Need advice...about to take the plunge.

[Carlyy_82]

Hi,
I have always been interested in property and have recently inherited a property which is paid off. I am now after some advice as my Husband and I are keen to start buying another investment property (perhaps even more than one).
Our details: PPOR valued approx $350,000, we owe $260,000
Inherited investment valued approx $325,000 (returns $450 per f.n)
Also $40,000 cash

Combined income approx $1200 net per week (I have just returned to part time work after maternity leave. We have two young children)

We are looking at purchasing a property but cant seem to decide how much to spend therefore not really sure what areas we should be looking in. Is it better to spend more in order to maximise tax benefits? Is it better to buy a newer property to increase the depreciation? If anyone knows SA property market we have been looking at Aldinga as really cheap new houses one or two streets from the beach seem like great investments but is there a catch?
Thanks in advance for your replies.

 

[Rixter]

Congratulations on wanting to start down the property road to riches.

There is no catch to becoming wealthy. You just need to have courage to take the first step by jumping in.

If you really want to become wealthy its rather simple - Buy good quality well located property as fast and as quickly as you can reasonably afford and never ever sell by holding for the long term.

I hope this helps.

 

[marg4000]

The possibility exists to move into the inherited property if suitable, therefore making your PPOR into an IP and the loan tax deductible.

But quality of life is important too, so I only suggest this if you would be happy in the other house.
Marg

 

[aussierogue]

My first bit of advice is to forget about tax benefits. Especially at your income level when you are paying virtually no tax.

The big question I would have before giving you any advice is - will your income levels increase over time?

If not then my suggestion is to pay off you PPOR loan and use the remainder as a deposit on a neutrally geared house/apartment.

If you expect that your income levels will increase then you can be more aggressive.

Cheers
Aussie

 

[JIT]

Buy good quality well located property as fast and as quickly as you can reasonably afford and never ever sell by holding for the long term.

That's a good point about the speed of acquisition, as it gives you more time for compounding growth. Picking the right properties will mean your equity levels rise faster and you can leverage off it sooner. I think that's why good property selection is so crucial. Of course at certain times in the cycle, just about everything goes up in value, but you may not be so fortunate to start you property investing career at such a time. I started in 2005, and thought how unlucky I was to have just missed the preceding boom, only to see another one in 2007 and 2009!

 

[13910]

marg4000's advice is, as always, good. Like she says, if it's possible then fantastic, however if it would come at the cost of personal happiness then you'd need to think hard about it.

The low income is a bit of a concern - in fact, I'm impressed you can live off $600/week with two kids! Have you already deducted mortgage repayments from this amount?

Otherwise, I think you're in a pretty good position to make the most of your situation. My advice would be to use the equity in the property you've inherited to invest, then sit your $40,000 in a 100% offset account. You could use the cash as a deposit and many would think that's the logical thing to do, but it's not.

By putting it in offset, you're saving on interest however the money is still easily accessible (instantly) whenever you need it - something that's important with a young family. As the full amount of debt would be deductible, this is a better way of using what you have.

Because of the low income, you should really focus on finding properties close to if not cash flow neutral (or positive, of course). This will put you in a better position to increase cash flow quickly as rents rise and acts as a protective buffer due to the low income.

Is the property you inherited achieving market value when it comes to rent? Again, because of your income situation, this is something you should keep an eye on. It's an easy area you can maximize cash flow/income.

I think if you're just a little careful, come up with a set criteria that you don't compromise on, you can do well.

Cheers
Greg

 

[travelbug]

The big question I would have before giving you any advice is - will your income levels increase over time?

If not then my suggestion is to pay off you PPOR loan and use the remainder as a deposit on a neutrally geared house/apartment.

Cheers
Aussie

I don't understand your reasoning? Do you mean sell the inherited property and pay the PPOR loan?

If not, then borrowing off that property and paying down the PPOR will change nothing (please explain if I've got that wrong). The money is still not deductible.

What are the benefits of transferring the loan from one property to the other?

 

[Carlyy_82]

Thanks heaps for your replies guys. Oops...
Income: $1200 Net PER WEEK( not fortnight)
This income will increase as I work more, I am a nurse and only work three days per fortnight but still make decent money due to shift penalties. I am not keen to work more than this for at least a year.
We cannot live in the property we inherited as it is a unit, its worth nearly as much as our house because its in a great area (Glenelg).
Update: I have found a property which is almost cash flow neutral.
What do you think?
It is a unique sort of property down south of Adelaide two streets back from beach.

Sitting on a large corner block of approx. 740 m2 it consists of the following:

House "A"

4 Bedrooms
2 Living Areas
2 Toilets
Dining area
Patio
Double carport
Swimming Pool

House "B"

2 Bedrooms
Formal Lounge
Dining area
Casual meals area
2 way bathroom
Patio
Garage

The property is on 1 title and is currently rented out to 2 different tenants for a total of
$485.00 per week.

The location is excellent with the local shops and bus just around the corner and the beach is just 200 metres away.

So for $460,000 a return of $485,000 per week? I have done some sums and it seems pretty good but it is a lot for us to borrow. What do you experts think??

 

[aussierogue]

Hi - My point was that at such a low income someone would be best served to have you house paid off...imo. Especially with her debt level. After paying off the ppor then you can invest the rest. Tax should not be a consideration.

Or Margs suggestion - the only problem with Margs is that the investment would then have a significant weekly cash shortage (negative geared) and at such a small income this would not be good.

Having said that the income is per week not per fortnight - so we are laughing (all the way to the bank).

Lots of options. Great position to be in - good luck!