The next stage for us

[sandyfeet]

Hi guys, thanks to the many who have already helped with advice and dealt politely with my private messages thus far!!

We are seeking some advice or comment on our strategy moving forward. Our current situation with 3IPs is:
Value = $1mill
Loans = $760K
Offset = $100k
Combined rent = $1060 /week
Combined income = 200k
Comfortably saving 4-5k each month after all expenses

We are a 32/33 yr old couple who will consider starting a family in the next 1-2 yrs. The above properties are in a quiet coastal area where I expect CG will be minimal. I built these in the area I grew up in as it was a comfortable start for me at the time.

Moving forward with our strategy we want to purchase long term holds with CG in mind. We are considering releasing about $120k in equity which will take our LVR to approx 88%. With this we intend to look to purchase 2 properties this year around a value of 300-450k each at 90% LVR. We are considering properties in Brisbane and would look to houses/villas/townhouses. We are considering properties that can either have value-add potential or are newer to maximise tax deductions and minimise maintenance. After this we will consider selling one of the original IPs as it is still considered our PPOR, to avoid CGT and allow for future purchases.

We would love to hear people's thoughts/opinions on our situation, especially with respect to:
90% LVR - would others consider being more aggressive at this stage considering our offset/monthly savings.
Anyone having been in a similar situation in planning to start a family.
The value-add vs newer debate
Our offset figure, we hope to have this at 130/140k by years end. We feel comfortable with this but would like other opinions.


Thanks in advance,

 

[Rolf Latham]

I'd be looking to borrow sustainably

That means maxing your personal savings offset and personal buffer.

Max lend realistically is 90 % so as to be able to access equity later on if and when you go back to work

Lending structure may have a major impact on how u can progress

Be mindful that many mums don't go back to the same work or level of work that they started with hence I'd recommend structuring in such a way that you have options ....

Ta

Rolf

 

[robboat]

What is your actual long term goal....you said CG....or the best of both worlds with some reasonable cashflow?

IMO....maybe it is best to sell a low performing CG property or two in the quiet coastal town (unless it will be a boom town sometime in the near future!)
Buy yourself some better performing properties in Brisbane?
You will keep about the same LVR and have better exposure to tenants....and CG...
Also - any CGT from the existing properties will be offset against your 200K personal income.

Value adding has been a great way to make CG....and if you can do the work yourself so much the better.
Tenants and landlords love "paint and prosper".......

But - I would be a little conservative if you are wanting to start a family as well....especially with renovations happening.

Fix it all up first.....?

Good luck - it is a great problem to have.....

 

[alexlee]

Also - any CGT from the existing properties will be offset against your 200K personal income.

Can you explain what this means?

 

[sandyfeet]

Thanks guys,

Rolf, I agree and feel comfortable with not extending beyond 90% LVR. I know there are lots of people on other threads suggesting maxing your loans to acquire more property but every situation is different and for our situation, a more conservative LVR seems sensible. As for lending and structure, our current loans are with CBA and we will look to different lenders for future loans. What other things in this area do you suggest we should consider?

Robboat, We don't have a definite long term plan or exit strategy ATM. We understand property and know it can help us build wealth along the way. We both enjoy our work so there is no real rush to build a massive portfolio in the short term to exit 'the rat race'. Yes we will look to sell the house before we lose the PPOR status. We will hold the others as they may be properties that we move into as we plan to leave Sydney in the next few years, but we are always open to selling another one of them in the future if it helps us move forward.

Thanks again,

 

[robboat]

Can you explain what this means?

Tax planning - when you sell you may be liable for Capital Gains Tax....
Depending on what name the properties are under and the other income streams you may be able to offset this cost with a "low income" year.

 

[sandyfeet]

Would really like to hear some more opinions on this please

Thanks again,

 

[alexlee]

Run some numbers with new purchases of 800k, 90% LVR, 7% interest rates and losing one income, not to mention the increased costs of having a family. Your numbers look tight.

If your long term goal is CG, and the coastal areas don't give you that, you might consider selling them and buying into areas that you think have better CG.

 

[sandyfeet]

Run some numbers with new purchases of 800k, 90% LVR, 7% interest rates and losing one income, not to mention the increased costs of having a family. Your numbers look tight.

Thanks Alexlee, Having looked at some figures/projections, I think your quite right. We could cover it with our buffer but with rates exceeding 7-8% we would start dipping in too much I think. Looking at 2x approx 250k properties seems more realistic, considering also it would require us to look into more regional centres eg Toowoomba where we may also achieve a better yield. We will still look to sell the former PPOR to reduce debt and allow exposure to better CG areas.

Any thoughts?

 

[alexlee]

Alternatively, you could buy 1 400k IP, wait until you have a family and know what your numbers will look like, and reassess then.