Upgraging my PPOR or by an IP, which should come first.

[Xjas]

Upgrading my PPOR or buy an IP, which should come first.

First up, Hi, my name is Jason, like most newbies my first post is a complicated (at least to me), and probably already covered question. Hopefully some of you more knowledgble folk can can point me in the right direction.

My current situation...
I have a P&I mortage on my current PPOR and no IPs.
My PPOR was purchased in 05 for $345000 I have done some minor renos, new kitchen, mostly just paint and tidy up, no idea what is worth now, I will be getting it valued soon but for argements sake let say it worth around $380000-400000.
I current owe ~$96000 on the mortgage with $198000 available in redraw.
I am putting currently putting $1700 per fortnight ($44200pa) off the mortgage, I feel this my maximum current sustainable level of income that I can contribute to my loans.
I have wife and 2 small children, the wife is a stay at home mum for the time being.
We would like purchase our first (of hopefully a few) IP soon however we also want to upgrade our PPOR to something in the $600000-700000 range.
The area we wish to buy in doesn't have a lot properties that suit us so it could take quite a while to find what we are after, then again the perfect property could come on the market tomorrow. Since we would own the new house while we were selling our current one I would have to cover the mortage on both. My aim for an investment property is to buy one in the $300000-400000 range that is close to, if not already CF positive.

My question..
Based on my above situation, If I was to puchase and investment property in the next few months and then my ideal PPOR came on the market would the investment property limit or prohibit my ability to get finance for the PPOR, or would I be best to wait untill we have a new PPOR and our old one sold before take my first step into property investment?

Any advice is appreciated.

Regards Jason.

 

[Xjas]

Dagnamit, could a mod please edit my title, It should say buy rather than by and Upgrading rather than upgraging.
Maybe I need spelling lessons rather than investment advice.

Thanx.

 

[BMan]

edit

i cant help you with your post but to edit your title all you have to do is go to edit your post then click "go advanced" and at the top theres a box with your title just edit that and save

 

[Xjas]

i cant help you with your post but to edit your title all you have to do is go to edit your post then click "go advanced" and at the top theres a box with your title just edit that and save

Cheers for that.

 

[Peter_Tersteeg]

Buying an IP is probably more of a wealth creation decision and upgrading your home is likely to be more motivated by personal desires. There's also a few additional things to consider such as:

* Will upgrading your home improve it's value? If it does, you could be in a position to upgrade, then use the increased equity to invest. This has nice result of achieving both goals.

* How strong is your ability to borrow money? The previous option only works if you can afford to increase your overall borrowings a bit extra. If your affordability can't cope with doing both, then you need to decide what's more important.

* What are your longer term goals? Affordability might be fine today, but will there be sufficient to meet longer term goals. Will the decision to upgrade or not upgrade be compatible with longer term goals? Some people upgrade because they want more space for family, so it may not be just about the individual.

 

[Xjas]

Buying an IP is probably more of a wealth creation decision and upgrading your home is likely to be more motivated by personal desires. There's also a few additional things to consider such as:

* Will upgrading your home improve it's value? If it does, you could be in a position to upgrade, then use the increased equity to invest. This has nice result of achieving both goals.

* How strong is your ability to borrow money? The previous option only works if you can afford to increase your overall borrowings a bit extra. If your affordability can't cope with doing both, then you need to decide what's more important.

* What are your longer term goals? Affordability might be fine today, but will there be sufficient to meet longer term goals. Will the decision to upgrade or not upgrade be compatible with longer term goals? Some people upgrade because they want more space for family, so it may not be just about the individual.

Your right that upgrading our PPOR is base on strong desire rather than weath creation, we wish to move to a larger house in a better suburb with a better school for the benifit our young children. We would like to buy an investment property to create weath so I dont have to work 60 hours a week untill I'm 65 like most of the men in my family, both are pretty good motivation IMHO.

I think I can afford to do both, my concern is that having newly aquired an IP and then looking to borrow for an new PPOR while still owning my current one might look bad on paper to a lender, I have no doubt things would be tight between purchasing one PPOR and selling the other one but not unmanageble but I'm concerned a lender might see it differently.

 

[Rolf Latham]

I think I can afford to do both, my concern is that having newly aquired an IP and then looking to borrow for an new PPOR while still owning my current one might look bad on paper to a lender, I have no doubt things would be tight between purchasing one PPOR and selling the other one but not unmanageble but I'm concerned a lender might see it differently.

Perhaps a good option would be to run the idea and numbers past your lender or broker WITHOUT a formal application and see how it looks to them

ta
rolf

 

[Xjas]

Perhaps a good option would be to run the idea and numbers past your lender or broker WITHOUT a formal application and see how it looks to them

ta
rolf

It is my intention to speak to a broker, I'm trying to get a bit of an idea what I'm doing first though as I dont want to be railroaded by a broker into something thats not right for me because I dont really have a good grasp on what is best and what my options are.

 

[Aaron_C]

It is my intention to speak to a broker, I'm trying to get a bit of an idea what I'm doing first though as I dont want to be railroaded by a broker into something thats not right for me because I dont really have a good grasp on what is best and what my options are.

What do you mean by 'railroaded'? A good broker wouldn't do that.

