passive income - first Investment property or other avenues

[pos]

Hi All

New to this forum but amazed by the wealth of information , I will try to keep it brief and simple

Financial status : currently living in PPOR which still has 50k to be paid off

In about 6 months , I would have disposable income to service Investment prop around 300K

Goals: looking ahead after a period of 5 years where I might be moving overseas , trying to generate positive income from here , so the question is how to do it

I had a word with friends and here are few ideas thrown

1.Pay off PPOR and buy first Inv prop with either neutral gearing or positive gearing , try and pay off as much as I can so by the time I leave - I can rely on rent of my PPOR and rental property would take care of itself and eventually becomes mortgage free when ever that happens or try and pay off the Inv prop completely before I leave

Budget for Inv prop : 250-300 K - Prop type : apartment or unit with low maintainence

I live in melbourne

2) Second advise is not to pay off PPOR completely but borrow equity from PPOR and purchase more than Inv Prop once which are either neutral gearing or positive and try and pay off as much as possible

3) Third option is not to buy any Inv prop but invest money areas other than real estate - not sure what they can be in aus which will generate consistent passive income other than bank deposits but the interest rate is quite low

Hope I haven't confused many people but the goal is generate passive income of around 3K per month

My current PPOR would give me a return of 1600 per month so looking ahead in 5 yrs time , aiming to generate 1400 more

Note : Moving to overseas is definite so trying to leverage from passive income generated here rather than starting from scratch

can you help me guys
pos

 

[pos]

any one on this

guys

any suggestions on my thread

thanks heaps

 

[Cadwallader]

I'm Here, I would take option 2.
Personally, I would use the equity in your home to purchase the investment properties then before you leave, or after the market moves you may be able to refinance and go again to reach the $1400 your after.

How much equity is in your house?

 

[jameso]

Why not pull out the equity now? Split the loan so you can claim the interest on the portion you use for IP purchase. if you use the equity now and buy a place it may go up in value in the next 6 months. The quicker you move the quicker you could starting seeing an increase.

If I were you I'd talk to a broker. He can get you some valuations done and see where you stand. You might have enough equity to purchase 2 at 90% lvr plus costs,.who knows. All depends on the vals and your game plan.

There are some great brokers on here. I use Shahin and he has been excellent.

James

 

[Redom]

Hey pos - think SS may be a little slower on Sundays!

There are a range of ways to getting to your goal. In property, generating 1400 p/m, or $16800 p/y is definitely possible. For example, you could do it through two simple NRAS purchases (C/F cows), or you could seek out more of a mix of CG/CF properties.

Given that you've already paid of the majority of your PPOR, and it can return you $1600 p/m, i'm going to assume its worth at least 300k.

In terms of financing your next purchase if you do go down that route, i'd recommend using debt. Value your property, borrow up to 80%, set up a number of loan splits for each deposit and then get about investing.

Two NRAS's will use up around 100-120k of your equity, and you'll get to your $1400 p/m cash flow target straight away. Otherwise, a series of good c/f positive investments could get you to that target.

As James mentioned, a broker can get you a better understanding of where you stand and what you can do. There are a range of other professionals on board here that can help you reach your target too (buyers agents, etc).

 

[pos]

@cald

hey

thanks for the reply , I need to get the house evaluated , I would say the market rate would be 420

and

If i borrow the equity now , would I need to borrow money from offset account - I am assuming no as that would increase my balance of PPOR , just want to leave PPOR as now

or

am I getting this wrong

advice from any financial brokers

 

[pinkboy]

Where are you moving to where $3,000/mth allows you to live comfortable?

pinkboy

 

[pos]

hi james

thanks for ur reply , can you pm shahin's contact details

thanks
sri

 

[pos]

hey pinky

3k wouldnt be great but something to start

I would be moving to india

 

[pos]

hi redom

can you just explain on setting up of split loans

thanks

 

[imbi3]

I think you forgot to allow for income tax in your calculation...

 

[Terry_w]

4. Buy multiple investment properties now

they don't cost you money but make you money, especially with the non cash deductions while you are working

5. Buy multiple IPs and pay off your PPOR loan sooner by using the rental income and tax benefits and park the excess cash after the PPOR is paid off in offset accounts attached to the IP loans.

6. as in 5 but sell your PPOR tax free when you go overseas. Park the funds in the offset accounts and live off the rents.

7. as in 6 but then consider selling one more investment property - perhaps the one with the most growth. Do this when you stop working and when the CGT will be minimal. Do before you become a non resident for tax purposes. The proceeds can be used to deposit into the offset accounts.

After this you should have enough passive income from rents to keep you going forever. If it is not enough you can drawn down on the monies in the offset accounts slightly and hopefully the rental growth will offset this in the future or perhaps, if it doesn't, you could sell one more property in 10 or 20 years. It will be like living off equity.

With your PPOR nearly paid off you could acheive this, perhaps quicker than you think.

I have a lot of friends who could retire tomorrow, yet they don't see it - yet they complain about working all the time = crazy.

