Can we afford IP2?

[onion33]

Situation:

PPR: $700,000 Debt: $0
IP1: $325,000 Debt: $340,000 Offset: $84,000
Shares: $55,000 Debt: $45,000

Income 1: $70k
Income 2: $62k ? Working 3 days. Full time salary is $103k. Hoping to go maternity leave soon. Not pregnant yet.

Can we afford to buy IP2? If so, what?s a conservative figure to borrow?

 

[Brady]

Any dependant children?

Any other debt? Loans? Store Cards? Credit cards?

What is the plan post mat leave? Return to work? Still 3 days?

 

[Corey Batt]

Best to have a chat with a broker, the serviceability between lenders will vary significantly with your scenario.

Outside of this issue, it appears your investment property is currently cross collateralised? If this is the case it's best to fix this issue *early* on, so you don't have to untangle it when there are multiple properties in the mix.

 

[D.T.]

Why is ip1 debt higher than its val? Is it cross collateralise with ppor?

 

[Jamie M]

On the surface it looks like your borrowing capacity will be ok based on your present incomes - a lot will come down to what the monthly repayments looks like against that $45k worth of debt.

Having said that, whether YOU can afford it comes down to your own household budgeting and not what the banks are willing to lend. You need to consider what your incomes situation will look like during an extended period of leave from the workforce too (ie. mat leave).

Cheers

Jamie

 

[Jamie M]

Why is ip1 debt higher than its val? Is it cross collateralise with ppor?

Yep - cross coll.

Best to clean that up before proceeding with IP 2 (or clean up at the same time).

Cheers

Jamie

 

[Redom]

With limited information, really don't see borrowing capacity as an issue. With most banks you should be fine (assuming your wifes income is included for servicing). Ballpark (very very rough) - my calculators shoot out somewhere in between 850k to 1.5m for an investment. While not very reliable with the information provided, there should be that a whole heap of doors are available to your for an IP purchase.

Re affordability - given its an IP, it depends on the type of investment you purchase.

Buy something that puts money in your pocket, sure you can afford it - it will only add to your income. Buy something that costs you $200 p/w to hold, then it could be an issue for your household budget.

 

[Redom]

Yep - cross coll.

Best to clean that up before proceeding with IP 2 (or clean up at the same time).

Cheers

Jamie

Agree - easy to fix now (can do either internal/external refinance easily). Could be more difficult down the track.

 

[Rolf Latham]

Agree - easy to fix now (can do either internal/external refinance easily). Could be more difficult down the track.

I have had a few of late where it wasnt possible.

Even at IP 1 status.................... : (

Sometimes its not possible due to vals,loan types, changes in lender / lmi appetite

Prevention is better than cure, and Id say its time that legislators made it mandatory to explain to borrowers what xcoll can actually mean to them specifically.

The lack of disclosure is quite a concern

ta
rolf


ta
rolf

 

[D.T.]

I have had a few of late where it wasnt possible.

Even at IP 1 status.................... : (

Sometimes its not possible due to vals,loan types, changes in lender / lmi appetite

Prevention is better than cure, and Id say its time that legislators made it mandatory to explain to borrowers what xcoll can actually mean to them specifically.

The lack of disclosure is quite a concern

ta
rolf


ta
rolf

I doubt it'll ever happen because the industry isn't out to 'catch' banks/brokers who do this, in fact they encourage it and say it's the correct way. Need to admit there's an issue before anyone can attempt to change things.

My parents were sitting in front of a broker and the topic came up about using PPOR for security (alarm bell) and so they had the broker call me to explain. I had a bit of an argument with him, he honestly didn't see what was wrong at all, everyday bread & butter setup for him. He only changed it because I insisted.

 

[Rolf Latham]

I doubt it'll ever happen because the industry isn't out to 'catch' banks/brokers who do this, in fact they encourage it and say it's the correct way. Need to admit there's an issue before anyone can attempt to change things.

The industry is a donkey

ta
rolf

 

[Peter_Tersteeg]

Prevention is better than cure, and Id say its time that legislators made it mandatory to explain to borrowers what xcoll can actually mean to them specifically.

Legislation to disclose and explain x-coll implications? Never going to happen. Most people in front line sales roles (bankers and brokers) don't truly understand what it means beyond it encourages customer loyalty. In many cases they think it's a benefit to the borrower.

Only last week I had a lender BDM telling me x-coll is effectively best practice and that offset accounts aren't really very useful. Lenders at a corporate level rarely understand the implications beyond their own narrow (and somewhat self interested) view, and they're the ones who ultimately educate the regulators.

X-coll is a result of taking the path of least resistance. I don't see that changing.

@Dave, you should have told your parents to change brokers.

 

[Jamie M]

Only last week I had a lender BDM telling me x-coll is effectively best practice and that offset accounts aren't really very useful.

lol - let me guess. Was it a lender that doesn't provide offset accounts?

Cheers

Jamie

 

[onion33]

Hi everyone. No the loan is not cross collatorised. I just couldn't be bothered showing the 70-30 split into two loans. The value is higher coz we borrowed to cover stamp duty.

We have a toddler. I plan to be on leave at least 12 months and will be paid in full for 6 months.

I was tossing up between:
Building two bedroom house on backyard of existing Ip.
Or Buying another house below 350k
Or sit pretty and leave less stress during baby time

 

[Gateway]

Given similar situation if would consider IP 2 around $400k mark, preferably cashflow neutral. Cheers

 

[Jamie M]

Or sit pretty and leave less stress during baby time

Probably not a bad idea.

If you do decide to go ahead speak with a decent finance person who can run some scenarios for you based on current and future income levels once mat leave kicks in.

Cheers

Jamie

 

[knightm]

I was tossing up between:
Building two bedroom house on backyard of existing Ip.
Or Buying another house below 350k
Or sit pretty and leave less stress during baby time

Like Jamie said. Giving it a little time at key family moments is not a bad option.

I wouldn't build with a new baby - too stressful (disclaimer - I did this, yes it was tough) - you can do that later, once you feel rock solid financially and are getting sleep. (mainly because of the sleep)

There are plenty of good options around for less than 350k with a blend of cashflow and cg prospects. (contrary to what all the sydney folk who are now accustomed to paying $1.8m for a shoelocker will tell you)

 

[zimby]

Given similar situation if would consider IP 2 around $400k mark, preferably cashflow neutral. Cheers

I second this, solid advice if you decide to move forward.

 

[Rixter]

I doubt it'll ever happen because the industry isn't out to 'catch' banks/brokers who do this, in fact they encourage it and say it's the correct way. Need to admit there's an issue before anyone can attempt to change things.

My parents were sitting in front of a broker and the topic came up about using PPOR for security (alarm bell) and so they had the broker call me to explain. I had a bit of an argument with him, he honestly didn't see what was wrong at all, everyday bread & butter setup for him. He only changed it because I insisted.

Banks/Lender are out to minimise their risks, not yours!

We as investors its exactly the same.

Look after number 1.

Its all about maximising cash flow & minimising risks where ever possible.