Our plan for our IP portfolio...what do you think?

[Above Average]

Hi all,

OK, my hubby & I are fairly new to this IP game.

We have a mortgage on our PPOR.

We have recently purchased our first IP, in a regional area which is fairly neutrally geared.


We know that for our next IP it would be great to purchase in a great inner city suburb for the capital growth etc but.... as we have a very young family & as my paid work hours are limited we are concerned that if the property were un-tenanted or the tenant fell into arears we would struggle to meet mortgage repayments.

So......our plan is this....

continue to purchase again in regional areas with high rental demand with fairly neutrally geared property until such time as we are able to pay down the mortgage on our own PPOR. Hopefully in the next 5-6 years.

Then, we will be in a far better position to purchase IP's closer to the city with better rental & capital growth.

Does this make good financial sense? What are your thoughts?

Thanks,

Above Average

 

[jingo]

as we have a very young family & as my paid work hours are limited we are concerned that if the property were un-tenanted or the tenant fell into arears we would struggle to meet mortgage repayments.

Hi Above Average,

I like your plan to buy neutrally geared properties - that takes a lot of pressure off your monthly cashflow. Not sure about regional - I haven't done this, but others will have and they may be able to guide you on growth prospects etc.

Buying in the city would certainly add diversity to your portfolio - there may be some good opportunities over the next year or so due to the recession.

Would it strengthen your position to pay down some more of your PPOR loan before investing in IP's again?

Regards Jason.

 

[murtagh]

Hi all,

Then, we will be in a far better position to purchase IP's closer to the city with better rental & capital growth.

Hi AA,

You need to get in touch with the user "Our Obsession" - they have been at the regional Victoria game (quite successfully I believe) for some time now.

While a lot of people on stages will tell you that real growth only happens in the inner suburbs, you should do your own research and see if you agree.

This thread: http://www.somersoft.com/forums/showthread.php?t=45620

may provide some starting points for research.

FWIW, I'm not convinced that going "inner city" gets you anything except agents in more expensive suits and cars. And you know who winds up paying for those.

Cheers.

 

[Propertunity]

We know that for our next IP it would be great to purchase in a great inner city suburb for the capital growth etc

Good - at least you know the answer before you ask the Qs.

but....

here we go

as we have a very young family & as my paid work hours are limited we are concerned that if the property were un-tenanted or the tenant fell into arears we would struggle to meet mortgage repayments.

You are falling prey to your fears. Risk management plan required:
Property un-tenanted = Vacancy rate is low. Property needs to be desirable. Decorate to market tastes not your own. Do lots of DD - micro & macro.
Tenant in arears = PM selection - needs to be on top of their game. Tenant selection criteria. Landlord insurance.
Struggle to meet mortgage repayments = always have a cash buffer or access to a LOC

continue to purchase again in regional areas with high rental demand with fairly neutrally geared property

You can get both these attributes within some major capital city limits now. No need to go regional if this is what you're after.

until such time as we are able to pay down the mortgage on our own PPOR.

Why on earth would you want to do that?

Then, we will be in a far better position to purchase IP's closer to the city with better rental & capital growth.

You'd be in a far better situation by getting equity growth from your existing IP & PPOR than you ever will by saving.
See this thread: http://www.somersoft.com/forums/showthread.php?t=50517&highlight=equity

Does this make good financial sense?

Very conservative & possibly low growth strategy. zzzzzzzzzzzz Wake me in 15 years and let me know if anything has gone up. zzzzzzzzzzz
Depends on your appetite for risk I suppose.

 

[jingo]

Good - at least you know the answer before you ask the Qs.

here we go .

There are some great growth opportunities in regional areas too. As mentioned above 'Our Obsession' invests in regional areas and has done very well. Perhaps it would be good to get into contact with her as she has lots of stats as well that will help you locate suitable areas.

You are falling prey to your fears. Risk management plan required:
Property un-tenanted = Vacancy rate is low. Property needs to be desirable. Decorate to market tastes not your own. Do lots of DD - micro & macro.
Tenant in arears = PM selection - needs to be on top of their game. Tenant selection criteria. Landlord insurance.
Struggle to meet mortgage repayments = always have a cash buffer or access to a LOC:.

Good ideas Propertunity. However, I think a healthy fear of the risks involved is not a bad thing. As you suggest - having buffers in place is necessary.

You can get both these attributes within some major capital city limits now. No need to go regional if this is what you're after.:.

Very true. I was speaking to an agent today who operates in the inner Northern suburbs of Melb (Carlton North, North Melb, Brunswick etc) and he anticipates many buying opportunities after June.

Why on earth would you want to do that?.:.

I know many disagree with this - but having no debt on your owner occupied home is not a bad space to be in! It can strengthen your position and enable you to use the equity in your home to purchase better quality growth assets often found in capital cities.

You'd be in a far better situation by getting equity growth from your existing IP & PPOR than you ever will by saving.
See this thread: http://www.somersoft.com/forums/showthread.php?t=50517&highlight=equity:.

Surviving the short term is also very important. Having a fully paid off PPOR is a safe position to be in - and can allow you to move more quickly and safely further down the track.

Very conservative & possibly low growth strategy. zzzzzzzzzzzz Wake me in 15 years and let me know if anything has gone up. zzzzzzzzzzz
Depends on your appetite for risk I suppose.

The tortoise and the Hare - great fable. Remember Eddie Groves? He built up an empire very quickly. Didn't last for long though. Being dismembered as we speak...

 

[Propertunity]

Remember Eddie Groves? He built up an empire very quickly. Didn't last for long though. Being dismembered as we speak...

I hope you mean his empire and not Eddie himself!

Although some investors in his ABC Learning may not object if it was

On the PI side of things, you hold perfectly valid positions regarding PPOR debt. It really is down to personal risk profile.

I personally just can't stand seeing all that cash sitting in a PPOR and not doing anything to make you more. I just want to make those pennies work as hard as a slave for me. I'm a bit of a driver as you can tell

 

[jingo]

I hope you mean his empire and not Eddie himself!

Although some investors in his ABC Learning may not object if it was

Ha ha - yeah true! That's funny!

:On the PI side of things, you hold perfectly valid positions regarding PPOR debt. It really is down to personal risk profile.

I personally just can't stand seeing all that cash sitting in a PPOR and not doing anything to make you more. I just want to make those pennies work as hard as a slave for me. I'm a bit of a driver as you can tell

Very true. I can certainly appreciate the benefits of not paying down a PPOR and buying into IP's as soon as possible. Many people buy into IP's first before buying their PPOR - that is a great strategy as well.

As you say, it all depends on risk profile and personal circumstances.

Regards Jason.

 

[Above Average]

Thanks so much to all those who have replied.

It's probably quite obvious that we don't like the high risk options! Even our mortgage broker commented on our conservative approach.

We will certainly be keeping an eye on the market in the capital cities in the coming months to look for any deals that may fit our "conservative approach" without having to go regional again. I guess for us, this conservative approach is our "sleep at night" factor.

Thanks again,
Above Average