 

[Rolf Latham]

It is my intention to speak to a broker, I'm trying to get a bit of an idea what I'm doing first though as I dont want to be railroaded by a broker into something thats not right for me because I dont really have a good grasp on what is best and what my options are.

understand, in reality though you wont have an idea of whats available to you until you dip your toe into shark pool

A good brokers / bankers role is as much educational, as it is transactional.

ta
rolf

 

[Xjas]

What do you mean by 'railroaded'? A good broker wouldn't do that.

I realise a good broker wont but how does one know one has selected a good broker?

Without going into too much detail when I bought my current PPOR finance was arranged through a broker, issues arose only after exchanging contracts which resulted in me having to change lenders at the last minute, it was very stressful and left me feeling like I may have been push into a product that may have not been the most suitable for me.

Once bitten, twice shy as they say.

 

[Aaron_C]

I realise a good broker wont but how does one know one has selected a good broker?

Without going into too much detail when I bought my current PPOR finance was arranged through a broker, issues arose only after exchanging contracts which resulted in me having to change lenders at the last minute, it was very stressful and left me feeling like I may have been push into a product that may have not been the most suitable for me.

Once bitten, twice shy as they say.

Completely understandable. What were the last minute issues? While everyone is guided by self-interest it doesn't mean every broker tries to push their clients into a particular product or lender. I (and many others) only choose the lender based on the ease of approval / credit policy / product mix since most lenders pay similar commissions and there is a potential conflict of interest with pushing lenders with higher commissions.

 

[Xjas]

Completely understandable. What were the last minute issues? While everyone is guided by self-interest it doesn't mean every broker tries to push their clients into a particular product or lender. I (and many others) only choose the lender based on the ease of approval / credit policy / product mix since most lenders pay similar commissions and there is a potential conflict of interest with pushing lenders with higher commissions.

To this day I dont know what the issue was, I was basically told finance was sorted with the lender, we exhanged and then the lender decided to deny the finance 5 days before settlement, no reason was given AFAIK. It may not have been the brokers fault, I realise they cant control everything, but it came off looking like the broker had done something shady to force me into a product that was more benificial to them, even if that wasn't the case thats how it looked.

 

[westminster]

Hi Jason,
Any of the 3 brokers who have replied to your post will be able to give you an idea if you PM them - they can also arrange a valuation of your property to help with the financial 'crystal ball'.
They are all good and should be able to advise your your servicability for your scenarios.

 

[Aaron_C]

To this day I dont know what the issue was, I was basically told finance was sorted with the lender, we exhanged and then the lender decided to deny the finance 5 days before settlement, no reason was given AFAIK. It may not have been the brokers fault, I realise they cant control everything, but it came off looking like the broker had done something shady to force me into a product that was more benificial to them, even if that wasn't the case thats how it looked.

Was the final product a non-conforming lender like Liberty or something?

 

[Rolf Latham]

To this day I dont know what the issue was, I was basically told finance was sorted with the lender, we exhanged and then the lender decided to deny the finance 5 days before settlement, no reason was given AFAIK..

Not that it matters a whole lot now, but how did u get that past your solicitor, ie, exchanging without something in writing from the lender. Most solis / conveyancers would rather rsis major dentistry without pain relief than exchange without written approval.

Certainly a slack chase on behalf of the broker to not inform you of the reason the lender had pulled finance.

ta
rolf

 

[Xjas]

Was the final product a non-conforming lender like Liberty or something?

I have PM'd you with the details but since I have no proof the broker was doing anything underhanded I dont feel its appropriate to post names publicly.

Not that it matters a whole lot now, but how did u get that past your solicitor, ie, exchanging without something in writing from the lender. Most solis / conveyancers would rather rsis major dentistry without pain relief than exchange without written approval.

Certainly a slack chase on behalf of the broker to not inform you of the reason the lender had pulled finance.

No idea how it happened, to be honest the whole transaction (retrospectively) was an excersize in incompetence but most of the blame has to lie with me, one of the biggest mistake I made was (on the REAs advice) used the same solicitor as the vendor, dont think I got good value for money on that one but lesson learnt I suppose. I also used a building inspector recommended by the REA, the less said about that the better.

 

[Rolf Latham]

I have PM'd you with the details but since I have no proof the broker was doing anything underhanded I dont feel its appropriate to post names publicly.

Sensible and ethical approach

ta
rolf

 

[Xjas]

The more I learn more confused I get I think.

Quick question for the finance guys, hypothetically...

If I buy a $700000 PPOR, with the intent of buying an IP or IPs in the future I would be best getting a IO loan with a LOC yes?
I redraw $170000 from my current PPOR for the 20% deposit on the new PPOR plus the associated expenses.
I sell my current PPOR for $400000, pay off the loan on that property and am left with $130000 which I then pay into the LOC.
Leaving a $30000 dollar buffer in the LOC I am the left with $100000 for a deposit on an IP when I am ready.

I realise I am over simplfying things and the values I used are rough guesses not actual values but is my thinking on the right track or way off?

 

[jingo]

Hi Jason,

It may be best to sit down with a broker from the forum who can explore your options with you. They can even come up with a finance plan involving your intention to build a property portfolio.

Without knowing your income, and family financials its difficult for people to know what is achievable in your own situation. My guess is that as you are able to pay around $44,000 off your home loan each year and support your wife and two children, you must be earning a decent salary.

If I was in your position, I'd probably take one step at a time. If you decide to upgrade your home, I'd sell the existing house first. Then I'd buy the new one and then explore your investment options.

Regards Jason