I need help too !

[whitehope06]

Hi everyone
I am a new member, but I’ve been surfing your posts in the last couple of weeks.
I need your advice. Today is exactly one year that I bought my house . It’s a 2br unit in NSW and so far so good !
I never thought I would want to go through all the hassles of buying a house again , but guess what ?! I do.
The thing is I don’t think that I have any equity on my house , but I have share portfolio worth of $20,000 and I’m thinking to use that money to buy my first investment property, so I can use negative gearing as well ,since I’m paying too much tax (about $14000 p.a ) it seems too much to me anyway.

Having said that ,I was told by 3 financial planners that I’m not ready for IP and I should use that money to pay off my mortgage, so now I don’t know what to do ? any advice would be appreciated .
cheers

 

[alexlee]

Hi everyone
I am a new member, but I’ve been surfing your posts in the last couple of weeks.
I need your advice. Today is exactly one year that I bought my house . It’s a 2br unit in NSW and so far so good !
I never thought I would want to go through all the hassles of buying a house again , but guess what ?! I do.
The thing is I don’t think that I have any equity on my house , but I have share portfolio worth of $20,000 and I’m thinking to use that money to buy my first investment property, so I can use negative gearing as well ,since I’m paying too much tax (about $14000 p.a ) it seems too much to me anyway.

Having said that ,I was told by 3 financial planners that I’m not ready for IP and I should use that money to pay off my mortgage, so now I don’t know what to do ? any advice would be appreciated .
cheers

So your salary is about 65k? How much of that are you saving every month? What other savings do you have? That will determine whether you can afford to buy an IP.

What do you mean by ‘use’ negative gearing? Do you understand the difference between cash deductions and non-cash deductions?

At 95% you might be able to get a $200k property with a $20k deposit (10k goes to stamp duty, etc). At 5% rental yield you would be down about $7,500 in AFTER tax cashflow a year. Can you afford to put in at least $150 per week AFTER tax for this property?
Alex

 

[steveadl]

Hi WH, welcome to SS!

Probably need to give a bit more info. to give you some suggestions:
- How much shortfall can you afford with your current salary if you're looking to negative gear?
- What is the situation with your current property ie. value & debt outstanding?
- What price range IP would you like to buy?

 

[LynnH]

whitehope06

I assume the property is your PPOR?? And that you currently living in it?? Even though you may be planning on living there for a long time, it is quite likely that you will want a bigger/different home as your needs change over the years (e.g. marriage, kids, job transfers, etc, etc ...)

I wouldn't pay the money off your mortgage. Open an 100% offset a/c against the mortgage a/c and place your $$ in the offset. This has a couple of advantages: it saves interest on your mortgage while the funds are in the offset a/c, and it allows you to redraw the funds to buy another PPOR down the track.

BTW - it's not a good idea to worry about 'paying too much tax'. Whatever investments you make must stack up financially - the tax savings are the icing on the cake only - not the reason for investing.

Cheers
LynnH

 

[whitehope06]

Thanks Alex for your reply.
Yes, my salary is about $63 K.I can save about $400 to $500 per month.
I don't know the difference between CD and NCD !

Do I have to pay stamp duty ? I didn't pay for my first home .

 

[whitehope06]

Hi WH, welcome to SS!

Probably need to give a bit more info. to give you some suggestions:
- How much shortfall can you afford with your current salary if you're looking to negative gear?
- What is the situation with your current property ie. value & debt outstanding?
- What price range IP would you like to buy?

You guys are good ! I should have started this weeks ago !!

I bought my unit for $320K last year and it's been a year, I only put %5 deposit.

I'm thinking something around $250 to $280K if I can afford .

 

[alexlee]

Thanks Alex for your reply.
Yes, my salary is about $63 K.I can save about $400 to $500 per month.
I don't know the difference between CD and NCD !

Do I have to pay stamp duty ? I didn't pay for my first home .

As Lynn said, don't worry too much about the tax stuff just yet. However, cash deductions (interest, management fees, insurance, etc) are deductions which you have to PAY for. So you're paying out $1 and getting 30 cents back. Non-cash deductions are deductions you don't actually pay for directly, such as depreciation. The 'negative gearing' you're talking about only DECREASES your losses. They're still losses. That's why you have to make sure the investment works out too.

You didn't pay stamp duty the first time because that was your first personal residence. You will have to pay stamp for any property you buy from now on. As a general rule, budget 5% of the purchase price for stamp duty, legal, etc.

If you use the $20k to buy a $200k property, borrowing 95% and paying around 8.8% interest, then your cashflow will be (rough estimate) approx -7,500 a year. That's more than you can afford if your savings is only 500 a month.

You're making about 4k a month after tax, right? That means your savings rate is about 10%. Do a budget, list out your expenses for 3 months, then start cutting. How much is your mortgage payment?
Alex

 

[whitehope06]

whitehope06

I assume the property is your PPOR?? And that you currently living in it?? Even though you may be planning on living there for a long time, it is quite likely that you will want a bigger/different home as your needs change over the years (e.g. marriage, kids, job transfers, etc, etc ...)

If so, I wouldn't pay for money off your mortgage. Open an 100% offset a/c against the mortgage a/c and place your $$ in the offset. This has a couple of advantages: it saves interest on your mortgage while the funds are in the offset a/c, and it allows you to redraw the funds to buy another PPOR down the track.

BTW - it's not a good idea to worry about 'paying too much tax'. Whatever investments you make must stack up financially - the tax savings are the icing on the cake only - not the reason for investing.