 

[Redom]

Hey pos,

So your current PPOR: 420k. 80% LVR will mean debt up to 336. You currently have 50k in debt.

So you have 286k that you can withdraw out.

Set up 4 loan splits of around 70k each, use these funds as deposits for four separate purchases. For each purchase, borrow the other 80% separately.
This avoids any messy loan structures that can harm your position (x coll).

That way you would've financed 4 investment properties, at 100%+, using the equity you have in your property. Ideally those investments will generate you returns and get you to you $1400 goal.

That's one way to finance a strategy to get you to your goal.

Cheers,
Redom

 

[Angel]

Hey pos,

So your current PPOR: 420k. 80% LVR will mean debt up to 336. You currently have 50k in debt.

So you have 286k that you can withdraw out.

Set up 4 loan splits of around 70k each, use these funds as deposits for four separate purchases. For each purchase, borrow the other 80% separately.
This avoids any messy loan structures that can harm your position (x coll).

That way you would've financed 4 investment properties, at 100%+, using the equity you have in your property. Ideally those investments will generate you returns and get you to you $1400 goal.

That's one way to finance a strategy to get you to your goal.

Cheers,
Redom

Sorry, I don't see it. How will this work once Pos has his PPOR seriously mortgaged. His future $1600 a month in rental profit will be eaten up in all the new PPOR mortgage repayments.

 

[Jamie M]

Sorry, I don't see it. How will this work once Pos has his PPOR seriously mortgaged. His future $1600 a month in rental profit will be eaten up in all the new PPOR mortgage repayments.

You're right - the loan repayments from the equity releases against the PPOR to be taken into account too. That reduces the net income by quite a bit.

Cheers

Jamie

 

[Jamie M]

Set up 4 loan splits of around 70k each, use these funds as deposits for four separate purchases. For each purchase, borrow the other 80% separately.
This avoids any messy loan structures that can harm your position (x coll).

Might be overkill setting up 4 loan splits for the equity release if ALL of the funds are being used for IP purposes.

If some of the funds are being used for personal use - then splitting is necessary.

Cheers

Jamie

 

[albanga]

From the way i am reading this (could be wrong) but I do not think you should be looking at it as I need $1400 more a month because that is based purely upon you renting out your PPOR without drawing the equity.

I would just be looking at it as my position is I want 3k a month cashflow. I have a 420k rough valued property with a 50 mortgage.

When it comes to your PPOR you need to to remember the 420k value is your guess. I think you will find a bank valuer will see it somewhat different. I know for example my properties market value is atleast 650k (3 properties in my same street on same block sizes with same or even less desirable homes all sold for around 660k). I just got it valued and it was 610k which means 50k less equity than I hoped for. I am confident if i sold it i would get 650 on the market but that doesn't help me when i want to draw on it.

Also does your rent calculations on your PPOR take into account holding costs? By that I mean property management, rates, maintenance, insurance, body corporate if appliacable.etc. You can break this down properly but I would just loosely base it on 20% which means 1600 a month is more like $1240.

All that being said though you are still in a strong position. Even if the value is not would you had hoped it seems as like roughly you will have 250k equity which means plenty of options. If you were game you could take on a strategy such as development but considering you are moving overseas you may be quiet a busy person already. I think personally you should draw the equity and look to purchase 2 IP's. What sort and where I will leave for the many experts on here to answer

 

[antistar]

6. as in 5 but sell your PPOR tax free when you go overseas. Park the funds in the offset accounts and live off the rents.

I would suggest this as well + buy up some rental properties before you leave with a part of the funds. Make the most of selling the PPOR tax free as you are moving away permanently. Good luck

 

[Redom]

Dont agree. I mentioned NRAS - pretty powerful tool.

As Terry mentioned, i'd put your scenario in the boat of a 'a friend who could retire tomorrow if they wanted to'.

This can be done and ive painted out a way to finance it all. Euro73 - feel free to chip in, you've had a number of quality posts that is likely to benefit pos.

pos has mentioned a scenario and i'm seeing a solution that i see fits the goal. Purchase a couple NRAS properties and a couple neutral C.G properties.

Those 2 NRAS cash cows will generate you your 16k p.a. - INCLUDING the interest payments on the equity releases. Your set for a decade, with around 80-120k of your equity being used.

Your searching for cash flow and passive income - NOW - build your strategy to get it. NRAS is the best method i know how and suits your goal to a tee. There are others, but others are better placed to comment on them.

You'll need to be creative - sticking to the normal buy and hold strategy, wait for capital gain that most people embrace - is unlikely to get you to YOUR goal.

Sorry, I don't see it. How will this work once Pos has his PPOR seriously mortgaged. His future $1600 a month in rental profit will be eaten up in all the new PPOR mortgage repayments.

 

[JacM]

It really depends on whether you plan to work in India, what is your timeline for your income stream desire of $3k per month to come to fruition etc. So you'd need to clearly define these things first.

It's easy enough to turn over more than $3k per month on $300k, but it is important to consider all the factors at play to ensure you are taking yourself closer to your goals rather than further away.