Looking to buy 1st home, come future IP.

defecta

defecta

My partner and I are currently living and working in the eastern side of Melbourne and are looking to buy something On the eastern side of town that is worth moving out of our dirty old 1bed/bath apartment in South Yarra for. Eg more space.

We have a pretty conservative budget of $400k (even though the banks with more more money at us). We have so far been looking 2bed 1 bath 1car+ apartments as close to the city as possible but I am open to suggestions. As you can imagine $400k does cut down out options fair bit.

I have started looking further out houses on large blocks with land/ potential for subdivision but I have no idea is this is a good strategy or what areas this would work in.

SO, the question is, what would you buy and where in the eastern suburbs for a PPOR (come future IP) with a budget of +/-$400k?

Thanks in advance,

Curtis
 
You can't really buy a property with any meaningful land content for $400,000...You're probably better off buying a 2 bedroom apartment. Try to get one with 2 bathrooms as well, and a car park is a must - even if you have to pay more for it. Apartments with no car park are harder to sell and are worth much less.
 
Not directly answering your question but something worth mentioning. If this is going to become an IP in the future, best to set it up as IO now (place an offset against the loan and park any spare cash in it).

Also, I'm not sure what sort of deposit you've got but best to hold back on placing a large chunk of cash towards this deal if it's going to become an IP in the future - particularly if you plan on purchasing another PPOR at some point.

Cheers

Jamie
 
Aaron_C said:
You can't really buy a property with any meaningful land content for $400,000...You're probably better off buying a 2 bedroom apartment. Try to get one with 2 bathrooms as well, and a car park is a must - even if you have to pay more for it. Apartments with no car park are harder to sell and are worth much less.
Click to expand...
Just on the subject of meaningful landsize, I have been looking around all the eastern suburbs and in the outer eastern suburbs there are houses on large blocks some even being sold with planning approval for subdivision.

Are you suggesting they are not in desirable/profitable suburbs for IPs let alone PPORs?
 
Jamie M said:
Not directly answering your question but something worth mentioning. If this is going to become an IP in the future, best to set it up as IO now (place an offset against the loan and park any spare cash in it).

Also, I'm not sure what sort of deposit you've got but best to hold back on placing a large chunk of cash towards this deal if it's going to become an IP in the future - particularly if you plan on purchasing another PPOR at some point.

Cheers

Jamie
Click to expand...
IO= interest only loan? Not sure what an IO is, sorry. Relative noob here. :)
 
Hi defecta,

Large land blocks with subdivision potential can be profitable. But usually these properties have very low yields. Plus, given you are new, it is not a good idea to go down this path. You do not yet understand subdivision, zoning etc and it is hard to buy the next IP if your first IP is a big cash drainer.
 
Thanks Aaron,

Jamie, can you please explain a little more your strategy with the IO loan? Is it so you can save more cash for the next property instead of paying down the principle on the current property?
 
It is to ensure that when you do turn your PPOR into an IP, you have maximum interest deductions. Otherwise you have lots of non-deductible debt and minimal deductible debt.
 
Hi Defecta

It's all about preserving future deductible debt.

If this is going to become an IP in the future - then it makes sense to not pay down the principle, particularly if you plan on purchasing another PPOR at some point.

Instead, set up an offset account against your IO loan. Any spare cash you have, place in your offset for now and move it to your next PPOR later on down the track. This will boost you deductible debt and reduce your non-deductible debt.

Cheers

Jamie
 
Thanks for the tip fellas. :)

Is there any particular time frame where this strategy is not advisable?

Like say if we intend to live in the property for X amount of time before buying a new investment and moving out, you would not recommend this strategy?
 
The offset account is similar to having a redraw function in your loan, except for generally you pay an upkeep fee for offset you don't for redraw if I'm right, the brokers are most knowledgeable here.
 
Yes Jaggannath that's right. Plus redraw is at the bank's full discretion so in a pinch they may disallow a redraw. Whereas an offset is your money, callable at any time.
 
jech said:
Should I do p and I or io if it will be my ppor for about 5 years?
Click to expand...

If it's going to become an IP in the future then IO for sure - think about it, setting it up as P&I now means you'll spend 5 years of paying down principle and reducing your future deductible debt!

Cheers

Jamie
 
Jamie M said:
If it's going to become an IP in the future then IO for sure - think about it, setting it up as P&I now means you'll spend 5 years of paying down principle and reducing your future deductible debt!

Cheers

Jamie
Click to expand...

Isn't it still debt - would you do P&I until move out or IO from day 1?

So when would you do a P&I loan - when you plan to live there forever?

Trying to wrap my head around basic concepts
 
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