Gearing up for first IP- need critique/advice

[ZOMG]

Been a year since purchasing a PPOR, have been lurking for awhile and reading SS regularly and talking to investors in RL. Have some spare cash now and have a plan in mind, would appreciate some feedback as I'm positive there are some conceptual flaws given I'm relatively new. My career is also non finance related so I'm trying to wrap my head around the financial side of things.

Long term goal: Achieve $100,000 passive income from property
Need: $2m+ in assets (assuming 5% return). Currently 27 y.o., ideally want to hit this goal in 13-15 years time.

Current assets- PPOR worth between 550-580k with 80% owing (440k), paying interest only with offset account. Have approx 140k in the offset.

Short term goal- Acquire next IP(s) with good CG and cash flow positive (unlikely) but happy to be lightly negative geared. Looking in NSW.

Now with 140k, I've calculated I can either purchase 1 IP between 500-550k at 80% LVR OR 2 IP's ~400k at 90% LVR (assuming 10% deposit, 5% for costs).

I'm leaning towards getting 2 IP's because I'm "diversifying my risk" and it'll help me towards my medium term goal of acquiring 5-6 properties in 5-7 years time. I'm also planning on transferring money from the offset to use as a deposit with another bank to avoid cross collaterising, not sure if there's a better way of doing this?

Gosh that was long, to summarise:

1 IP with 20% deposit or 2 IP's with 10% deposit each?

 

[Bandita]

If you find 2 good IPs, I'd go 2x IPs at 90%

You can stay with the same bank and not cross-collateralise, you just setup seperate loans. Depending on what type of loan you have now and your serviceability, you can also put those funds from your offset into your PPOR, pull them out via a seperate loan (which would then be tax deductible interest instead of non-deductible if you take from offset) to use as deposit/purchase costs, and setup another loan for remainder of purchase (80-90%). All non-crossed. So your IPs would be essentially 100% financed without the 100% LMI you'd have to pay (and probably not possible anyways). As your loan is interest only, you may need to make some changes before doing that, if you even wanted to. But either way, you can do this within the same bank or different banks, and still keep the loans uncrossed

 

[Spades]

Hey ZOMG,Firstly,Why are you focusing on NSW?

 

[LoneWolf]

Hey ZOMG,Firstly,Why are you focusing on NSW?

Because maybe he lives there?

 

[Spades]

Because maybe he lives there?

Yes but NSW is over heated.

That said though,buying an IP in your own state,it all boils down to your comfort zone...Dip your toes in the water so to speak.

How is a Sydney prop going to perform versus other markets?

 

[Rolf Latham]

Step 1

Your banker/broker has probably already got it sorted but.........and Bandita has already mentioned it.

Dont spend your tax paid cash on IPs.

If you will fully commit the 140 k to Ips, then create a 300 and 140 k split in the 440 k home loan, tip the 140 cash into the 140 k loan split and redraw as required.

better still, before that, talk to your planner about debt recycling as well.

ta
rolf

 

[ZOMG]

@Rolf/Bandita- Thanks for the tips. Is there any special term for this kind of action or do I just tell my broker I want to create a split loan?

Also, I'm not too sure what the tax deductions do- say I put the 140k, then re-draw it, how does this affect my next tax return?

@Spades-
I'm not too comfortable buying in other areas like Brisbane as I have close to 0 knowledge about the areas there and I'm relatively time poor to spend research there. Is the market there really that much better than Sydney?

Maybe I should look to buy 1 IP in Syd and get a buyer's agent for interstate?

 

[Rolf Latham]

@Rolf/Bandita- Thanks for the tips. Is there any special term for this kind of action or do I just tell my broker I want to create a split loan?

Also, I'm not too sure what the tax deductions do- say I put the 140k, then re-draw it, how does this affect my next tax return?

Splitting the loan would be the right terminology. Your broker would have the idea, if they dont, find a new one or a banker that does inspire some confidence in this area.

as to tax deductability - seek the services of a licensed tax agent, but Id say because the money will be redrawn for investment purposes, its a new loan and thus would be deductible against the rental income

ta

rolf