How do you make the 2nd IP count?

[HillsGirl]

We are thinking of buying a 2nd IP with the remaining equity in our PPOR, and the purchase price limit will be $350,000.

I realise that this will be the last property we can buy for awhile (no equity left) so I really want to make it count and be worthwhile.

PPOR is in Hills area Sydney, IP1 in Nth Brisbane area. I am thinking perhaps a house in Christies Beach area in SA for the 2nd one. But I am concerned about the CG there. But the yield is decent so wont be too expensive to hold.

Do you think I am better off waiting till I can afford to buy something worth more, or is better to buy what you can afford at the time?

Am I right in thinking that this property should have good yield, or should I wear the holding costs and buy in a more CG area?

I know its all personal preference, but not sure what to do to best keep the momentum going.

 

[Brady]

Will depend on your own personal situation.

Having a strong yield is great, but not so important if you're high income earner and can take a bit of a hit.

You said it's your last property as no equity left, depending if you want to continue to increase the number of properties in your portfolio. Personally if I was wanted to increase the number of properties I would be making sure I'm buying something that will grow in the next 2 years.

I've read somewhere on here before, can't recall who it was but it's stuck with me... 'if the property you're buying isn't going to make you money in the next two years don't buy it' doesn't mean its CG could be great CF, but should be making money ASAP so that you can continue to grow.

Best of luck, don't mind the Christies area.

 

[HillsGirl]

Thanks Brady.

We are on modest wages and cant really afford this property to be heavily negatively geared, but I know that a good yield is probably going to be at the expense of good CG.

 

[Tonibell]

Sounds like you need to focus of creating equity.

That will mean the right market, the right deal and something you can do do the create equity yourself.

Also look to see if there anything you can do with your existing properties to create some equity.

 

[Jamie M]

Best of luck, don't mind the Christies area.

Seems to be a popular place - have done three applications for properties in this area in the last two weeks.

Cheers

Jamie

 

[HillsGirl]

Hi Jamie, are you finding the Valuations are stacking up ok there?

 

[knightm]

Sounds like you need to focus of creating equity.

That will mean the right market, the right deal and something you can do do the create equity yourself.

Also look to see if there anything you can do with your existing properties to create some equity.

^^^this. If you have limited equity you make this one count by ensuring you buy with value add potential. This could be cosmetic reno or small development, or above average market growth, ideally at least 2 out of those three (all 3 is possible but less common) if you need to manage cash flow I would stick to affordable areas with some growth potential and look for reno plus dual occ type properties.

 

[GreyGhost]

What is the overall strategy. If it's just buying one more and your income is not expected to grow over coming years then "making it count" by creating equity may be correct way to go.
However if you are looking to build a portfolio over "x" years, then you should do some modelling to ensure you will be able to service these over coming years or else you may buy the next property and according to the banks be at your servicing limit and they may force you to reassess your strategy and current portfolio.
Very crude summary but does highlight the importance of the end game when starting out..

 

[Deltaberry]

Equity growth most important especially if your income is low, because that little bit of yield isn't going to help you save money.

 

[HillsGirl]

Thankyou everyone, food for thought.

Still dont know the answer, but at least I have new ideas to toss around.

Not sure how you do renovations from another State... will need to investigate this.

Long term strategy is not just one or two properties, but for the next 2-3 years at least I reckon one more will be it.

I just dont want to waste this last bit of equity and buy the wrong thing.

 

[hugh72]

Sounds like something heavily -ve geared would hurt your bottom line and could stop you buying for a while so I would definitely avoid this option, even if you have some growth without the cash flow you could still be bleeding funds quickly
You might find buying in the area you have suggested might give you some growth and a reasonable yield, with rates so low a yield of 5.8-6% might not limit your personal budget at all after tax IMO

 

[HillsGirl]

I agree, something highly negatively geared, regardless of growth would kill us financially.

I have always like property either near the water, or near a city.

As I am worried about the capital growth in Christies, I am also considering a Unit in Kedron north of brisbane?

I dont think it would be hideously expensive to hold, but I feel more confident of CG there.