What to do for IP #1?

[auror]

Hi SS'ers

Would appreciate a few thoughts on our current circumstances - suffering from paralysis by over-analysis! Additionally am still getting over the stress of recently buying our PPOR (major hassles and a HUGE lawyers bill), so I wonder if I'm ready for IP #1 less than 1 year later.

Hubby + I bought our PPOR late last year (current val ~ $570k), we have an IO loan owing $476k but have $176k in the offset account.

We are looking at buying a 2 br flat in inner west Sydney - can get for about $430k, currently renting $410 per week, hopefully should be an easy IP to hold because there are already tenants in there so we won't need to look for any etc.

Our take home pay is $3600 per month each (ie. $7200 per month total). We are very good savers - we save about $3600 per month (and that's after meeting our IO payments on the PPOR of $1800 per month).

So we'd have no problem servicing the interest repayments on the new IP.

1. I did some number crunching and it will take about 11 years for our 1st IP to become CF+, is this a concern?

2. Should we buy the property in joint names or his name only for greater tax deductability? (We might start a family in the next 3 years which means I'll be taking time off work)

Thoughts greatly appreciated! Thanks in advance.

 

[ianvestor]

1. I did some number crunching and it will take about 11 years for our 1st IP to become CF+, is this a concern?

Please tell me this is due to rental increases, and not due to paying down the principal on an IP.

2. Should we buy the property in joint names or his name only for greater tax deductability? (We might start a family in the next 3 years which means I'll be taking time off work)

In the name of high income earner is better while negatively geared, but what about after 11 years when you say it'll be CF+... all that rent will be getting taxed at your husband's higher rate. Maybe spend two or three thousand getting a trust set up and buy it in that instead.

 

[auror]

Please tell me this is due to rental increases, and not due to paying down the principal on an IP.

No, no, definitely not due to paying down P&I. More so because the percentage of rent increase outweighs the increase on total claimable deductions (a large proportion being loan interest which stays constant, assuming fixed rates)

However I have just looked at the numbers again, after tax cashflow starts off at -$60 per week and takes 11 yrs to increase to $0 so technically I'm not putting that much in to hold the IP. That makes me feel better about it now.

In the name of high income earner is better while negatively geared, but what about after 11 years when you say it'll be CF+... all that rent will be getting taxed at your husband's higher rate. Maybe spend two or three thousand getting a trust set up and buy it in that instead.

Aah bugger I hadn't thought about that. Many thanks. I'm going to have to read up on these now.

 

[auror]

And just to pre-empt any suggestions that we buy in the $500-$600k range as these properties represent greater value... this being IP#1 we are somewhat hesitant to do so - would rather accumulate a few 2 bedder apartments first to diversify the risk.

Also - not all of the money in the offset account is ours - $100k of it is a 20 year P&I loan I have drawn up with my parents (they wanted to give us a helping hand with our 1st home purchase and we am paying them at the RBA's interest rate) - so we're determined to keep their $100k as a buffer as technically it's not ours. Which really means we have saved about $77k towards deposit, costs, etc. of IP #1.