Have 1st PPOR need recs for 1st IP

[miss green eyes]

Hellooooo!
I am a proud new PPOR owner who is now looking for my 1st IP.
I live in Sydney and am keen to invest over there as well. I'd like to visit my 'baby IP' from time to time.
I am thinking of borrowing to purchase my 1st IP. I should be able to get 260-290 for my 1st IP. Let's put it at a conservative 260k?
I think if I put my PPOR up as security for my IP, I can borrow more. I am a bit wary of doing this, as I have the 'losing-the-roof-over-my-head' fear. However, should the need arise, I could rent out both my IP and my PPOR and live with my parents. So I am considering taking the risk.....
Have not done a pre-approval for my IP with the bank. The estimate was just a ball-park figure my banker gave me.
I am also open to investing in other areas in Australia or even overseas.
Any recommendations?
I thought of a studio or one-bedroom in potts point or somewhere else close to the city. I'm not sure if I will get any CG out of it though.
The problem is, 260k doesn't buy much, and I will have to factor in the dreaded stamp duty this time (under 10k).
I am aiming to purchase by early 2012.

 

[murph14]

I thought of a studio or one-bedroom in potts point or somewhere else close to the city. I'm not sure if I will get any CG out of it though.
The problem is, 260k doesn't buy much, and I will have to factor in the dreaded stamp duty this time (under 10k).
I am aiming to purchase by early 2012.

Don't buy near the city and don't buy a studio. Perhaps look at the inner-west for a 2br unit? It does depend on your investment strategy though.

 

[miss green eyes]

the inner west? but I can't afford it. 260k would hardly get you a studio there.
I've looked everywhere and nothing good is in my price range.
Everything that is 260k or under is small or very, very far (like at least as far as penrith).
I will get a proper pre-approval from my bank so I will have more concrete figures to work with.
PS My investment strategy is to max capital gain and max rental yield - sound like a good plan or bait for the sharks?
Well realistically speaking I'd like to buy somewhere rentable (near a train line, shops blah blah blah) so I can cover my butt in terms of mortgage repayments. And hope and pray I get CG in the next quarter century.
Thank you.

 

[murph14]

the inner west? but I can't afford it. 260k would hardly get you a studio there.
I've looked everywhere and nothing good is in my price range.
Everything that is 260k or under is small or very, very far (like at least as far as penrith).

Ok so look a bit further west. I can see plenty of good deals in the Parramatta greater region. Eg.
http://www.realestate.com.au/property-unit-nsw-auburn-107121586

PS My investment strategy is to max capital gain and max rental yield - sound like a good plan or bait for the sharks?

Bait for the sharks Sounds fine

Well realistically speaking I'd like to buy somewhere rentable (near a train line, shops blah blah blah) so I can cover my butt in terms of mortgage repayments. And hope and pray I get CG in the next quarter century.
Thank you.

You will definitely get CG in the next 25 years! However it is more or less a sideways market at the moment. Prices aren't skyrocketing anymore and I would look closely at suburb profiles in API and Your Investment Property magazines to see where the best CG and yields are.

Hope this helps.

 

[travelbug]

You will be battling to find a studio in Potts Point for $260K and banks will generally not lend 80% on these as they are SO small.

I have had over 40% gain on my Potts Point unit in 2 years.

But for better value at the moment and for a first investment I'd look elsewhere.
You won't need to go as far as Penrith to get a 2 bed unit for $260K. Remember the price on RE.com is not the sale price, it is the asking price.

 

[alexlee]

I'd like to visit my 'baby IP' from time to time.

Why?

I think if I put my PPOR up as security for my IP, I can borrow more. I am a bit wary of doing this, as I have the 'losing-the-roof-over-my-head' fear.

If the IP is in your name, even if you don't cross-coll the loans and you fail to pay the IP loan, your PPOR is still up for grabs.

I am also open to investing in other areas in Australia or even overseas.
Any recommendations?

How will you be visiting the IP then? What do you know about investing overseas?

I thought of a studio or one-bedroom in potts point or somewhere else close to the city. I'm not sure if I will get any CG out of it though.
The problem is, 260k doesn't buy much, and I will have to factor in the dreaded stamp duty this time (under 10k).

Your budget is 260k and you're thinking one of the most expensive suburbs? As for stamp duty, it is what it is.

 

[alexlee]

I've looked everywhere and nothing good is in my price range.

Does it have to be 'good'? You're not living there. It's all about the numbers.

