Sell IP to Buy PPOR?

Hi all,

I have previously posted a thread 'Using IP to buy PPOR' we are still considering selling our IP to get into our PPOR this decade instead of maybe never! IP was valued at $300k 2 1/2 yrs ago, mortgage owing $216k ($170k fixed at 7.74% til Oct 2010, $50k var at 5.89%) Rental return on IP is $350pw gross. We are paying rent of $330pw. We need $400k to buy a similar PPOR where we live now (capital growth is higher here so more$$) We are self employed in a new small business (15 months old ABN now) We don't have enough equity to avoid paying LMI on an expected 60% LVR (going lo doc) for a deposit or for the new mortgage on PPOR. Are you still with me? Should we sell our IP (once our fixed rate expires in Oct) and if we did, would we have enough for a deposit on a $400k mortgage (assuming new house is priced at around $380k?) I just don't see how we can raise a new deposit to buy here without selling our first home (8 yrs old 4 BR, 2 Bthrms, DLUG) which due to relocation is our IP. Do I have this right?

Thanks in advance, I thought owning equity got you more property this is doing my head in...
Yes, we moved out end of Feb 2009 and moved a little over an hour away. I'm assuming we'll need 60% as we are self employed, will need to go lo doc and don't have enough equity in IP?
At present the property is not costing you money but I can see your dilema.

Where is the property?
When did you buy it?
If you did sell how much would you get for it?

For a new place worth $400K & assuming an LVR of 60% you'll need a $160K deposit which is a lot
Hi BV,

We built the property in Dubbo in 2002. I just got an unassisted valuation done online for $292k with a range of $260k - $330k. As you stated, the deposit we would need is massive if we get 60%, if we can swing 80% that would be better but not ideal.
If you really want to buy a property then it looks like you'll have to sell your existing 1 and you'll also need help from a mortgage broker.
There are a few here so send a PM to 1 of them and see if he can help with the finance.

There could be other options available.

For example, I was in a similar situation some years ago but I didn't want to sell the property so I got my wife to sell her 50% share to me.
So we accessed all the equity from the PPOR without selling.

Come to think of it Keeping this property wasn't the smartest thing to do because prices had already peaked and didn't increase afterwards but it was the best option presented to me at the time.

How is the Dubbo market now?
Do you feel that prices will go up?
Where are you buying now?
G'Day Pesty

Four Bedroom houses in Dubbo seem to be in the $330 - $350,000 asking range now, particularly if you are getting $350 per week in rent.

If you are wanting to borrow $400,000 for a $380,000 purchase does this mean that you have no cash to contribute to the purchase - you are looking for a full 100% of the purchase price plus stamps and costs?

Whether you can increase borrowings against Dubbo will depend on the current lender and their low doc policy

How high you can borrow - up to 80%LVR - for the new purchase will depend on that lender and their low doc policy

So perhaps your first step is to get a quote for a pay out figure from the current lender so that you have some actual figures to work with, rather than just guessing

Yes, equity in property is the key to buying more property, but structuring of the loans and working with your own particular circumstances is of equal importance.

low doc loans to 80%LVR for buying are not a problem, it is getting the cash out of the Dubbo property which will be the challenge - but there is always opportunity and sometimes it is the silver lining of the grey cloud which brings the greatest benefit.

If you sell Dubbo you may still be short of funds to buy the new property plus you will have killed the goose and stopped the production of golden eggs, so I would suggest making sure that you have explored all options before you make a decision or take any action.

When we were building, our land was $48k (2001) a year later similar blocks in the next cul-de-sac were asking $75k! We bought just prior to a height in the boom cycle. Our house/land package was $183,500 in 2002, yet since 2007 valuation, the market there hasn't moved much $285-$300k since 2007. We want to buy in Mudgee, median house prices are higher obviously. Once we have bought here, we want to pay down that mortgage to invest again and so forth. Kristine, as we have put all our previous savings into our business here in Mudgee, at present we don't have cash to contribute and are paying our business loan too. In the next few months I will receive a compo payout ($30-$50k) we can then get rid of our Business loan $18k owing) which will mean an extra $100 pw for PPOR. As our IP mortgage is fixed til Oct, break costs last time I checked were $8k, no point doing anything yet. With the aim to stop renting here and get into a hotter market, is it worth killing our goose that at present is holding value but not > either? We want to use new PPOR to obtain our next 'goose' We just don't know what to aim for to buy here, keep our IP at all costs or start again from scratch by selling as BV suggested?
Hi Pesty

Christine could be right on the price of your property.
Prices could have moved and you haven't noticed.

I suggest you explore the possibility of getting more cash out of your existing lender. It's possible that by going through a mortgage broker you'll be able to refinance using the existing lender and keep part of the existing loan structure so you won't have to pay exit fees.

Often lenders won't tell you what's possible or what's good for you.
They'll offer you what's good for them and many of the banking officials wouldn't know anything about structuring a loan so by going through a broker can help.

Send Christine a PM and see if she can help you.

Good luck
Hi Pesty

We had our 30 yr old bv 4br, 2 living areas, ducted r/c air, single garage, pool in Dubbo valued in July last year at 280 - rents for 320. Dubbo prices seem to lag behind the region.

On the information you have given I would be inclined to think you would need to think about selling Dubbo.

Depending on your business, my instinct would be keep renting in Mudgee, keep Dubbo and focus on improving the profitability of your business. You could then look at restructuring your finance on Dubbo to set up an offset account that you could put surplus monies into until you are in a position to buy in Mudgee.
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Our options to negotiate with our current lender are basically zero as our Mortgage is through One Direct. For those that don't know, ANZ own OD and are getting rid of it, only existing loans unchanged are continuing, no new loans or additions to loans can be made. We are partially fixed til November, after that our entire loan will be variable (currently 1.85% < our fixed rate) If we want to change anything, we get switched to ANZ. What I don't know is, if we have to reapply with ANZ as our entire income source has changed (husband had a fulltime job, now he is self employed) I guess we just try to save what we can and see how our accountant treats our tax returns this year. We should have a clearer picture as to whether the IP is worth keeping? JRC, One Direct don't offer offset accounts, we would have to be with a new lender to set that up, the whole new lender bit is the unknown!