Thoughts on situation

[jdjd]

Hello everyone.

I've been reading this forum for a little while now and have finally decided that I've wasted enough time and needed to sign up so that my fiance and I can get the ball rolling asap with building our property portfolio.

We're both ~30 years old and work in banking and have a keen interest in property.

Salary Gross pa.
Me: approx. 120k + super + bonus (10-15k)
Fiance: approx: 80k + super

FYI - I am male and my Fiance is female so we'll lose her salary when we decide to have kid(s) in the next 2-3 years.


Current Portfolio - Me

(1)
I own a 2 bedroom IP terrace in the Inner West.

Loan = 567k (Interest Only)
Estimated Valuation = 800k
Cash Offset = 280k

Also have about 100k + market value of shares

Notes about the property:
1. Currently rented for 650 pw and will increase in the new year.
2. Because of the cash, this is positively geared.
3. I believe fundamentals are strong for continued long term CG:
a) Off street parking
b) 2 min walk to the train station - 10 min to Sydney CBD
c) Within local performing arts school catchment area
d) 4 houses away from local park
e) In my 5 years of ownership have had 2 different tenants and it has not been vacant for me than a week when searching for these tenants.


Current Portfolio - Her

(1)
She owns a 3/4 bedroom IP in western Sydney.

Loan = 395k (Interest Only)
Estimated Valuation = 625k

Notes about the property:
1. Currently rented for 520 pw with possible increase in the new year.
2. Approx. 500sqm
3. 5-10 min walk to local station and 30min to Sydney CBD


(2)
She also owns a 3/4 bedroom PPOR house in western Sydney.

Loan = 120k (Interest Only)
Estimated Valuation = 550k
Cash Offset = 40k

Notes about the property:
1. Approx. 400sqm
2. 5-10 min walk to local station and 30min to Sydney CBD



Other points to note

• We both currently rent where we live at the moment fairly modestly at 450 pw and will continue to rent for the foreseeable future.

• At this stage, we're prepared to continue renting, albeit in a larger (and therefore more expensive) place as we build our family, wealth etc. so that all our purchases are IP's and tax deductible.

• Borrowing capacity is approx. 1.3m in total. With about 900k for me and 400k for her

• We can more than likely secure a 90% LVR lend with no LMI payable for a Owner Occupied loan application (but that doesn't mean we can't turn it into an IP once the application has gone through = the OO means this is more a one off type of discount)

I think that is all I can think of at this stage. Our goal is to build our portfolio in the best way we can in order to generate a passive income stream in order to have more financial freedom. This does not necessarily mean stop working but perhaps to leave the corporate work force and do something less stressful or more aligned to our areas of interest. I guess a time frame would be over the next 10 or so years.

I am struggling with analysis paralysis and would like hear some thoughts/opinions/feedback on some of the better options we have to utilize our equity/cash/disposable income to best leverage our situation?

Keen to hear any thoughts on our situation?! Thanks to everyone in advance!

 

[Terry_w]

You are going well - but your girl friend is doing better!

Have you structured things so you have the main residence PPOR exemption, under temp absence rules?

Thought about the land tax situation?

Wills and Powers of attorney in place? Life insurance?

Thought about your super much? Binding death benefit nominations?

If you held the shares in a discretionary trust you could take advantage of franking credits when your wife stops work.

You could also utlilise the benefits of private loans between yourselves when as well.

 

[jdjd]

Thanks very much Terry_w. I've tried to provide a few answers below.

You are going well - but your girl friend is doing
better!

Why do you say that? Isn't equity about the same and therefore we're doing similar? (not asking because it's a problem, just trying to work out what makes her situation more desirable so I now how to analyse our positions properly)

Have you structured things so you have the main residence PPOR exemption, under temp absence rules?

As in CGT exemptions? Yes this is the case for the PPOR.

Thought about the land tax situation?

Good point, will make sure it is front of mind.

Wills and Powers of attorney in place? Life insurance?

Thought about your super much? Binding death benefit nominations?

If you held the shares in a discretionary trust you could take advantage of franking credits when your wife stops work.

You could also utlilise the benefits of private loans between yourselves when as well.

No, haven't thought of any of this is at this stage and to be honest not to familiar with the impact of a few of these. I guess we'll need to ensure we're doing our research here as well.

 

[Terry_w]

Hey, I was only joking about her doing better

 

[Aaron_C]

You're in a good position to start off so don't waste it!

 

[jdjd]

Hey, I was only joking about her doing better

Hmm I already I told her what you said, shall I break this news

j/k I'm grateful we're both in a good position and want to make sure we make the most of it so any advice/opinions will be greatly appreciated

 

[alexlee]

At this age, equity isn't as important. It's more about future growth, and she has more (1.2m v your 800k) plus the flexibility of two properties v your one.

 

[jdjd]

At this age, equity isn't as important. It's more about future growth, and she has more (1.2m v your 800k) plus the flexibility of two properties v your one.

Fair enough. Good point alexlee, thanks.

At what price point would you be looking to buy in our situation?

 

[Aaron_C]

I would be looking to buying the best quality properties with subdivision / land content. With your incomes/equity you can afford to hold easily.

 

[jdjd]

Ok, at this stage I think we?re going to start looking at spending approx.. 500k west of Sydney (say 30-40km out) on the train line for the fist IP and then 300-400k for the 2nd slightly further out thereafter.

I think we need to have something to look for and to begin researching with.

Thanks everyone. Any feedback always welcome!

 

[devank]

Ok, at this stage I think we?re going to start looking at spending approx.. 500k west of Sydney (say 30-40km out)

I think you have enough in Sydney (west). You will hit the land-tax threshold soon if you haven't already. Why don't you venture out to other states like QLD?

 

[jmillar]

Hi mate,

My initial thoughts:
- You've got $320k cash in offset not working for you. Sure, it may be saving you $300/week (@5%) but it isn't helping you reach your goals of building wealth. I'm only 21 and on a low income, but this year I spent $70k on 2 IPs, and in 4 months they've already gained ~$70k in equity. I've effectively doubled my money in 4 months (on paper) (sort of). Imagine if you were making your (combined) $320k cash work for you in a similar way.

- You have almost $900k in equity. As above, make it work for you. Your return may look nice as a result of this equity, but a couple hundred $$/week isn't going to make you wealthy (especially since you're on high income and don't need it), but if you use that equity to buy well, that can make you wealthy.

- Your IP is giving you approx. 4.2% return on its market value. You will not be able to leverage very hard and build a nice big portfolio if you keep purchasing properties that are heavily negatively geared.

I think you need to leverage harder, and make your money work for you. Rather than buy one or two properties in Sydney in hope of them receiving positive gains, but not being positively geared, and buying at the worst point of the cycle possible, I would be looking at buying lots of little small IPs which will be positively geared and if you buy them well, you will see some nice gains over time while also spreading your risk profile.

You could also look at developments but depends how active/passive you want to be.

I hope this helps somewhat or at least gives some food for thought.

Disclaimer: I'm still reasonably new to this myself so don't feel compelled to take my advice, but my understanding of the basic principles led me to the above conclusions. Base your decisions on the numbers rather than purchasing something negatively geared which might give good growth because it's near a school or train station.