Regional NSW home V Bris City Apartment

Hi guys,

Long time lurker, first time poster. My fiance and I have spent so much time procrastinating over where to buy over the past 6 months (particularly looking at SE Qld) and consequently have missed some serious CG.

We original started looking within a 20km radius of Brisbane, but the more research and the more waiting we did, the more pricing went up we seemed to be forced beyond the 30km mark.

We are not first time investors, we have a JV of town houses and villas in Rutherford and are currently renting out our PPoR in a coastal suburb of the NSW central coast. We didn't do our own DD on Rutherford, sort of got roped into it, pitched as a 7 year plan to halve the mortgage on our then PPoR.

We recently sort advice on where to buy and were given a couple of options:

Option 1: Muswellbrook. $340,000 4 bedder, ensite, double garage in the new Monarch estate, expected rent of $350. Rent gains potentially with the Anvil mine. Seems like there is other strong supporting industry to relieve the dependence on mining alone. Also proposals to set up an airline link in the area to Syd. CG has been around 14% over the past 5 years.

Option 2: OTP unit at Chermside, the Equinox project. 2 bed, 2 bath, $409,000. Current rents look OK at around $350-$380 at the moment, very probable to be over $400 at completion in 18 months time.

Between us, we earn over 6 figures, we have no deposit (not enough equity in PPoR due to 95% lend, JV no go either) but do have enough to cover costs on one of these. Because of this, I think we need to buy new to maximize deductions and minimize the weekly contributions.

Any opinions on either? Or better options for around the $400K mark?

Sorry for the long post!
I'm more concerned about your cashflow, to be honest. Why don't you have any savings if you're earning good money and you say you have enough to make up the shortfall? Have you really mapped out your budget or do you just assume you can based on your income?
Hi Alex, thanks for replying, yes we have done our budget.

We sold our first PPoR last year and didn't net a great deal. Purchased second property of $405K on a 93% lend which is currently rented but needed $20K into renos to make it habitable (deck needed replacing at it was major safety issue, paint, tiles, polised floors, new guttering, roof repairs, etc). Paid stamp duty, bought engagement ring, paid off a car, dental expenses (I got braces), education expenses. Savings prior to this, well lack of goals = lack of savings. The JV is an issue for the other partners and we are currently looking at exit strategies.

Making up the after tax shortfall unless my calcs are very wrong shouldn't be an issue. I currently have tax variations in place for our personal property and our JV properties.
I'm with Alex on this one.

In my opinion I would like to see you get some good savings habits and build up some decent equity before buying again.
We have cashflow, but to save enough money for a 10% deposit on one of these could take 12-18 months. Why would we not be putting this money into another IP now?

I dont want to sound niave here (but probably do), maybe I'm a little impatient. I used a calculator on the api magazine website on the $340,000 Muswellbrook scenario. After tax weekly contribution without a deposit was about $40 pw. Ran the same numbers with a 10% deposit, after tax contributions went down to $20 pw. I dont take these numbers as gospel, but would like to think its a starting point. I'm seeing my mortgage broker again early next week.

I dont want to ignore the advice being given, just seeking to understand the concerns and learn. Although we currently hold IP's, we're pretty green.
We have cashflow, but to save enough money for a 10% deposit on one of these could take 12-18 months. Why would we not be putting this money into another IP now?

Not to be pedantic but if you had NET cashflow you would have savings. You don't. So you're spending all the money you make. You may think those items you listed (education, dental, etc) are 'one-off' items, but experience tells me if you are used to spending everything, those 'off-off' items become recurring.

Lack of cashflow is what kills investors. Having a deposit is not just about helping day to day cashflow: it's to prove that you can save and have some equity in the property for emergencies. Right now, you don't know that you can save: you just think you can because you're making a good income. Sure the property might only cost you $40pw in normal circumstances. What about vacancies? Interest rate rises? Repairs? That can easily add a couple thousand extra to your expenses.

Without a savings habit, you don't really know whether you will survive the inevitable extra expenses.

I may be wrong. You might just adapt to the extra expenses (since you have the income). Personally, I place a lot of emphasis on saving as a first step, because it's cashflow (and savings to meet the negative cashflow) that allows you to survive. My own rule of thumb is that ordinarily you should be able to save 40% of net (if you are renting).