Help please! Investing on one income approx $40K after tax....with a BABY!

Hi all,

Thanks for all the info-sharing & advice, have picked up some really valuable tips here! Hoping to one day know enough to help someone else :)

Accidentally had baby last year & investing plans have gone a bit off-track since then:eek: Now on one salary (approx $40K after tax).
PPOR loan $410K (had to buy for baby as 2BR flat with no outdoor area wasn't big enough) var - repmts approx $2K month IO
IP1 fully owned, approx worth $330K rental income $310/wk
IP2 245K IO loan (30K LOC also) 4.99% fixed til 2012 :) Approx worth $320K Rental $350/wk
IP3 295K IO var - inlaws live here & pay loan amount each month. Approx worth $320K.

We've started using IP1 & IP2 rental to pay down PPOR & LOC to repay IP2 loan (still have about $24K in LOC so can do this for a couple more years). All loans cross collateralised.

I think banks want last 3 payslips for refinancing. I haven't advised them I'm not working anymore (should i advise them?)
How do we get around this when looking to borrow for another IP?
Am I being silly thinking we can afford this? Should we be looking to more rural / cash flow neutral / positive properties. My strategy has been go for capital growth so not sure about these lower growth rural areas. Just interested in anyones' ideas about how to move forward or are we stuck here for another few years until equity grows. Even then, will the banks lend if my partner's income is only $40K?

Thank you for all your advice...sorry if this is confusing, I'm still learning there's soooo much I don't know!
Good lord ... we're on not much over $40k with a baby on the way and we're looking to keep our total debt levels well below $200k :eek:

I wouldn't be taking on any more debt now. You might find that LOC disappears faster than you think.
I am in a similar situation. Two IPs with a baby and single income. Your rental yields from IP2 and IP3 are higher than mine but my after tax is slightly higher. Which means we are on the same boat in terms of cash flow.

I assume your IP1 is where you lived and that is why it is paid off fully. Experts here may tell us if you are allowed to take money from IP1 and pay off your current PPOR. I don’t think you can do this.

I know property investors may not agree, but why not sell the IP1 and pay off the PPOP? This way you can peacefully sleep at nights and spend what ever you need for the baby.

Then, wait till the other person goes back to work. Say 2-3 years max. By that time you would have enough equity in your IP2 and IP3. Borrow money for ‘investments’ from IP2 & IP3. Use that money as deposit for new IP but use a different lender.

Just warning you that I am no expert in financial planning or property investment. I’m also learning my steps in investment just like my daughter :)

Good luck.
I think banks want last 3 payslips for refinancing. I haven't advised them I'm not working anymore (should i advise them?)

Definitely don't lie to the banks. That's not cool and it will hurt you when they find out.

Paying down debt is a good move. If your PPOR may eventually become an IP, then using an offset account instead of paying down directly might be a better way to achieve the same results. Just a thought. You could also use this time to look at increasing the rents and / or adding value to the properties, perhaps.

Equity doesn't seem to be your problem; serviceability is. Does your partner have much opportunity to increase his income? Could you take on part time work?
Hi devank,

Yes, IP1 was where we were living.
I'm hesitant to sell to pay down PPOR as I've liked the buy & hold strategy this far. By selling i feel that we're losing our access to the future capital gains from that property and in turn, our ability to leverage funds from it. It's in Glen Huntly only 12km from Melb & near the Caulfield uni so I feel it's a good one to hold onto for reliable rental & future capital growth. (But am always open to suggestions from those more knowledgable than I :))
But again, like you, I'm no expert. Have read some Michael Yardney books & like his method of using other peoples' money (ie the banks via LOC) to reduce our loans.
Best of luck with your daughter too, hopefully we can both provide a solid financial future for them through our investing :)
thanks again :)
Hi JamesGG,

Thanks also for your suggestions & yes, you are spot on when you say serviceability is our downfall now.
No, I wouldn't lie to the banks (bad karma to lie anyway), just wasn't sure what I had to tell them? Haven't yet told them I'm not working, but as we're still paying our loans I gather they won't come asking?
We do have an offset for PPOR which helps a bit.
I gather we won't qualify for another loan on his salary, so not sure if we are stuck for a while waiting for growth?
No chance of partner increasing income in current job, although he is searching for a better paying job. Daughter only 9months & don't want to put her into daycare, but am looking for part time work to help out with $$$.
Rents are locked in for about 8 months on one & 2 years on another. Is it worth value adding to the 2 year one if the rent is already locked in (from a capital growth perspective)?

Thanks heaps for your suggestions JamesGG - much appreciated
And keep up the industrial strength contraception - as the proud parent of 2.7 accidental small people, I can safely say they come when you least expect them :)

We're building a brand new house to put our extra one in (9yo girl + 2yo girl + baby boy = not a good situation for sharing bedrooms), so I empathise with the "oh cr@p new baby must buy a new house" thing lol
HI RumpledElf,

Hee hee, I like your terminology 'accidental small people'!
Best o luck with the new house too :) Hope it brings you an abundance of love, happiness & money for your future ...and for any more tiny rumpled elves that may come along :)
Yeah, sometimes life throws us a curveball of nappies & sleepless nights :) and it puts a spanner in the investing side of things. Hopefully we can educate our little people along a road to financial freedom & wealth!
Thanks again RumpledElf
Now that you have established the house as your PPOR, why not consider moving back to your old PPOR. I know the reason you moved from that was because it isnt big enough for the family now you have a baby, but consider this.

The new baby isn't going to be running around in the back yard for a while. The unit is paid off, so you now have to pay tax on any income from this property. The new home has a large mortgage that is not tax deductable. If you are able to do this, if even for a couple of years it will help with your cashflow. When you move back to the new house, you will have preserved the CGT benefit as you can move out for up to 6 years.
why not take Skater's idea 1 step further and rent out your PPOR and move into a rental for a couple of years. Then move back into your PPOR when you see the need to have use of the backyard/bigger bedrooms/etc. Reasons for this are:

1) If you're weekly rent is lower than the income you are getting for PPOR you can pocket difference to help pay for servicibility
2) PPOR still considered CGT free under 6 year rule
3) Loan for PPOR becomes tax deductable as it is now an income producing asset ??? (I think this is correct. might have to see an accountant about this one)
4) fill out an ITWV form to help with weekly servicibility

make sure to run numbers first to see if it is viable
Hi Skater & CashflowPlus,

Thanks so much for those options, really appreciate you taking the time to share!

Don't think partner will want to move back into old flat as too small & pokey, but like the idea of renting somewhere else as an option. Will bash out some figures & see what may work.

(I think you're right CashflowPlus on point 3...this would really be good as such a large loan)

Is an ITWV form that tax variation form where you get the tax in hand each pay rather than in a lump sum at the end of the financial year?

Feel a bit bogged down in all the detail sometimes so I'm really thankful for all your thoughts, information and options. I wish you all an abundance of good investing karma :)

Any other opinions & options are welcome :)

Thanks all!