Everything that is 260k or under is small or very, very far (like at least as far as penrith).

Ok, so you're not willing to live in Penrith. So what? Are there people who do? That's all you need to know. Besides, are you telling me there's nothing between Potts Point and Penrith?

PS My investment strategy is to max capital gain and max rental yield - sound like a good plan or bait for the sharks?

It's a good plan if that's your objective but you understand there will be tradeoffs. It's bait for the sharks if you actually believe someone has the perfect property that gives you both. Your preference for 'nice' properties pushes you into sharkbait territory, because it makes you vulnerable to shiny new things.

Well realistically speaking I'd like to buy somewhere rentable (near a train line, shops blah blah blah) so I can cover my butt in terms of mortgage repayments.

Pretty much anything is rentable. The question is, for how much, and what that rent is as a % of your buy price. Just because something will rent out doesn't mean you'll cover the mortgage. Want to have no vacancies? Ask for 20% less rent than everyone else. Just because a place is near the train station and shops doesn't mean the rent will cover the mortgage.

 

[miss green eyes]

My PPOR is in the west so I'd like to buy somewhere that is NOT in the west.
With my budget, the east, inner west and lower north shore seem to be out.
I might be able to make the upper north shore (read: hornsby and above), north-west (read: west ryde-ish), south/south-west (read: hurstville-ish).
Any recs over there?
I will see the bank next week and get pre-approval on a loan for my IP so I can give you guys more concrete figures.

I'd like to make a CG within the next....less than 5 years....? 2 years would be fantastic but I know I have to be realistic. The vendors on my PPOR made about 70k gross in less than 24 months.
I think it was their PPOR as well so they kept all the profit.
I am aiming to buy early 2012 if the market is still sideways. I'll just have to live with the downside of buying in a depressed economy (stress of maybe losing job losing both properties blah blah blah ).

Why do I want to visit my 'baby IP'? As a long-term renter and now PPOR owner, I have a mistrust of REAs, strata managers, builders and tenants. I feel that if I am not around to direct the show, my IP will fall into shambles.
Many things in my PPOR had not been fixed for years and now that I have moved into it I am slowly pushing the strata manager and other owners into fixing them. Some things are small (dead trees, broken lights) and some things are big (leaks). It is an apartment so I feel I am not only taking care of my own flat, but the whole building.

I saw some studios in Potts Point for around 280k. My idea was at least if I can't sell it, I can rent it for sure. inner city = guaranteed rental. In that way, if I pay off the mortage, I'd have guaranteed income in my old age. But yes I know I should aim for a 2BR as they are more saleable and rentable. It makes sense to me as the market for studios and one-bedders is pretty much limited to singles and the odd couple.

No, I know zilch about investing overseas. Which is why I'm here asking for advice. Is it not a good idea for my 1st IP? Conversely speaking, people who take such risks have become millionaires at 21.

When I say 'good', I don't mean luxury. 'Good' for me = stable rent to cover most, if not all, costs. I want somewhere I can rent *just like that*, so I'm never out of tenants for too long.
Which is why I'm looking for something close to trains, shops etc, if possible. It's not about what I would want to live in, but what as many other people as possible who can afford to pay the rent and will take care of the property and will stay a long long time would want to live in. I don't ask for much you know.

I didn't know the bank could take my PPOR if I didn't use the equity in it to purchase my IP. Well I should have known, as I know they can take all your assets (car, wife, kids, TV...)
Well, if it's going to be like that, I may as well use my PPOR as security and get a bigger loan, isn't it?

I have heard of people using their PPOR to buy an IP. Then using IP1 as security to buy IP2. Then using IP2 to buy IP3 and so on and so forth.
If you bought your PPOR with a 20% deposit, then used your PPOR as security for IP1 and so purchased IP1 with NO cash deposit, would you need to build up some equity in IP1 before you could use it as security for IP2?
Meaning, you would have to pay off at least 5% of the principle (not interest) on IP1 so you would have the 5% to use as security for IP2. I assume banks insist on minimum 5% deposit with LMI?
Or can you just jump straight into the chain and purchase one on top of the other? I've heard of people getting '100% loans'? How does that work?
Conversely, if IP1 were to shoot up in value if the market got better, you would get 'free equity' to use as security to purchase IP2?
Am I correct?

I think I really am as naive as I sound.

I'll get back to you guys next week on that loan figure.

Thanks alot!

 

[ashalim]

I saw some studios in Potts Point for around 280k.

