We want a bigger house (options for short-medium term investment strategy)

Hi All,

Mine and my wife's investment strategy to date has focused on long term hold in order to both help fund our retirement and to put something in place in case we need to help out our children one day. I'm 32 , my wife is 33 and our son is 3 so we don't need a quick return to achieve this, more so a safe gradual return.

This is what we have at the moment...

PPOR - St George area of Sydney, 3br house purchased in 2007 - owe 460k, worth 850-900k.
IP 1 - Berkeley NSW, 4br house + 1br granny flat purchased in April 2014 for 400k, owe 360k, worth around 420k. Combined rent $570 p.w.
IP 2 - Manly West QLD, 3 br house purchased in August 2014 for 419k, worth around 450k, owe 384k. Rental appraisal $450 - 460 p.w. Listed @ $460 1 week ago, had a couple of inspections. Might lower to $450 to appeal to tenants who search 400 - 450 range.

We have approx. 150k in offset against the PPOR and the bank says we can borrow another 350 - 370k for another IP assuming a rental income of $400 p.w. on said IP. Our combined income is currently around 170k.

Now we'd like to focus on getting ourselves into a bigger house with at least 4 bedrooms and a double garage. Our PPOR is only on a 400sqm block that isn't really big enough to extend on. I guess we could knock down the existing house and build a new house but the existing house is now 90% renovated and would that not be a bit of a waste of a nice little house? My wife insists on staying in the St George area of Sydney for various reasons so that means if we were to move into a bigger house it's going to cost a lot of money.

Ideally if we were to move house I'd like our current PPOR to become an IP as opposed to selling it but I could live with selling it if this is the only viable option.

So I'm unsure how to proceed from here. I don't think buying another IP like the existing ones will get us there anytime soon. I need to put something in place that will generate a much larger return. Perhaps a succession of reno + flips or subdivision? I'm open to suggestions.

Cheers,
Dave
 
You want a bigger house in the same area, but also want to invest more?

Aren't they directly competing goals at the moment?
 
Hi DTG

Do you have the personal serviceability and resources, and risk profile to do what you are looking to do ?

have you sat wih your banker/broker and talked with them about what you can actually do.

id expect that will provide some clarity

ta
rolf
 
We were an extremely similar situation. We revalued our Sydney PPOR (which we bought in 2008 for a similar price to yours, I assume, as our loan was ~$460k too) to $900k and topped up the loan so we were borrowing $720k. With the extra $260k odd plus the cash in the offset to pay for the 20% deposit and stamp duty, we purchased a PPOR upgrade.

Get a good mortgage broker on the case - we used Jamie M and were really happy with everything he did, from the refinance to the purchase of our new PPOR. Like you, we were intent on staying within the area, our new PPOR is about 2kms away from the old one. We will be keeping our old PPOR as an IP.

I've assumed your PPOR loan is interest only - if not, make sure it is as it would be best set up that way if you plan to rent it out.

Cheers!
 
Hi Rolf,

I spoke to my lender's financial planner a year ago and in short was told to do whatever I like provided I keep a suitable contingency based on the size of the portfolio I end up with. In the end the guy was more interested in trying to sell me life insurance than actually recommend anything useful. At that time I owed 500k on my PPOR and had 270k in offset.

My original plan was to break up the offset money into the deposit/stamp/legal costs to fund 4 IPs of around 400k each on a long term strategy to build an asset base to help with retirement and figured at even with zero growth on the IPs I'd still build sufficient equity in the IPs as the loans are P+I that I'd be able to draw against in the future to pay off my PPOR in at least the same time frame, more likely a lot quicker, than just leaving the money in offset and not buying anything. My wife and I had decided we would stay in our PPOR for the time being and revisit if/when an option became available for us to move into a bigger PPOR in the future.

2 IPs later and now it seems we probably won't be able to borrow enough to pick up the 4th IP so rather than lock into a 3rd long term hold IP right now I thought it might be worth looking at options to help build up the kitty and look at the PPOR again since I probably can't complete the original plan as is.

As for serviceability, risk profile etc, that all depends on what I end up looking to do. I'm asking at this early stage what others have undertaken while in a similar position to where I am at present and what the results have been like so I can try to weigh up what may be worth looking into further.

Cheers,
Dave
 
Hi Tess,

Do you have any other properties or just the two mentioned in your post? The reason I ask is if you've just got those two then if you owe 720k on your IP plus if you needed 260k + offset money to fund 20% of your PPOR then that must have cost at least 1.4M, if not more, leaving you in something like 1.7M of debt with only one rental income and Sydney rental yields are poor so that portfolio must be costing a fortune to hold.

Cheers,
Dave
 
Hi Rolf,

I spoke to my lender's financial planner a year ago and in short was told to do whatever I like provided I keep a suitable contingency based on the size of the portfolio I end up with.

I guess thats more about risk management. Most planners arent trained to to go the property path.........its way to risky since most property isnt on an approved product list. A decent broker or forward thinking banker can go trough various models with you

In the end the guy was more interested in trying to sell me life insurance than actually recommend anything useful. At that time I owed 500k on my PPOR and had 270k in offset.

it is important to have the right risk protection in place, if you dont , and are short on "self insurance" much of what peops have worked for could be gone - im a big believer in some form of income protection for most peops.



My original plan was to break up the offset money into the deposit/stamp/legal costs to fund 4 IPs of around 400k each on a long term strategy to build an asset base to help with retirement and figured at even with zero growth on the IPs I'd still build sufficient equity in the IPs as the loans are P+I

This PI bit....... in part thats partially why your serviceability ( both personal and lender wise) may not be what youd like. Most of my clients that are OK with money are quite happy with 100 % offset and IO and pile the cash into the offset - not suitable for everyone though


2 IPs later and now it seems we probably won't be able to borrow enough to pick up the 4th IP so rather than lock into a 3rd long term hold IP right now I thought it might be worth looking at options to help build up the kitty and look at the PPOR again since I probably can't complete the original plan as is.

I guess until you look at "all" the available options IP 3 and IP 4 are not likley to happen. What you are saying makes sense, yet I believe that you can actually buy IP3 and IP4 IFyour personal serviceability is there. If your personal serviceability is NOT there, then it would be foolish to go beyind your personal circumstances even where a lender will lend the dough .

As for serviceability, risk profile etc, that all depends on what I end up looking to do. I'm asking at this early stage what others have undertaken while in a similar position to where I am at present and what the results have been like so I can try to weigh up what may be worth looking into further.



Cheers,
Dave

Once you have a clearer picture of what you can maybe achieve, the options are going to be wider, and that in itself can become a problem for many


ta
rolf
 
Thanks for the comments Rolf. I might run some figures past my lender and see how much difference converting my loans to IO makes re: how much I can borrow.

Cheers,
Dave
 
Hi Rolf,

I spoke with my lender this morning and he crunched some numbers for me based on varying purchase price/rental appraisals from 300k/300p.w right through to 600k/600p.w and they will lend quite a bit more than originally advised (490k for 400k/400p.w and 590k for 600k/600p.w). I enquired about serviceability with the loans as IO instead of P+I and was told it makes zero difference as they calculate serviceability against P+I for all their loans.

So back to the drawing board as the figures are somewhat better than originally thought.

Cheers,
Dave
 
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