the horse.
 
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