Hello from a friendly ex lurker

[shopgirl]

Ive been lurking for a while, about time I actually dropped in and said hello.

I am very interested in property investment and am planning to buy my first property by the end of the year. It will be a ppor to begin with, converting to an IP down the track.

Im learning alot from everyone ! This forum really gives me alot to think about.

Kind regards, Shopgirl

 

[Mike&Wendy]

Welcome from a friendly, low post, ex lurker.

Mike.

 

[Bon]

howdy!!

 

[MichaelW]

Hi Shopgirl,

And welcome formally to the forum!

Just a quick piece of advice. If you are planning to convert your PPOR to an IP in years to come then make sure you use an offset account in your financial structure. In this way you can park your surplus cashflow in the offset account instead of paying down the principle. When you convert it to an IP you then have the option to use that money elsewhere and "expose" more of the mortgage. This exposed portion is then deductible against your tax due to the property being an IP. If, however, you had paid down the principal and wanted to use that money elsewhere for non deductible purposes (such as buying a car) then this would now not be deductible due to the purpose of the "new loan". The difference with the offset account is that the loan exists and its purpose is now for an IP, so exposing more of it allows the continued deductibility.

That might sound a bit technical, but something to keep in mind up front as its too late at the end to realise the implications when you convert the PPOR to and IP.

Again, welcome!!

Cheers,
Michael.

 

[GreenTreeFrog]

Welcome Shopgirl!

Are you looking to make your first purchase solo?

 

[Simon]

Hi Shopgirl,

And welcome formally to the forum!

Just a quick piece of advice. If you are planning to convert your PPOR to an IP in years to come then make sure you use an offset account in your financial structure.

Cheers,
Michael.

I'd suggest you do it regardless of your plans. This gives you the most future - proof setup with maximum flexibility to protect tax deductibility.

Ciao

 

[Pom]

Hi Shopgirl,

And welcome formally to the forum!

Just a quick piece of advice. If you are planning to convert your PPOR to an IP in years to come then make sure you use an offset account in your financial structure. In this way you can park your surplus cashflow in the offset account instead of paying down the principle. When you convert it to an IP you then have the option to use that money elsewhere and "expose" more of the mortgage. This exposed portion is then deductible against your tax due to the property being an IP. If, however, you had paid down the principal and wanted to use that money elsewhere for non deductible purposes (such as buying a car) then this would now not be deductible due to the purpose of the "new loan". The difference with the offset account is that the loan exists and its purpose is now for an IP, so exposing more of it allows the continued deductibility.

That might sound a bit technical, but something to keep in mind up front as its too late at the end to realise the implications when you convert the PPOR to and IP.

Again, welcome!!

Cheers,
Michael.

Excellent advice! Wish i'd known that 5 years back!

I've paid off a goodly chunk of a straight variable rate mortgage on a PPOR which has now become an IP. I now want to buy a new PPOR - is there no way of re-releasing the equity from the IP so that its tax deductable if the purpose of releasing it is to buy a PPOR?

I think I already know the answer!

 

[MichaelW]

I think I already know the answer!

And I think you are correct, sorry...

i.e. Purpose of the new LOC loan is to buy a PPOR and as such is non-deductible. Had it been in an offset account then you could have used the cash as deposit on the PPOR and exposed the deductible IP debt.

Cheers,
Michael.

 

[boomtown]

Am I correct in thinking that there is no issue on converting a PPOR to an IP and using equity released from the newly converted IP to purchase further IPs?

 

[twobobsworth]

Excellent advice! Wish i'd known that 5 years back!

I've paid off a goodly chunk of a straight variable rate mortgage on a PPOR which has now become an IP. I now want to buy a new PPOR - is there no way of re-releasing the equity from the IP so that its tax deductable if the purpose of releasing it is to buy a PPOR?

I think I already know the answer!

If in joint names what about selling one half to the other?

 

[stumunro]

Am I correct in thinking that there is no issue on converting a PPOR to an IP and using equity released from the newly converted IP to purchase further IPs?

These are my thoughts too....

what's wrong with converting the PPOR to an IP and getting a LOC @ 80LVR to release the equity?

Or even topping up the loan into an offset account @ 90 LVR

 

[shopgirl]

Hello again

Hi everyone thanks for the warm welcome and all the advise !

I will be buying my new property solo, but im not a first home buyer so no grant. I am taking all this advise on board and am thinking to go IO.

One question though, I am madly saving for my deposit and plan to use a mortgage broker. One concern is that I have a car loan, I am not sure whether to use some of my savings to pay out the debt before I apply for a mortgage (16k owing) or keep the $16K towards the deposit.

I am looking to buy in St Marys NSW. It gets good reviews here and I actually grew up in that area so feel comfortable enough to actually live there for the first few years.

I have a salary of $70k. I am Registered nurse. The only debt I have is the car loan, although I do have a CC which I rarely use. Its total is $3000. I can close this account if it helps me get my mortgage approved.

I wont have 20% deposit, especially if I do pay out the car loan first. I understand I will have to pay mortgage insurance.

At this stage my plan is to save like mad til the end of the year, pay out the car loan, find a modest property around $250k, and have 10% deposit plus enough for all costs eg mortgage insurance, stamp duty etc. Seems best to go IO with an offset account. If I dont pay out the car loan I will have a larger amount to put down, or to hold on to.

