Son preparing to buy first IP

HISTORY
Son moved to Brissie with deposit to buy unit/house and did not do anything (rented) until I dragged him and hubby around local area.

We looked at numerous properties, explored hosue and land packages, buying block and getting project home, looked at purchasing houses etc.

Good Luck...We found a new subdivision that was just starting and hubby and I felt (guided by our experiences in NSW that house size and land (flat) was OK and son was happy to drive to and from work from this subdivision)

Son put a deposit on this 'turnkey' property in June 2007 which was supposed to settle in December 2007 as his PPOR. Finally settled after Easter in 2008 purchase price 337K I/O variable loan

Improvements

  • Blinds
  • Security screens
  • Stratco insulated patio awning 9020 x 3300
  • Garden shed 3m x 3m
  • Gates to existing fences
  • Airconditioning in lounge room


Fast forward October 2009 and he is looking to buy first IP.

Valuation of his PPOR has increased to 420K by Bank valuers so increase of 70K after improvements.

PLAN
Son has some $'s in offset account so will pay off PPOR by the $ amount and re borrow for IP.


Regards
Sheryn
 
Good on you Sheryn and good for your son. I hope he does well. I wish my parents had the knowledge and foresight to do as you have done when I was younger. Alas i'm playing catch up now as an older and wiser (sometimes)person. Paperwork going through as we speak for the next 2. Bring!-it!-on!

Project 1080.

The project: 10 IPs in 80 mths.
 
Thanks Project - I hope son does well.

This morning I was reading Josko's post on the below link and I have a couple of questions that need answers

http://www.somersoft.com/forums/showthread.php?t=56299

Purchase Price x Interest Rate =A

(A- Rent) + Management Fees + Rates + Insurance + BC Fees= Net Return on Property. (pa)


Purchase price 380,000 x 5.39% interest = 20216 (Should we include cost of purchasing, blinds, security screens & aiconditioner in purchase price?)

20216 - 20800 (rent of $400 per week x 52 weeks) = 584

584 + 2100 (management fees $25 x 52 + letting fee of $800) = 2684

2684 + 1600 (rates) = 4284

4284 + 1000 (LL insurance) = 5284

= 5284 (net return on property not including negative gearing and depreciation)

5284 / 52 weeks = $101 per week (Is this the correct figure, property makes $101 per week after taxation or it costs $101 per week to hold?)



Thanks
Sheryn
 
it should have probably been

Rent - Interest(A) - Management Fees - Rates - Insurance - BC Fees= Net Return on Property. (pa)

since the rent is the only income, the rest are expenses. so you're looking at around $80 cost to hold per week (cashflow negative/negative geared).
 
Does your son plan to keep living there for now and potentially move somewhere else later, perhaps years later? Maybe better to leave funds in offset account and just draw on the equity using a separate split for investing. Keeps it tidy for accounting purposes too.
 
Does your son plan to keep living there for now and potentially move somewhere else later, perhaps years later? Maybe better to leave funds in offset account and just draw on the equity using a separate split for investing. Keeps it tidy for accounting purposes too.

Son plans to continue to live in his PPOR with no plans to move but may travel later on. The new property will be IP only.

How can son leave funds in offset account and just draw on the equity?

Total value = $420,000 PPOR + $380,000 new IP to be purchased = $800,000 (ability to borrow max of 80% = $640,000 but income restricts son to approx $632,000)

Loan 1 - home loan ( $237,000, $269,000 less $32,000 paid off the loan from son's offset account)

Loan 2 - investment loan of $395,000 - purchase price plus costs



Regards
Sheryn
 
Hiya Sheryn

Smells a lot like cross collateral, which may also partially explain the serviceability issue.

Id have a think about maybe even going to a higher lVR if poss ( at least on the new IP) and pay a little LMI, and retain the 32 k tax paid savings against the non deductible debt in the offset.

ta
rolf
 
Thanks Rolf, I will think about what you have written & investigate.

We are heading up to son's house today to look at H+L packages unfortunately son's was notified yesterday by his Broker that due to IP rises...

"When the interest rates went up last week all lenders increased their serviceability calculations significantly.

Unfortunately with these changes, i can't get the figures to work for you to be able to buy an investment property. I have looked at different priced properties (from $250000 to 350,000). We are still quite a bit short.

However, if you can leave it with me for another couple of days"

Anyway I still would like son to purchase something - son is very keen on purchasing brand new as he is a 'reno' type person, but he may have to look for an older unit instead.

OR maybe we rethink the wealth creation strategy to use atm.


Sheryn
 
OR maybe we rethink the wealth creation strategy to use atm.

If it serviced before, a 0.25% IR rise is hardly likely to have much effect on your ability to repay. Diff lenders have diff serviceability calcs - maybe time to find a MB that can get you some money? :D
 
Will be visiting son this weekend and looking at new H+L properties but have been thinking son could purchase unit at beach, he could stay in this unit and renovate over Christmas and rent out in January or February.

Son's MB has not got back to him so I will be following up as I know he can service a loan.

Current PPOR I/O Loan 269K
Offset a/c 50K
Value of PPOR by Lender 420K

420 - 269K (loan) = 151K + 50K (cash in offset) = 201K

Wage 48K ( I think near enough anyway)
Car allowance 17K


Cheers
Sheryn
 
Son missed the boat....

Son at this point in time only wants to buy new.

I am thinking about taking him around in January to have a look at older properties.

Anyway the long and the short is he can't now borrow the amount he wants unless it is via a 'not ideal structure'. We have decided to sit and wait as two things will happen.

1) He will continue to save in offset account thus reducing his offset a/c

2) He will ask for wage review (he didn't get one last year as at the start of the GFC and his boss had done him a favour so he didn't like to ask for one)

I will still keep looking and I may work out a strategy for son something like, buy unit at beach before holidays and tidy up during holidays while having a holiday then rent out.

Rolf
Thanks for your help.


PS
If son had moved and organised his LOC on PPOR for IP deposit and borrowed for new IP when I/we first started talking about it he could have done it but he wanted to wait until his MB returned home from a looong holiday overseas (not Rolf) so his opportunity slipped out the door due to waiting.


Cheers
Sheryn
 
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