Not sure if can borrow more - my situation

Hi guys, wondered if anyone could quickly run numbers and give me opinions on my situation and whether I would be able to borrow to buy another IP or sit tight.

Live melbourne, accountant. Income $110k gross. Take home $6100 per month. 32 years old married no kids. Wife has just started working as an on call teacher so income is not stable and difficult to forecast.

Assets: ip unit in st Kilda, rent $420 pw. Value $650k.
Ppor unit in sandringham. Value $550k.


Liabs: io $500k loan on st Kilda
P&i loan $450k on sandringham. Repayments $2500 pm.
All property loans are with nab.

Shares about $80k net of margin loans. ($110k Macquarie margin loan, $25k nab margin loan). I like playing share market too.

Medium term goal is to buy a house in sandringham as need a third bedroom for a kid or two, but Need $1-$1.5m for that. Obviously would look for a simple place but they still sell for over a mill.

My plan is to live in current unit, have a kid in next year or two, live in small unit till kid gets to about 7-8 and then try and cash in everything to buy a bigger ppor.

Not sure whether I should try and get another ip (1 bedder in st Kilda, Elwood, elsternwick etc for $380-$400k) although I don't know if bank will lend me anymore or just sit tight. I would cash in the share portfolio to fund the ip purchase.

Then in the 7-8 years from now, I sell current ppor and the two ip's and hope to have enough then to purchase a house ( maybe I will have 600k equity by then and then get a further loan of $600k, total $1.2 m house).

Anyone want to comment on this idea and also would a broker be kinds enough to work the numbers to see if this new ip idea purchase price of $400k will stack up?

Thank you, ben
 
Hi Ben

A little will depend on what the vals are, but id say there is a deal there.

Im always concerned though when borrowers have used high servicebility lenders from the get go, rather than some lower serviceabilty lenders leaving ones like NAB ( which are quite generous).

ta
rolf
 
And this reinforces the value of a good broker.

I would not have even considered the differences in serviceability between different lenders and even if I did I wouldn't know which ones were which.

BR
 
And this reinforces the value of a good broker.

I would not have even considered the differences in serviceability between different lenders and even if I did I wouldn't know which ones were which.

BR

Just one of the many factors we take into account :)

Lender selection at the right time can make a big difference. For someone looking to grow a sizeable portfolio, you generally try to avoid using the "generous" lenders early on. NAB would fit in this category.

Cheers

Jamie
 
Ben,
It may be possible but you do not have that much equity available as yet.
Your PPOR is at 82% and your IP in St Kilda is 77%.

I would suggest a couple of things, change your P&I to an IO 5 years and use an offset for the additional principal payments and any other surplus funds.
You would then look to refinance your IP to another lender and perhaps go to an 85% LVR giving you approximately $50 cash out. Lenders and mortgage insurers are restrictive to cash out above 80% so make sure the new lender will allow this under their DUA policy.

You now have $50k about to use for a deposit/settlement funds for another IP, so a purchase price of around $380-$400k sounds about right. You would use a third lender for the main loan. I would also consider purchasing in another state where you will get better rent yields and not increase your Victorian asset base for land tax purposes. it also diversifies your portfolio as well. Alternatively an off the plan in Victoria may work (lower stamp duty to assist your capital preservation) but be aware of the risks of low valuations come settlement time.

There are other reasons to use different lenders than the servicing aspect mentioned below. Good to see some longer term goals.
 
Shares about $80k net of margin loans. ($110k Macquarie margin loan, $25k nab margin loan). I like playing share market too.

Any fully franked income might inflate your income too. eg each $100 of FF income = $143.86 in your tax return. Most lenders just look at the totals. eg lets assume you held $210K of income producing shares for their gains...I dont know lets say major banks. Your income for year from divs around say 5% gives $10,500 + franking $4,500 = $15K extra income. Obviously against that $130K deductible at 6% = $7800. So its a $8k positive to income and not a serviceability worry.

I have seen lenders baulk at margin loans where there is a serviceability issue - eg : no div income but paying interest and share prices have fallen. They may ask for margin loans to be cleared to give improved lending position. That might mean you are left with $80k to play market but no debt to affect lending. Just check your CGT position before you agree as tax will erode your $80K. A broker will guide that serviceability and debt issue. That why I suggest all borrowers see a broker even if its to negotiate with your own bank. You get their talents for free.

I wouldnt think banking the $80K profits and leaving shares alone will make any major changes.

Oh and tell the missus to get a FT job.
 
I think you might be better holding on as it doesn't hurt to be diversified and it sounds like you enjoy investing in shares.

Using your share portfolio to cover the deposit and purchase costs, means there is an opportunity cost of diverting this money into an ip and missing out on the income you're getting from shares.

The purchase costs of a $400k property would be around $25k (inc. LMI) and selling costs (in 7 or 8 years) at least $10k. A unit in St Kilda is probably going to be negatively geared, costing a couple of grand each year. I think you would need the new ip to increase in value by 15-20% just to cover all of your actual costs (and maybe another 20-30% to match the return you could be getting from your shares).

It's all speculative as to what will provide a better return but if you are doing well at investing in shares, you can continue to build your portfolio and still have your other properties to benefit from capital growth.

If you are going to buy a ppty, I would make it a sub-dividable block or something that has potential for you to add value.
 
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