Strategies for 2nd property

[roceans11]

G'day Somersofters!

First of all thanks to the many that contribute to this forum, so much invaluable information here! Here comes my situation, some may be able to provide some advice and options to go forward from here.

Situation: 25 years old, Bought my first IP in inner west sydney last year for $440k. Current value of ~$475-485k. Took out a 95% I/O loan on it ~$425k and currently have ~$70k in offset; rent + offset covering almost all repayments.

My current income is $120k+ and boarding with parents so expenses are very low. The time has come (in the next 3-6 months) to move out with my partner who has her own savings (~$20k) and income (~$50k). No kids for another 3 years at least.

Strategies to move forward: I am unsure on what to do at present, should I

• Buy a PPOR (no idea on how much to spend on it), using offset money and pulling out equity from IP1
  
• Rent somehwere for $450-500/wk and look for IP2 using offset money and pulling out equity from IP1.
  
• Or just keep saving in this current crazy market while renting and wait until things cool down a bit in Sydney.

I have also been advised to keep renting where you like to live and buy where you can afford for taxation purposes which sounds right, but don't know how much one saves using this strategy. We are both young and flexible with stable jobs but are unsure on what's best options to take from here. Have I missed out any other options here? As you can see, just hitting a block at the moment and trying to seek a clear view on things to look for before taking the next step. Any advice ? Thanks for reading.

 

[tobe]

all three are good options. I suspect number two will grow your wealth faster, let me put that another way, is more highly leveraged than either option one or three.

What does your partner want to do?

 

[delfredo]

That's a healthy income level for a 25 year old person.

 

[roceans11]

all three are good options. I suspect number two will grow your wealth faster, let me put that another way, is more highly leveraged than either option one or three.

What does your partner want to do?

Partner doesn't mind anything really. For the next 3-4 years at least, we both are open to all options, just want to live (rent or buy) in a good buzzing area close to amenities, eat-outs, max 30 min travel to work. Maybe down the line in 5-8 years we'd at least like to buy a property with land but in no need of any McMansions.

We feel we can afford to move out to rent now considering we both have spent 6-7 years boarding with parents and saving money and now is the perfect time to enjoy our 'younger' lifestyles while we can until kids etc.

That's a healthy income level for a 25 year old person.

Have certainly been very lucky. It's what one does with the income that counts though.

 

[r3ckless]

My 2c

Sinc you took out your first ip with 95% lend, you are open to the fact of incurring lmi costs. Have you and your partner got an ideal area wherr you would like to live as ppor? Will the $70k odd in offset be enough to cover circa 5% deposit and stamp duty? If so. If i were in your position i would buy. I have never experienced paying rent and i choose to not do so and if i were in your position i would see if i can afford that ppor?

 

[r3ckless]

I just cannot see the rent payment benefit. $500/week. $2000/month. $24000/annually...

 

[robbiejuve]

I just cannot see the rent payment benefit. $500/week. $2000/month. $24000/annually...

You are forgetting the other side of the equation, what he does with the money other than buying a PPOR which would be to buy IP2 and the tax advantages over a PPOR.

 

[r3ckless]

You are forgetting the other side of the equation, what he does with the money other than buying a PPOR which would be to buy IP2 and the tax advantages over a PPOR.

Not really mate.

It is said in his OP that they are looking to have kids in 3 years...

lets imagine he goes down path 2, rents, accumulates seconds IP. So whilst servicing two IP, paying $500 odd dollars a week in rent, will they have enough of a deposit to obtain PPOR. I assume engagement ring, wedding to follow before kids are born? I know that is a tough thing to ask, mind you my income is also ALOT lower than the OP.

OP Im actually in a very similar situation to you.

I currently have 2 x IP, living at home with the parents. My partner and I are looking to have kids in 5-6 years from today. Currently saving up funds for the ring, engagement, wedding, deposit for PPOR. I know for a fact have I/ Should I/we rent over this 5-6 year period I am quite certain we weouldnt be able to achieve all these goals in 5-6 years time. however like i said, my income is alot lower than yours so maybe you can do it!

Let us know your thoughts!

 

[starter]

Not really mate.

It is said in his OP that they are looking to have kids in 3 years...

lets imagine he goes down path 2, rents, accumulates seconds IP. So whilst servicing two IP, paying $500 odd dollars a week in rent, will they have enough of a deposit to obtain PPOR. I assume engagement ring, wedding to follow before kids are born? I know that is a tough thing to ask, mind you my income is also ALOT lower than the OP.

You're forgetting that he would also be getting rent from IP2 as well as the tax deductions applicable to it. If he bought a PPOR instead, while he wouldn't have to pay rent he would have to service the mortgage and other costs (council rates, insurance etc) in relation to the PPOR which are not tax deductible as well as not having access to rent for IP2.

You're saving because you're living at home. OP wants to move out.

 

[r3ckless]

You're forgetting that he would also be getting rent from IP2 as well as the tax deductions applicable to it. If he bought a PPOR instead, while he wouldn't have to pay rent he would have to service the mortgage and other costs (council rates, insurance etc) in relation to the PPOR which are not tax deductible as well as not having access to rent for IP2.

You're saving because you're living at home. OP wants to move out.

lets say IP2 is cash flow negative. lets assume the property will only show a negative outlay of $100 per week. nothing. peanuts. If renting, . His disposal income less the costs of TWO IP less $500 per week rent less day to day expenses etc. Will they really have enough to get a deposit ready in 3 ish years for PPOR for their young new family? The OP is going to buy a PPOR eventually so IMO your comment about him seriving the PPOR is redundant as he will do this in 3 years anyways. The issue that I see here for the OP is cash. Will they have the capital required to pay deposit/stamp duty for IP2, enough capital in 3 years time for PPOR's required deposit/stamp duty. *Assuming here the capital for wedding/ring etc* all whilst $500 being taken out for rent each week...

 

[roceans11]

So I assume no one is advicing to go with Option 3 to wait?

Thanks for all your replies.

Sinc you took out your first ip with 95% lend, you are open to the fact of incurring lmi costs. Have you and your partner got an ideal area wherr you would like to live as ppor? Will the $70k odd in offset be enough to cover circa 5% deposit and stamp duty? If so. If i were in your position i would buy. I have never experienced paying rent and i choose to not do so and if i were in your position i would see if i can afford that ppor?

Yep, we do have an ideal area in mind to live in. However we also think we need to climb the ladder to reach where we want to be instead of laying down all the money and going all out on it right now. Hopefully that goal can be achieved in 10-15 years time. Prices would have increased by then ofcourse but if we make smart decisions now, then hopefully that process becomes easier.

To be honest, I do need to sit down and put a few numbers down in a calculator which I haven't found the time to do so at present in going with each option. It'll be the smart thign to do before I reply to your next posts. Hopefully a smarter reply from my end by Sunday! The engagement ring has already been purchased . Wedding will be by end of next year. Hopefully her demands are not too big

 

[Terry_w]

Improve your tax situation by living in the investment property for a period to establish it as your main residence and use the 6 year rule, s118-145, to make it CGT exempt when you move out and rent it again.

Then live at home as long as you possibly can. When the time comes move out and rent somewhere else. After 5.9 years kick your tenants out and move back in to your IP, which will now be a PPOR.

Net result is you get the tax benefits along the way and keep it CGT free.