Goal is to live off rent in the future how?

I would like to get some suggestions/opinions on what is the best way to go about investing in property and making it work in the long term.

I read Rixters plan and that sounds something I would like to accomplish if not for myself then at least for my kids to have an easier life. Maybe don't need to pull out equity every 10 years but just live comfortably off the rental return in say 15 years if that is possible.

My current situation is PPOR bought for 630k at the end of last year. Median price was 630k, looking now median is around 688k so that at least looks to be positive. We laid down a 20% deposit in cash set up an off set account and currently only doing IO repayments. This has been locked in for 5 years on a variable loan. Will most likely after 5 years just keep doing IO repayments.

Selling an asset in Europe currently so will have 200k to play with shortly.

I am single income earner in family with gross wages between 120-150k per annum.

I did the maths if I was to purchase 2 IP total cost of 800k pay 20% in deposit on both (160k), I would be around 5k positive cash flow on both those properties combined. If these loans were also set-up as IO.

Also have the left over 40k sitting in offset account so my IO repayments on PPOR would be a little lower than now.

If I were to dump the 200k into my offset account, I would be worse off. Works out better to buy the 2 IP after doing the maths.

So money sitting in the bank is not working the hardest for me.

What other options do I have that are better financially and give the best bang for buck.

I like the idea of pulling out equity to fund deposits. So if my house was valued at 710k at some point, I bought for 630k that is an 80k gain, could I use this 80k to be used as a deposit on a 400k property?

Or maybe best not to put down 20% deposit instead just put down 10%. Take out mortgages insurance and be done with it. In that case could buy 4 properties instead of 2 and still have 40k in bank. But now the properties would not be cash flow positive.

I do have a mortgage broker I can discuss this with. But I also like hearing more opinions and then deciding which way I want to go.

I am in Melbourne and would be looking to buy established homes on blocks of over 600sqm. Might need to up my budget as the area I was going to bet on is Frankston in the long run. Even though looking at the CG in the last 5 years has only been 9.5%. I think the next 5-10 years will be a lot better, well I hope at least. The rental yields are not too bad there compared to more expensive suburbs.

I also thought about buying in better area but then could prob only afford 1 IP but with better CG prospects. But this is different than wanting to live off rent in the future, as you would have to sell the property to get the extra cash.

Hence I probably prefer the below

Basically want to live off rent in 10-15 years. If need extra cash could sell a property but rather would not.

We don't live a lavish life style and don't really need to. Drive ordinary cars ( friends call them $hit boxes) even though could afford better, would rather spend money on property than cars etc.
 
If you use $200k cash as deposits for investment properties you will be paying interest on your PPOR still.

However if you paid down your PPOR and reborrowed $200k (separate split) to invest then you would be able to claim an extra $10,000 approx every year for the next 30 years or so.

A huge difference which could save you tens of thousands of dollars and help you get to where you are going quicker.
 
I think you are over estimating the $5k cashflow.

You need to include interest, insurance, rates, management fees, maintenance.

You would have to be getting at least 6% yield. Where are the properties getting $460 a week rent for a $400K property?
 
If you dont have equity to borrow against then your cash is the next alternative...but in general terms use as little as your money as possible..

Its cheaper to use borrowed funds... keep your cash for reducing/paying out non deductible debt first.

As TerryW suggest. possible put you cash into your PPOR then draw it out via the correct financial structure to use for investment purposes.
 
If you use $200k cash as deposits for investment properties you will be paying interest on your PPOR still.

However if you paid down your PPOR and reborrowed $200k (separate split) to invest then you would be able to claim an extra $10,000 approx every year for the next 30 years or so.

A huge difference which could save you tens of thousands of dollars and help you get to where you are going quicker.

Wow that is exactly the info I am after. So would it be enough just having the 200k sitting in the offset account and then reborrow. Or would you have to make the down payment and send the 200k away?

Travelbug - I think you are probably correct that I may have over estimated.

Rixter - Reducing non deductable debt I take it is interest being paid on PPOR?
 
Wow that is exactly the info I am after. So would it be enough just having the 200k sitting in the offset account and then reborrow. Or would you have to make the down payment and send the 200k away?
If there is no plans to turn your currently ppor into an IP then put the $200k to pay it down. Then refinance out again to use for investment purposes.

Rixter - Reducing non deductable debt I take it is interest being paid on PPOR?
Correct Zos or any other personal (non income producing) debt you may have.
 
If there is no plans to turn your currently ppor into an IP then put the $200k to pay it down. Then refinance out again to use for investment purposes.


Correct Zos or any other personal (non income producing) debt you may have.

Zos, before you pay the $200K into your loan, if you haven't already, check your borrowing capacity. It would be awful to pay the money into your loan and not be able to access it.

If you have a redraw on your loan that may help too.

Regards Jason.
 
Wow that is exactly the info I am after. So would it be enough just having the 200k sitting in the offset account and then reborrow. Or would you have to make the down payment and send the 200k away?

Travelbug - I think you are probably correct that I may have over estimated.

Rixter - Reducing non deductable debt I take it is interest being paid on PPOR?

Taking money from an offset account is not reborrowing, but just using cash. If you did this the interest on your home loan would increase and this won't be deductible.