I just checked domain.com.au studios under 300k are all under 30sqm. As travelbug said, you might have trouble getting finance.

hurstville area - you MIGHT be able to get an old 1 bedder...but overall it will be over 300k and hurstville/kogarah/rockdale LGA's median properties are usually 2 bedders and there are hundreds of them being built at the moment...

Also, instead of the bank, maybe speak with a good mortgage broker for broader options?

there are some good ones roaming this forum

 

[murph14]

My PPOR is in the west so I'd like to buy somewhere that is NOT in the west.

This doesn't matter. You buy where the numbers add up.

Why do I want to visit my 'baby IP'? As a long-term renter and now PPOR owner, I have a mistrust of REAs, strata managers, builders and tenants. I feel that if I am not around to direct the show, my IP will fall into shambles.

If you feel you have the ability to be a self-managing LL, then do it. But I'm sure there are people on this forum that can recommend great property managers anywhere in Sydney, especially if it means being able to snatch a better deal in an area you don't have to be able to travel to.

I saw some studios in Potts Point for around 280k. My idea was at least if I can't sell it, I can rent it for sure. inner city = guaranteed rental. In that way, if I pay off the mortage, I'd have guaranteed income in my old age. But yes I know I should aim for a 2BR as they are more saleable and rentable. It makes sense to me as the market for studios and one-bedders is pretty much limited to singles and the odd couple.

Yep increase the tenant pool and you'll do fine.

When I say 'good', I don't mean luxury. 'Good' for me = stable rent to cover most, if not all, costs. I want somewhere I can rent *just like that*, so I'm never out of tenants for too long.
Which is why I'm looking for something close to trains, shops etc, if possible. It's not about what I would want to live in, but what as many other people as possible who can afford to pay the rent and will take care of the property and will stay a long long time would want to live in. I don't ask for much you know.

Keep in mind, buying near trains, shops, etc. generally means buying where crime is higher. South Penrith, for example, is further from Penrith CBD but it's considered a nice and affordable place to live for low-income families with less worrying about crimes (at least this is what I've gathered).

I didn't know the bank could take my PPOR if I didn't use the equity in it to purchase my IP. Well I should have known, as I know they can take all your assets (car, wife, kids, TV...)
Well, if it's going to be like that, I may as well use my PPOR as security and get a bigger loan, isn't it?

LOL take the wife and kids too huh? Now that's a greedy bank.

I have heard of people using their PPOR to buy an IP. Then using IP1 as security to buy IP2. Then using IP2 to buy IP3 and so on and so forth.
If you bought your PPOR with a 20% deposit, then used your PPOR as security for IP1 and so purchased IP1 with NO cash deposit, would you need to build up some equity in IP1 before you could use it as security for IP2?
Meaning, you would have to pay off at least 5% of the principle (not interest) on IP1 so you would have the 5% to use as security for IP2. I assume banks insist on minimum 5% deposit with LMI?
Or can you just jump straight into the chain and purchase one on top of the other? I've heard of people getting '100% loans'? How does that work?
Conversely, if IP1 were to shoot up in value if the market got better, you would get 'free equity' to use as security to purchase IP2?
Am I correct?

Something along those lines. I'll let someone with more knowledge chime in here

 

[Peter_Tersteeg]

I think if I put my PPOR up as security for my IP, I can borrow more. I am a bit wary of doing this, as I have the 'losing-the-roof-over-my-head' fear.

Don't put your PPOR up as security for the IP. This is called cross-collateralisation. Do a search of this forum on this topic as there's plenty of posts on the topic.

It's farily straight forward to access your equity via a second investment loan, thus making a cash deposit available for the next IP. The outcome is the same, the total borrowing, value of the IP & tax deductions are the same. The difference is you're not using the PPOR as security for the IP. If something goes wrong with the IP, you don't stand to loose the PPOR.

Keep in mind banks like to use your PPOR as security because it favours the banks position. In most cases there's no benifit to you if it can be done another way (which it usually can).

Contact one of the brokers on this forum for proper and independant loan structuring advice. I'm happy to recommend Rolf, Jamie, Richard or Kristine. Jamie Moore is probably closest to you.

 

[EVOSTi]

you would do well to read a few decent books that might answer alot of your questions, but provoke more.

also just a quick point and i am fairly green myself so take with a grain of salt. you say you want inner city because its stable, studio/1bdr apartments are usualy the domain of young singles/couples. i think the turnover of these tenants wouldnt be very stable.