Need some advice

[crc_error]

Hi All, you may remember my story a few years back where I had 1 house and 2 apartments. sold up in 2005, and purchased 2.5 years ago a another house.

Now I had those properties for 5 years (purchased 2000, sold 2005) and made very little on the overall deal. (I sold because rates were going up, and thought market would remain flat for a while, and my holding costs were sky rocketing, plus I wasnt on somersoft!)

The house I owned in East Bentleigh made a profit, but the two apartments in st kilda and south yarra really didn't go anywhere.

Now in the position of having about $125,000 equity, and I can borrow up to $400,000 which will allow me to purchase a property up to $500,000.

Now I'm looking for suggestions on what I should do now. I got burnt with my two apartments, but did well with both my houses. Infact I'm not spewing I sold the east bentleigh property for $380k in 2005 as it recently was sold for $725k!

So what should I do now? keep paying down my house in Ferntree gully, or should I but another house? I was thinking somewhere in the outer eastern suburbs of melbourne as I know the area here, and live here. maybe boronia, rovwille, upwey, knoxfield, bayswater, croydon.

can I get some suggestions/encouragement on my next move?

if I buy a $500k house it will cost me approx $750 pm to hold after tax refund. in 5 years time, I recon it could be worth $250k more, which I could sell and pay off this house, which I wouldnt, but keep on holding..

so what u recon?

 

[marg4000]

5 years is not a very long time to own a property, and unless you are extremely lucky in your timing it is not unusual to virtually break even on sale.

Unless you intend to hold for at least 10 years (to give yourself a good chance of a full property cycle) then you may be better to put the money into an offset account against your PPOR.
Marg

 

[lura]

What you do next depends on your situation and investment comfort zones.

Example, what benefits you can gain from your employment situation - the higher you income the more attractive the depreciation deals and hence new properties.

Another example, you want to stay near the city - smaller property and land component, generally older property.

Or, you have alrady experienced good returns with house and land as opposed to units so maybe you may want to head down that path. This list can go on and on...

It doesn't really matter what you buy as long as you haven't paid too much for it, bought in the wrong area and have done all the research to ensure your specific investment critieria are all met.

Hope you don't get analysis paralysis...

 

[crc_error]

so what my question is, how do people purchase a 3rd property.

if I get this second IP, I will be short over $1000 per month before tax.. now thats allot of rent rises before this IP becomes cash flow neutral.

I guess people will say to get a IP which has higher rent?

 

[Propertunity]

Buy a house with a bungalow - so you're getting 2 lots of rent from the one property.

Alternatively, buy a little further out where the yields are a bit better than being neg by $1K pm

 

[crc_error]

well ferntree gully is 30km out of melbourne.. when i say $1kpm this is with 100% finance..

 

[Alex P Keaton]

so what my question is, how do people purchase a 3rd property.

if I get this second IP, I will be short over $1000 per month before tax.. now thats allot of rent rises before this IP becomes cash flow neutral.

I guess people will say to get a IP which has higher rent?

Why dont you go for a more affordable ip? That way your holding costs are lower and your not over committing yourself! Then you can buy #3 sooner.

 

[jingo]

So what should I do now? keep paying down my house in Ferntree gully, or should I but another house? I was thinking somewhere in the outer eastern suburbs of melbourne as I know the area here, and live here. maybe boronia, rovwille, upwey, knoxfield, bayswater, croydon.

can I get some suggestions/encouragement on my next move?

if I buy a $500k house it will cost me approx $750 pm to hold after tax refund. in 5 years time, I recon it could be worth $250k more, which I could sell and pay off this house, which I wouldnt, but keep on holding..

so what u recon?

Hi Crc,

I'd be basing your next move on the strength of your existing and future cashflow rather than just from an equity point of view. Would it make sense for you to pay off your PPOR, and then buy an Ip? Paying off your PPOR would give you a foundation upon which to build your property portfolio.

I believe there is merit in paying down properties to a level where the rent will cover the mortgage payments. Thereby strengthening your overall financial position before buying again.

Look forward to hearing what you decide to do.

Regards Jason.

 

[jezza]

if I buy a $500k house it will cost me approx $750 pm to hold after tax refund. in 5 years time, I recon it could be worth $250k more, which I could sell and pay off this house, which I wouldnt, but keep on holding..

so what u recon?

CRC
Based on the figures you mention if you are confident in them.

If you buy the place for 500k you will be out of pocket 45k after 5 years ( not including increases in rent over that period of time) and if you believe it will go up 250k then you will have an additional 205k in equity. Alternatively you can put this 750pm into your house and your loan will be approx 45k less. I would go with the investment option, however I don't know all your finances but that based on what you have given and your assumptions.
Unless you are living in your dream house and you will never move then I can't understand the idea of paying off your PPOR in record time when there are other ways to accumulate more money.

Jezza

 

[crc_error]

Hi Crc,

I'd be basing your next move on the strength of your existing and future cashflow rather than just from an equity point of view. Would it make sense for you to pay off your PPOR, and then buy an Ip? Paying off your PPOR would give you a foundation upon which to build your property portfolio.

I believe there is merit in paying down properties to a level where the rent will cover the mortgage payments. Thereby strengthening your overall financial position before buying again.

Regards Jason.

this is the thing, paying down a PPOR, will release heaps of cash flow in the future, it will basically allow for a IP to be paid down quickly, moving onto the next.. but holding to much debt, I think can also hold you back as you cant pay down principle, and purely rely on capital growth for wealth creation.

what do most ppl do here? pay down PPOR, or jump ahead into next IP as quickly as possible?

 

[jingo]

this is the thing, paying down a PPOR, will release heaps of cash flow in the future, it will basically allow for a IP to be paid down quickly, moving onto the next..

This way will certainly work - but it is slower and you probably pay a lot more tax on the way.

but holding too much debt, I think can also hold you back as you cant pay down principle, and purely rely on capital growth for wealth creation.

Having a lower LVR is certainly safer. Perhaps the answer is having a balanced approach - lowish lvr with good cashflow.

what do most ppl do here? pay down PPOR, or jump ahead into next IP as quickly as possible?

In our case, we paid off our PPOR before we started investing. There are many possibilities including buying IP's first and then using a debt recycling strategy to pay off a PPOR.

Regards Jason.

 

[crc_error]

the richest man in babylon says to pay off your ppor first

 

[jingo]

the richest man in babylon says to pay off your ppor first

I'm all for keeping it simple too. A fully paid off PPOR is a good foundation on which to build more wealth.

If you have one focus - ie to pay off the PPOR asap it will probably be easier than trying to juggle lots of things at once (ie shares, ip's etc etc).

Regards Jason.

 

[crc_error]

the main thing with having a paid off PPOR is that you have much more cash flow available to invest with.. been in debt to your eyes will restrict you for many years..

but on the other hand, the longer you wait, the more expensive the IP will be.. and paying off a PPOR will never keep up with the capital growth of a IP.