Ideally you would keep the cash in the offset and then tap into the equity in your property and set up a different loan. but if you have not enough equity then you would be better to pay down the home loan, but the minimum needed maybe, and then reborrow it with a new split. Don't put all the money off the home loan as you would want to keep as much as possible in the offset for 2 main reasons
1. As a buffer
2. To keep your home loan higher if you were to ever move out and rent this property and to have more cash available for the new main residence.
 
Taking money from an offset account is not reborrowing, but just using cash. If you did this the interest on your home loan would increase and this won't be deductible.

$150k income with a $630k PPOR.

States he has borrowing capacity of further $800k.
 
Appreciate the comments very much. No not to o late to check reborrowing options. The 200k will land into account eta 2 months. Just getting all the information ahead of time.

That would be awesome if I could borrow a further 800k but I do have 2 young children so it may effect this amount you pointed out Rixter. Something to look into before I do pay down the money.

I am able to redraw on loan if I remember ther terms and conditions.

This forum is awesome just soaking everything up like a sponge.

Taking everything on board will talk with my broker and mention all these points and try and get myself in the best possible position to take on this journey.
 
Wow that is exactly the info I am after. So would it be enough just having the 200k sitting in the offset account and then reborrow. Or would you have to make the down payment and send the 200k away?
One possible scenario; leave the $200k in the offset, set up another type of loan from the PPoR equity - such as an investment LOC for the deposits and purchase costs, and another separate IO loan for the remainder of the purchase.

The problem with this is you are borrowing approx 105% of the purchase cost of the property, so your chances of a pos cashflow are virtually zero.

The other alternative might be to use some of the cash as a deposit, put the rest into the offset account, and set up a separate IO loan for the remainder of the purchase...this way you still have some cash, and the IP might be pos geared/cashflowed, use the rent towards paying down PPOR debt via deposits in to offset, or solely towards the IP loan.

The accepted preference is to only pay the minimal amount required towards the IP loan, and keep on smashing down all non-deductible debt first.

Travelbug - I think you are probably correct that I may have over-estimated.
allow about 20% of the rent to be swallowed up in holding costs per year...not including loan repayment. Newer properties will require less maintenance and repairs (hopefully), so this figure should be less - but still not a bad idea to allow this much.

Always better to over-estimate expenses, and under-estimate income.

Rixter - Reducing non deductable debt I take it is interest being paid on PPOR?
any other debts such as personal loans, credit cards, PPoR, car.

Start with the highest interest rate and/or smallest debts first - credit card would be the obvious one. It may be the smallest amount owed, but smash it, then move on to the next most expensive (interest rate) debt, using the previous amount used to repay the credit card towards the next debt as well as the normal repayment on that debt.

For eg; say you have a c/c debt and a car loan. The c/c repayment is $100p/w, the car loan is $100p/w as well.

You have a further $100p/w available to reduce debt or save towards the PPoR loan..where should you put it?.

You pay the extra $100p/w into the c/c and continue the other loan repayments as normal. Once it's paid off, then use the extra $100 from debt reduction money, plus the $100 you were already paying on the c/c towards the car loan - $200 extra per week onto the car loan...until it is gone.

Then, you will have $300p/w extra to throw at the PPoR loan over and above your existing repayment, and no debt on the c/c or car.

The trick is to not re-dip into the c/c once the debt is gone.

On that note; Banks will regard your c/c credit limit as funds towards (reducing) serviceability (DSR) - even though you might owe nothing on it! :eek:

So, once you have paid out the c/c debt, unless you really need the credit amount on the card - it is a good idea to reduce the limit as much as you can.

If you have more than one c/c - you need your bottom smacked :D...get rid of all except one card, and only an amount for a sudden financial emergency - say; $5k limit.

End of father lecture.
 
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If you use $200k cash as deposits for investment properties you will be paying interest on your PPOR still.

However if you paid down your PPOR and reborrowed $200k (separate split) to invest then you would be able to claim an extra $10,000 approx every year for the next 30 years or so.

A huge difference which could save you tens of thousands of dollars and help you get to where you are going quicker.

Such simple advice that most people forget. Pay your house off, get an LOC on it then draw it down to invest!
 
My problem is that I always thought to buy property and not not have to take out mortgage insurance you need 20% in cash to lay down deposit.

One of the reasons I never could get my head around the fact people buying 10+ properties on average wage (where are they getting the deposit cash)

So with LOC you don't need any deposit amount in cash?
 
My problem is that I always thought to buy property and not not have to take out mortgage insurance you need 20% in cash to lay down deposit.

One of the reasons I never could get my head around the fact people buying 10+ properties on average wage (where are they getting the deposit cash)

So with LOC you don't need any deposit amount in cash?

The deposit will be borrowed, so you are borrowing 103% without cross collateralising the loans.
 
Zos, you draw the IP deposit plus purchasing costs from the LOC and borrow the remaining 80% amount required to complete settlement secured against the new purchase.
 
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Have you considered getting 95% loans with LMI rather than 80% loans? This will help you grow the portfolio faster, especially earlier in your strategy.

If you paid 5% down on the 2 properties, you'd only pay $40k and have money left over to either sit in the offset against your PPoR or invest elsewhere. Just food for thought.
 
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