Some general advice

Discussion in 'Property Investment - Other' started by Mark_W, 1st Jun, 2007.

  1. Mark_W

    Mark_W Member

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    Warning: Newbie alert!!

    I have been reading these forums for a little while now as we are about to make our move in regards to investing.

    Background -
    1. we hope to have our house sold today (3rd inspection this morning - agent seems to think they will make an offer). We have decided we will rent a PPOR and invest our equity which will be circa $450,000.

    2, We are seachangers - both having left high income (and high stress) jobs to live in Port Macquarie NSW some 6 years ago. Since then we have been doing our own thing (self employed) but earning very little - ie enough to get by but not enough to get ahead.

    3. I am an average (at best) handyman so major reno type projects will be beyond my scope unless I sub contract work out

    I would be more comfortable in buying property where I can keep an eye on it but I am not really sure of this area as a likely good performer.

    Anyway heres my questions....

    1. Basically because of our lower income serviceability of loans will be an issue (I estimate we will have approx $600 / month difference between our rent and our previous mortgage payments. Would I be better of looking at property and organising the loans so that the rental return makes it virtually income neutral (ie paying a higher deposit and borrowing less) - meaning less properties OR look at more properties which are negative geared and look to make up the difference from the $600??

    2. Port Macquarie is an area which has had a lot of units built in recent years - primarily close to water and targeted at a mix of holiday rentals and residential. I have read that a change of infrastructure is normally something that can push along property values. Port is currently about to lengthen its airports runway so that it can take jet aircraft meaning that it will be a viable option for Jetstar and Virgin and providing (finally) some decent cut price airfares both into and out of the market. Is this something that could help property prices??

    3. I am thinking more of the budget end of town in terms of what I will be looking at. I have this thought that there will always be demand at this end of town from both a rental and sale point of view but I don't really know if that the 'glut' of more modern units may keep the prices of the budget end down... something tells me this may be the case. I would be interested in opinions on this.

    4. Lastly - I have dealt with a local mortgage broker her in the past but to be frank I am not confident on his ability to see things 'outside the square' and being able to give me the best advice. I would therefore welcome anybody here who has a positive experience with someone to post it (or indeed send me a private message if appropriate.) Likewise from any brokers on here who may be able to offer their services.

    Apologies for the length of the post and I look forward to any responses.

    Cheers.

    Mark.
     
  2. Arkay

    Arkay Member

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    Hi Mark,

    I don't want to throw a spanner in the works but can I ask why you are selling the existing PPOR?

    Do you own it? It looks like you have sizable amount of equity in it.

    The reason I ask is that it might make more sense to keep it, draw down on the equity in the property to set up a line of credit and use the line of credit to purchase an IP and service the negative cashflow.

    By selling the PPOR you will lose money on the agent fees etc that you might be better off keeping.

    i.e. Example...

    PPOR $300k
    Loan $100k
    accessable equity (80% PPOR - existing mortgage)) = $140k

    You could then keep the existing PPOR, rent it out. Use $60k of the line of credit to purchase a $300k property and have $80k left over in the line of credit to service the negative cashflow for some years (or purchase more IP) before needing your income at all.

    I know you mentioned $450k equity above. If that is the case then obviously your are in a much better position than the example given.

    At any rate, irrespective of the values, you'll end up with 2 (or more) IP's and a buffer to service the debt with while freeing up the $600 post rent income to save for future purchases (or increase the buffer).

    I know you're in the throws of selling already but it might not be too late to consider such a strategy?

    Please don't take this as financial advice to base your decisions on. At present I'm a theoretical investor myself so I would recommend a discussion with a property savvy accountant and mortgage broker (both of which you can find on this site) to gauge the feasibility of the above.

    Cheers,

    Arkay.
     
    Last edited: 1st Jun, 2007
  3. Twitch

    Twitch Member

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    Indeed. Why are you selling?
     
  4. Mark_W

    Mark_W Member

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    Hi.

    Thanks for the reply.

    The reason we are looking at selling is basically because it's almost too good a deal not to do - ie the buyer is paying a premium for the house they want.

    We built the house ourselves - a premium home in a very quiet spot surrounded by bush on two sides. We have used high quality fittings etc etc. Basically a real estate friend has cashed up clients looking for just this sort of property but cannot find it.

    We recently had the property re-valued so that we could do as you suggest (the line of credit thing) - the valuation was a lot lower than we hoped and in fact was lower than the one we originally had. We protested to the bank and they did actually put through an increased valuation but still significantly lower (and we are talking $200k here) than for the price we are looking at getting through this sale (if it happens).

    Because we are a lo doc loan and we dont want to have to do the mortgage insurance thing etc we are sitting at our 60% threshold with only a small overdraft facility - not big enough to do what we want to do.

    In terms of rental return on our current property I don't believe we would get a premium rental return as anyone in this town (where there is traditionally not a lot of money around in the rental market) who is prepared to pay high rents would want a water view. i must admit this is gut feel than actual experience though.
     
  5. Arkay

    Arkay Member

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    Ah.. ok. In that case I can see why it makes more sense to sell. Still. You have to wonder why a bank valuation can come in $200k under the actual selling price if you do sell.. Seems a little rediculous to me. I would pay for an independent evaluation in that case.

    Given that you probably don't have time to do that and want to get the price $200k above valuation I've no doubt you'll sell.

    Puts you in a good position in terms of what you can do after that.

    I would think that more properties is better than less so personally I wouldn't be paying large sums in order to make them cashflow neutral. It really comes down to the numbers and serviceability and your comfort level. All you can do is work out how much you can borrow, how much of the $450k equity you need to keep (to service debt), to satisfy your comfort level. Somewhere there will be a balance between what the banks will allow, risk, reward and lifestyle (you may want to use some of that $600 freed up to enjoy life a little more) :)

    I'd still talk to some good brokers and accountants. Knowing where you stand and what can be done will make the decisions regarding risk/lifestyle much simpler.

    Cheers,

    Arkay.
     
  6. Mark_W

    Mark_W Member

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    Tell me about it. We bought a block in an already established area (ie other homes were 10-15 yrs old) and an area that is not thought of as a premium area in Port. We did however see the potential regarding privacy, outlook etc etc.

    The valuation guy looked at prices from recent sales in the area (surprise surprise they were a lot lower than what our house is worth) as well as comparing our house to those in some of the nearby 'estates' which are basically wall to wall home / land packages type dwellings with little to no individuality. (not thast there is anything wrong with those houses but hardly a valid point of comparrison).

    Anyway we protested to him - he had no idea and said we were just biased towards our home etc. Personally another reason I want to sell is so that I can ring him up and advise him how far off the mark he was :D Might at least make me feel a bit better about the whole thing (I was really quite put out by this a month or so ago)
     
  7. Arkay

    Arkay Member

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    I can understand that. I had a similar thing happen. Initial "drive by" valuation from the bank was very low. Asked my broker to organise a proper valuation and then it came back at the correct value. Some $40k higher. Nothing like $200k out though!

    Annoys me that they're so lazy as to think they can do a valuation from the internet sitting at their desks...

    Cheers,

    Arkay.
     
  8. geoffw

    geoffw Untitled

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    Now that you have an offer, can you just give him a call anyway? If it's a firm offer in wrinting, you may be able to make your point, get the higher valuation, and stay in the house.