Cheers
LynnH

Hi Lynn
Yes , this is my PPOR and I'm planning live here for another 5 to 10 years.
You have a good point about another account to offset the mortgage, that's what i'm doing at the moment regarding whatever I'm saving monthly.

About reducing my tax, blame it on being excited to start quickly , so I'm looking for any excuse to speed up the investment

 

[steveadl]

Thanks Alex for your reply.
Yes, my salary is about $63 K.I can save about $400 to $500 per month.
I don't know the difference between CD and NCD !

Do I have to pay stamp duty ? I didn't pay for my first home .

CD - expenses that actually cost you money eg. land tax, council rates, insurance etc.
NCD - expenses that you can write off against income, but don't actually cost you anything out of pocket ie. depreciation.

Yes, you'll have to pay Stamp Duty on IP's, only your PPOR was exempt.

At $250k or so - it sounds plausible, but again it would depend on your existing equity and income as to whether the bank will lend you the 95% you'll need. It may be that if you're income is ok, you may still need to save up a bigger deposit.

As a guide though - do some figures on a house at say $250k on a 95% lend, and then based on the rent and expected expenses and tax benefits - what you're holding costs will be. If it's more than $100pw, then you already have a preliminary answer and need to do some thinking.

 

[alexlee]

I bought my unit for $320K last year and it's been a year, I only put %5 deposit.

I'm thinking something around $250 to $280K if I can afford .

305k mortgage, P&I, your payments are about 2,700 per month? That's a lot when your pay is only about 4,000 a month. Or do you have a partner sharing the costs?
Alex

 

[whitehope06]

You're making about 4k a month after tax, right? That means your savings rate is about 10%. Do a budget, list out your expenses for 3 months, then start cutting. How much is your mortgage payment?
Alex[/QUOTE]

Usually how much should I have as a savings rate ?
My mortgage payment is about $2100 per month.

 

[steveadl]

When doing your calcs., also remember to budget in for the unforseens ie. vacancy, repairs etc.

If based on your salary you believe you can afford the IP, make sure you are still able to put a bit extra aside for unforseens that will come up.

Another suggestion which may or may not be an option for you based on your personal desires and situation - rent out your PPOR and rent somewhere else for yourself. This will greatly increase your servicability, and may be a solution for you.

 

[whitehope06]

305k mortgage, P&I, your payments are about 2,700 per month? That's a lot when your pay is only about 4,000 a month. Or do you have a partner sharing the costs?
Alex

Sorry about last post, I'm still learning !!!
My partner is not working and he's on pension allowance , so he can contribute the income ,let's say about $200 per week.

 

[alexlee]

Usually how much should I have as a savings rate ?
My mortgage payment is about $2100 per month.

I usually peg living expenses at around 30% of your after tax pay. So if your mortgage is about 50% (that sounds low. You have a low fixed rate? And you're going interest only?) you really should be aiming for at least 20%.

Time to take a razor to the expenses, if you want to buy more property. Morning coffees, lunches, etc.
Alex

 

[alexlee]

Sorry about last post, I'm still learning !!!
My partner is not working and he's on pension allowance , so he can contribute the income ,let's say about $200 per week.

If I may ask, WH, how old are you?
Alex

 

[whitehope06]

When doing your calcs., also remember to budget in for the unforseens ie. vacancy, repairs etc.


Another suggestion which may or may not be an option for you based on your personal desires and situation - rent out your PPOR and rent somewhere else for yourself. This will greatly increase your servicability, and may be a solution for you.

how is that increase my sevicability ? what do you mean by that ?

 

[whitehope06]

I usually peg living expenses at around 30% of your after tax pay. So if your mortgage is about 50% (that sounds low. You have a low fixed rate? And you're going interest only?) you really should be aiming for at least 20%.

Time to take a razor to the expenses, if you want to buy more property. Morning coffees, lunches, etc.
Alex

I have $280k on fix rate of 7.18
and $24k on variable rate of 8.65

and belive me I'm not taking any coffee or lunches, quit those ones a long time ago.

 

[whitehope06]

If I may ask, WH, how old are you?
Alex

I am 46 but looks soooooo much younger (just kidding)

 

[steveadl]

how is that increase my sevicability ? what do you mean by that ?

OK well you're currenly paying $2100 a month into your mortgage, which equates to about $488pw.

Now let's say you rent your place out for $320pw (I just took a stab based on your unit price - do you know what the rent would be for your unit?).

You rent your unit out, and find a place to rent for yourself at say $270pw - again, what's available that you could live with?

So now you're getting $16.6k extra income per year, and you're paying $270pw to rent.

In my example, you're only about $50pw or so better off - so not fantastic, but the important thing is it helps you look better to the bank with more income, and let's you save more of your income. You'll have to see what the figures look like using real world rental figures from your area. The key would be that the rent you receive for your unit must be more than the rent you're going to pay + the left over mortgage.

 

[whitehope06]

Now let's say you rent your place out for $320pw (I just took a stab based on your unit price - do you know what the rent would be for your unit?).

You rent your unit out, and find a place to rent for yourself at say $270pw - again, what's available that you could live with?

So now you're getting $16.6k extra income per year, and you're paying $270pw to rent.

In my example, you're only about $50pw or so better off - so not fantastic, but the important thing is it helps you look better to the bank with more income, and let's you save more of your income. You'll have to see what the figures look like using real world rental figures from your area. The key would be that the rent you receive for your unit must be more than the rent you're going to pay + the left over mortgage.

The rent in our area ,Sutherland Shire, is a little high so I can rent this out for about $320 or 330, but no way that I can find something cheaper than this, especially now with this crazy high rent , and by the way I'm working in city ,so I don't know if I can find something cheaper.
cheers