Hello forum-goers and fellow property investors,
As a newcomer to property investment, I would appreciate any general or specific comments regarding the following potential strategy:
My current PPOR is valued at approximately $400K with useable equity (at 80% LVR) of $320K minus $250K loan = $70K.
Using a $70K LOC against PPOR, this allows for a deposit on a $330K-$340K property (plus purchase costs) once again at 80% LVR.
Thus my loans would be:
$250K fixed loan at 6.5% – PPOR (partially tax-deductible through salary packaging)
$70K variable LOC on PPOR tax-deductible as IP deposit
$270K fixed loan on IP
DSR on these three loans would be very comfortable even with my wife likely going on 12 months maternity leave (6 months on half pay, 6 months unpaid).
Another option would be to forget the 80% LVR, bite the bullet and pay LMI in order to borrow enough for the IP and maybe $20K extra for improvements to our PPOR to make it more comfortable. Afterall, our decision to stay in our current PPOR favours a long term investment strategy rather than opting for “comfort now” and getting the huge PPOR mortgage for a trendy McMansion. We also know that we couldn’t stay in our current PPOR for more than 5-10 years due to family plans.
So I suppose other options would be to convert our current PPOR into an IP (which probably wouldn’t be far off being neutrally geared) and once again get a huge PPOR mortgage on another “nicer” place.
However, I’m much keener on spending $20K or so “value-adding” to our current PPOR in order to make it more comfortable for us before we end up selling or converting it to an IP, while putting our money right now into purchasing our first IP.
So, what I’m thinking of for an investment property option is an off-the-plan unit right in the CBD of Townsville in a very strong performing suburb (although not in the nicest street!) at around the $335K mark. The developer is a very well-respected one and most of their similar developments have sold very quickly with considerable “mark-up” with on-selling. However, it wouldn’t be our intention to on-sell before settlement unless we had very good reasons to do so.
The unit would be 2 bedroom, 2 bathroom with 86m2 living space plus (or maybe including???) a 23m2 terrace/deck. A larger 3 bedroom one could be had for a little bit more.
My brief calculations are: (please note these are very rough!)
Rental Income: $17K (after agent deductions – by the way my friend’s reputable agency will manage it)
Costs:
Body Corp: $5K
Rates: $2K
Depreciation: $14K? (maybe we could put in some furniture also?)
Interest at 7.5%: $25K
Actual costs = $17K – $32K = $15K – tax deduction ($29K @ 30% = $8.7K) = $6.3K or around $120/week
My main question is, does this sound even close to being on track and being a sound investment strategy?
My long term strategy is to accumulate a decent IP every 6-24 months, depending on conditions and variables. I also wish to upgrade our PPOR within the next 5 years or so.
Any suggestions or advice? For instance, should go back to my original idea of getting something cheaper for about $250-$300K with a lower return?
Kind thanks
Luke
As a newcomer to property investment, I would appreciate any general or specific comments regarding the following potential strategy:
My current PPOR is valued at approximately $400K with useable equity (at 80% LVR) of $320K minus $250K loan = $70K.
Using a $70K LOC against PPOR, this allows for a deposit on a $330K-$340K property (plus purchase costs) once again at 80% LVR.
Thus my loans would be:
$250K fixed loan at 6.5% – PPOR (partially tax-deductible through salary packaging)
$70K variable LOC on PPOR tax-deductible as IP deposit
$270K fixed loan on IP
DSR on these three loans would be very comfortable even with my wife likely going on 12 months maternity leave (6 months on half pay, 6 months unpaid).
Another option would be to forget the 80% LVR, bite the bullet and pay LMI in order to borrow enough for the IP and maybe $20K extra for improvements to our PPOR to make it more comfortable. Afterall, our decision to stay in our current PPOR favours a long term investment strategy rather than opting for “comfort now” and getting the huge PPOR mortgage for a trendy McMansion. We also know that we couldn’t stay in our current PPOR for more than 5-10 years due to family plans.
So I suppose other options would be to convert our current PPOR into an IP (which probably wouldn’t be far off being neutrally geared) and once again get a huge PPOR mortgage on another “nicer” place.
However, I’m much keener on spending $20K or so “value-adding” to our current PPOR in order to make it more comfortable for us before we end up selling or converting it to an IP, while putting our money right now into purchasing our first IP.
So, what I’m thinking of for an investment property option is an off-the-plan unit right in the CBD of Townsville in a very strong performing suburb (although not in the nicest street!) at around the $335K mark. The developer is a very well-respected one and most of their similar developments have sold very quickly with considerable “mark-up” with on-selling. However, it wouldn’t be our intention to on-sell before settlement unless we had very good reasons to do so.
The unit would be 2 bedroom, 2 bathroom with 86m2 living space plus (or maybe including???) a 23m2 terrace/deck. A larger 3 bedroom one could be had for a little bit more.
My brief calculations are: (please note these are very rough!)
Rental Income: $17K (after agent deductions – by the way my friend’s reputable agency will manage it)
Costs:
Body Corp: $5K
Rates: $2K
Depreciation: $14K? (maybe we could put in some furniture also?)
Interest at 7.5%: $25K
Actual costs = $17K – $32K = $15K – tax deduction ($29K @ 30% = $8.7K) = $6.3K or around $120/week
My main question is, does this sound even close to being on track and being a sound investment strategy?
My long term strategy is to accumulate a decent IP every 6-24 months, depending on conditions and variables. I also wish to upgrade our PPOR within the next 5 years or so.
Any suggestions or advice? For instance, should go back to my original idea of getting something cheaper for about $250-$300K with a lower return?
Kind thanks
Luke