Second Investment and PPOR

[Shebwetebs]

Hello all,

Just a query. I assume we will be way way way off with the timeline here.

Purchased our first investment property in June this year for $330k in St Marys. (We were very stoked). 90% LVR.

My query is what is the best way in order to get a second investment and at some point buy a place to live.

Some factors. We're engaged, due to be married in October next year. So I assume this year is out due to money contributions elsewhere. We both have good jobs (Project Manager and Solicitor).

I'm assuming it may be another year after the wedding that we'll be able to do something property wise and we'd have to rent in the meantime.

What are thoughts? suggestions?

Thanks in advance. Apologies if this is a vague question.

Sheb

 

[Terry_w]

Have the loan IO and put all rents, wages and cash into the offset account. Let grwoth kick in - natural and/or manufactured.

Consider that you will want to borrow 103% for any investment property while keeping your cash available for the new PPOR. This is because you will end up with a lower non deductible debt. This can be done without cross colalteralising by borrowing against any increase in value for the existing one and/or related party loans.

 

[Jamie M]

Hi Sheb

Which lender are you with?

Some lenders will allow you to access equity up to 90% LVR so if your property increases in value (either via CG, renos or a combination of both) then you might be able to increase the loan back up to 90%, release some equity and use it to fund the deposit/costs on the next purchase.

Agree with Terry on keeping the money in the offset for a future PPOR purchase.

Cheers

Jamie

 

[Shebwetebs]

Hi, Thanks for the responses.

Lender is Teachers Mutual Bank, low interest rate of 4.49% fixed for 3 years so no offset...

 

[Terry_w]

Hi, Thanks for the responses.

Lender is Teachers Mutual Bank, low interest rate of 4.49% fixed for 3 years so no offset...

That is unfortunate. Perhaps you could have kept part variable to have an offset on this - wouldn't matter too much what the variable rate was if you would largely offset it.

Now where do you keep your cash?

 

[jingo]

My query is what is the best way in order to get a second investment and at some point buy a place to live.

Once you have equity in the IP you've just bought, establish a line of credit against the property to use as a deposit on the next IP.

As others have said, establish an offset account against your current investment loan and stash cash in it.

Keep buying investments properties and stashing cash in the offset accounts.

When the time to buy the PPOR comes, move the cash into an offset account against your PPOR loan. You can then funnel the rent money into the offset account attached to your PPOR loan. Establish another LOC against one of your investment properties and use that to fund the investment property costs.

Seek advise in establishing these structures though as they need to be set up correctly.

 

[Shebwetebs]

Thanks for the responses.

So, my understanding of the advice provided is to:

- Change current 3 year fixed rate Interest only loan into a variable interest only with offset account.
- Arrange for all rent / combined pay / savings to be put into the offset account against current investment.
-Eventually use equity built in current investment to fund second investment while renting.
- Variable interest only off set account (rent and what other money goes here?)
- continue last two points.
- when ready to buy PPOR, the suggestion is to move all cash from the offsets into the PPOR offset account and all rent from investments into this too. Won't this make my investment properties interest repayments greater?

Thanks again for the info. Apologies if my questions / understanding are somewhat limited... I'm new to all this!

 

[Peter_Tersteeg]

- Change current 3 year fixed rate Interest only loan into a variable interest only with offset account.
- Arrange for all rent / combined pay / savings to be put into the offset account against current investment.

Existing your existing fixed rate is likely to incur break costs. It may be too late to do this now. Contact your lender to ask them what the break fees are.

-Eventually use equity built in current investment to fund second investment while renting.
- Variable interest only off set account (rent and what other money goes here?)
- continue last two points.
- when ready to buy PPOR, the suggestion is to move all cash from the offsets into the PPOR offset account and all rent from investments into this too. Won't this make my investment properties interest repayments greater?

An offset account is really just a regular transaction account that offsets your home loan instead of earning you interest. You can put all of your income into it, such as rent and your salary.

When you're ready to purchase your PPOR, use the money in the offset account as a deposit and purchase costs for the new home. Your investment loan interest will increase, but this is tax deductible. By using your savings wisely, you'll pay less interest on non-deductible loans.

I suspect you chose this loan because the interest rate of 4.49% looks very cheap. The comparison rate of 5.52% for the 3 year product (quoted on their website) is not cheap by any standard. Please get some good advice from a broker before your next purchase.