Strategy moving forward - setting our foundations

Hi guys,

Bit of a follow-on from an earlier topic I started regarding our first purchase (link). Bit of a read, but I?m hoping to get other comments/criticism/advise on the direction we?re hoping to take.

Current situation; OTP 1/1/1 apartment at Kelvin Grove will be completed in the next ~8 weeks. Purchase price was $359k, with 10% down as a deposit. Speaking with our broker we?re looking at a loan of approximately $323k, IO split $73k variable and $250k fixed (3 or 5 years, undecided). Reason for fixing is surety of repayments at a competitive rate whilst we set ourselves up (moving out for the first time/establishing our careers/planning future investment strategy). Only downside in our eyes is the inability to revalue/refinance and extract equity, however due to the nature of the property I don?t see that as an issue in <5 years. Our plan is to live in the apartment for ~2 years, however that will be dependent on how much we like it ? if we?re not enjoying it we could be looking to move after the 6 month requirement for the FHOG.

We?re currently both 23, combined gross income of $138k + bonuses which is expected to steadily increase. We have no debts other than HECS and a ~12k secured loan on our car @ 1% finance, no dependents and save good money, with ~25k in shares. After accounting for furniture (~10k) and the FHOG, we will have ~40k in our offset account once in our apartment. Our current budget suggests we?ll be able to save close to 1k per week into this offset account.

Our goals are:
Short term <5 yrs ? build equity, build portfolio, target cashflow neutral
Mid term 5+ yrs ? leverage equity to begin developing properties
Long term 12+ yrs ? further developments, ability to quit day jobs and work for ourselves consulting/developing/etc

We?re both qualified engineers with project management/advisory jobs, and are lucky enough to have a family full of builders/tradies. As such, in the time it takes us to build the equity required to step into developing we should be experienced enough to manage the build ourselves.

Based on this, we?ll be looking to buy a second place around September this year. Target is capital growth with decent yield, allowing us to save hard for a third deposit. Finance for this property will not be fixed, allowing us to revalue and extract equity when available. Ideally we?ll be looking at a house in Brisbane in a land locked area with good growth drivers and the scope to add value through a cosmetic renovation. Flexible with price ? ideally under 400k but could go to ~600 if the right property came up. We've been monitoring a few areas around Brisbane and will continue to do so ? luckily we both enjoy finding potential properties and attending inspections!

Would really appreciate everyone?s feedback and opinions on our loose plan going forward. Somersoft has been an amazing resource thus far and I hope to have something to contribute in the years to come.
Fixing may hold you back, especially fixing for so long. You could access equity, but you would be stuck with the same lender.

If you think there may be little to no growth, then why do you want to purchase this property?

Also take care with the portions. If you have $40k now and only $73k variable you may quickly save more than your offset account can handle.

If Engineers then try to get chartered membership of Engineering Australia to make the 90% no LMI loans available.

Plan carefully how you structure your finances, loans and ownership to maximise efficiency.
Thanks Terry. May be selling ourselves a little short regarding CG. I believe we bought a good product in a good location at a good price, and should have benefited from growth over the past 12 months. Whilst there will be some saturation in the market moving forward, I expect we will still make modest gains. Our original intention was to go variable with full offset, however speaking with our MB we were encouraged to consider fixing a portion. We will have to rethink this and consider a shorter period and having a higher portion variable. Intention with the current split was that we would be purchasing a second property by the time we had maxed the offset. We will have to reassess our budget and savings goals to ensure this does not happen too soon, and will consider a larger variable portion.

We?re still a good 3-5 years off becoming chartered through EA, so will have to absorb LMI for the moment.

Could you give any recommendations for accountants and solicitors in Brisbane? I imagine it is easier to work with a local team than someone interstate.

Thank you kindly for your advice Terry.
For a lawyer, see RPI of this forum

For accountants/tax agents
see Mry
Gary T
both of this forum - think they are up that way.
On top of Terry's advise..

If I were you, i will compare which one is my 'biggest non-deductable loan' and start paying it off. Eg. I will pay HECS first, then car/personal finance.

From there I will put into the offset(buffer) against home loan. Combine with I/O loan is best if you plan to convert Kelvin Groce into IP someday.

You definitely need more specific on your goal, invest your time in research more and morw about property while you still young. Good luck, its great to see younger investor responsible for their future
Thanks again Terry.

Hi ZachAnSel - with regard to paying down non-deductible debt, as our HELP debt is adjusted in line with CPI and our car finance is @ 1%, would it not be better to put excess cash into the offset account as it would effectively be earning ~4.x%?
Thanks again Terry.

Hi ZachAnSel - with regard to paying down non-deductible debt, as our HELP debt is adjusted in line with CPI and our car finance is @ 1%, would it not be better to put excess cash into the offset account as it would effectively be earning ~4.x%?

Yes you right, sorry I'm not aware of your HELP debt..