Purchasing my second property

Purchasing my second property ($720,000 equity)

Hi guys, I am just after some advice and opinions on my current situation.

I will give you all a brief understanding of my situation at present.

I own 1x 2 bedroom split level apartment in Port Melbourne, half a block off the beach, there are only 8 apartments in the building, which is 3 stories high with beach and city views currently worth around $720,000 Fully paid off. We are living in this apartment at the moment. But if rented, would fetch around $610 p/w.

I have around $100,000 in savings. With no repayments owing on any loans or car loans.

My partner is currently at university and will be for another couple of years, so I am the only one with a working income at this time, which is around $160,000 gross. Although this could potentially drop to around $95,000 in about 4 years time when i chose to return home to work, (currently working a fly in fly out job on a set roster, but obviously won't be wanting to do this once the decision is made to have children).

Now we are looking to get into purchasing quite a few investment properties, and although we have been doing our research for the last 12 months, we don't seem to be getting any closer to doing so, it seems that when we make a decision on what and where to buy, our minds are suddenly changed after listening to somebody.

At latest, we were looking at purchasing a 2 bedroom early 80s style unit in Box hill Melbourne for around the $400,000 mark, its on a block of 6 units, but is not joined to any of them. They are currently renting out for $390 p/w but could possibly go up after some little renovations. My plan was to take a IO loan out for either the full amount including deposit, with an offset account. Or put down a 10% deposit from my savings and borrow the rest on a IO loan with an offset account. Then wait a couple of months and repeat the process, or possibly purchase something rural with a high rental yield but cheap purchase price (low capital growth).

Now I was almost ready to go get my finance set up and approved and make a formal offer, when i took some advice from a family member to go and speak with an accountant they had been using for years who seemed very well experienced in the investment property scene (they own quiet a few IPs) who was going to put me onto a mortage broker, but after speaking with her for some time, has suggested that i may want to look into purchasing OTP so i can claim the tax benefits on my income because i am being taxed a lot of money, I was suggested something OTP around the eastern suburbs of Melbourne in a complex no larger than 35 apartments, at around the $490,000 mark for a 2 bedroom apartment. And after that settlement is complete, then look at purchasing another OTP property. This accountant seemed very knowledgable and very smart, and explained to me that he/she only ever buys from reputable developers who they have used many times and never had any issues as of yet, (been doing this for a few years now and currently have around 12 properties). I was also informed that the rental yield is at a guaranteed 5% for the first 12 months.

This has thrown me a curve ball and now i cannot decide whether or not my original plan sounds good to me anymore.

I would absolutely love to hear any of your experiences or opinions on what might be the correct plan for me to take, as right now i am once again feel like i am back at the start and need to start the long process of research again, this time on OTP instead of established.

Any and all advice would be greatly appreciated and i would just like to thank you for your time in advance.

Kind Regards, Carbie
 
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To add a little more information, the proposed OTP properties were all through a developer who does not advertise these apartments to the public, he only uses people that are in a select group from building connections over the years.

Regards Carbie
 
Do you understand all the risks associated with OTP? e.g. but not limited to:

1. Potential for valuation to come back low upon completion
2. Delays in completion
3. Poor quality workmanship not evident until upon completion in which case its too late to back out
4. Generally higher strata costs (strata will increase significantly after a period time once wear and tear kicks in).
5. Loses value over time as it becomes on par with older dwellings
 
Also the proverbial with hit the fan when you go to do your finance in 1.5 years time and by then your financial situation has completely changed and the developer will have no mercy of a delayed settlement.

You have better chances of having Angelina Jolie ask you out to the movies than having a developer grant you delayed settlement.
 
Thank you for your reply, Ok so if not OTP, what can you suggest? Like I said, originally i was never planning on buying OP and am still leaning towards my original idea.

Regards, Chris
 
Im not saying OTP is bad (ok im saying its bad) but im trying to say that with any strategy you need to weigh up the pros and cons and see if it fits in with your strategy. Have you considered other strategies like a buy, get DA and develop? Take the hit on yield, invest a bit of time and get DA approval. Then sell with DA or build. Then rinse and repeat.
 
Yeah this is why i was leaning very far away from buying OTP. So now that i have most likely decided not to go with OTP, how does my original plan sound? Any other information or advice would be great. Thankyou
 
I loved the way your post was going until you started talking OTP.... One of my properties is OTP..... And I will be looking at doing it again when properties become available on top of the new perth rail link because it will be a life long investment that I want to use in my retirement and I want first dibs at location in the building....

But you original plan with the box hill apartment sounded brilliant and would be the one I would go for especially as you going to be reducing your income over the long term anyways.....

My OTP strata is 750 a quarter

Compared to another unit i have like your box hill one at 400 a quarter....

Accountants are good but like other people who will read this post when they start talking you into buying certain properties alarm bells start ringing....

Back your gut instinct, listen to other people but do what is right for you....
 
Ok so now that i have decided to stick with my original plan of purchasing a unit in box hill, would i be better off using my cash to pay the $40,000 deposit, or should i borrow the full amount including deposit, against my property in port melbourne that is paid off in full? And use some of my cash to pay the $19,000 odd or so for stamp duty and fees?

Thanks again for your help
 
I would.... borrow up to 80% against the existing property but only use enough for the deposit of the new purchase and then go 80% for the new purchase. Any surplus is there (either by way of an offset split or LOC) ready to go for the next purchase, renovation, etc).

I try and borrow as much as I can instead using cash.
 
Forgot to mention that I am 24 years old.

Doing well for a young fella (or even an old one)

Gear up to 80% on the PPOR and get the money while it is freely flowing, when you don't actually need it all. Use this pool for deposit plus costs on future IPs.

Ask the accountant what kickbacks she gets and can you have them if you go ahead with her OTP suggestions as you are already paying her accounting fees for her time and advice ;)
 
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