Any MB out there ? Im wondering if I will have any troubles getting finance.

Again, thanks for all the advise, I am very keen to get ahead. I will do just about whatever it takes to get into my own place ASAP. Hopefully 2 to 3 years later I will be able to get my 2nd place.

People here are so motivating.

I

 

[MichaelW]

Hi Shopgirl,

Your plan sounds excellent. There's a few mortgage brokers on here at Somersoft that should be able to help you out. Do a search and I'm sure their names will turn up.

With a salary of $70K and a 10% deposit you should have no problems borrowing $200K-$250K. That's a nice safe entry level property and you should pick up something nice in St Marys for that price.

The car loan debt is also considered by the banks when processing your application for the new mortgage. So taking a bigger deposit to them by not paying off the car does not improve your max lend (LVR) equation. I would assume that the interest rate on the car loan is also higher than that you are likely to achieve on your PPOR loan and as such I would recommend paying off the car loan first and taking a smaller deposit to the PPOR loan. The loan amount secured by the property would then be $16K higher, but the interest expense on this lower than if it was still against the car. If it made the difference between LMI or not then that changes the equation slightly. But if you're going to have to pay LMI anyway then improve your serviceability by paying off the car and taking a bigger mortgage on the property. So, in summary, paying off the car has no impact on your LVR but does improve your serviceability when applying for your new loan. If it was an IP and not a PPOR then you'd definitely be better off taking this approach as the interest on the IP would be tax deductible but I presume the car loan interest is not. Given you intend converting it to an IP in the future, then this is more reason to pay the car loan out first.

Just my thoughts. A good MB like Rolph Latham, Simon or others would be of more use to you than my random thoughts.

Cheers,
Michael.

 

[VCDenton]

Good hear from you shopgirl as we are in similar situation.
However in my case I would like to get a IP first hopefully by the end of next year where the melbourne market may be more affordable in general.(rent paid to parent isn't that deer)

BTW, I am really surprised as how high your salary is, my friends fresh out of uni nursing degree are only taking something like 16 to 18/hr(they work for the bloody public sector though). I am similar as I a newly grad podiatrist so I am expecting my income this year could be around 45 to 50K only. With this salary am finding it really difficult to keep up with the proeprty growth so actually looking forward to a correction of the market.

Regards
Vince

 

[Peter_Tersteeg]

Hi Shopgirl,

Whilst it's not possible to perform an accurate analysis without some additional information relating specifically to your current financial position, I have helped plenty of people obtain finance who had similar circumstances to yourself but with an even lower income.

I basically don't see you having a problem with obtaining appropriate finance.

Keep in mind that the rental income you receive contributes to the amount you can afford. In terms of funds to complete the purchase, about the minimum you'd require is 10%, to cover the minimum deposit, stamp duties and costs. It does vary a little but 10% is a good rule of thumb.

It's always a good idea to speak with someone regarding finance sooner rather than later, but with a good savings record, low existing debts and a good salary, it's suggest you're in a very strong position to move forward.

 

[shopgirl]

Thanks everyone for your replies, especially Michael !

I had kind of come to the decision to pay out the car loan, and that will give me an extra $450 per month.

Im a RN seven years out, I work full time which includes working every weekend permanently (not much of a social life). It puts my pay up alot. I just got my group certificate and I finished up with $68,000. Saturdays I get 50% penalties and sundays I get 75%. It really makes a difference ! I also have salary packaging which is great, I end up with around $250 extra in my pay packet each month. I work in a private hospital in Sydney. Ive been there 5 years.

It looks like us nurses will get a pay rise in a few months. My current hourly rate is $29.50. Thats the base rate for day shift.


Any advise regarding money that I can get I appreciate so much. Im currently living with my boyfriend, I dont pay rent but buy groceries and pay bills. I am a shopper by nature and that is always a struggle. At the moment I am trying to stay away from the shops but I do find myself straying to ebay at times haha.

byeee

 

[baconinoz]

Hey shopgirl,

Check out the IP Calculator (Go to Info Resources, Spreadsheets) on this site. It's a brilliant spreadsheet I found really helpful to figure out how much your IP will cost post tax. I jumped into my first IP feet first before I found SS and the inital out of pocket expense given me by my "financial advisor" was completely off. (I have learned my lesson!!) It's well worth your time playing around with your figures to get an idea if you will be able to service your loan (and still be able to retain your shopping lifestyle, if that's what makes you happy).

Cheers,

 

[Roadrunner]

Welcome to SS Shopgirl, from another SS lurker (and occasional poster)

 

[Jacque]

Hi Shopgirl

Welcome back and best of luck with your plans
Great time to buy in St Marys- doom and gloom mean that many houses on the market HAVE to sell so you should be able to pick up a bargain.
Happy hunting

 

[ianvestor]

Hi Shopgirl, and welcome!

With regard to the car loan, it's not necessarily the '16k' that the bank will be looking at, but rather the minimum repayments you have to make on that 16k.

$450 per month should service a lot more than $16k of property finance.

Have you thought about the possibility of paying say $15,900 into the car loan and avoiding the payout fee?

Other thing to think about is if you do pay the car loan in full, and your repayments have always been on time, you might be able to get a written reference from them to show your bank.

-Ian