What to do with my deposit, What would you do?

Hi all,

I may be in the wrong area of the forum but I would like to get some advice and opinions on what to do with the deposit I have saved up.

My situation is that we are currently renting and are very keen to buy our first home in Australia now we have residency. We have got $55k saved currently and can add to that over the next year if needed. I am a fifo worker at the moment and expect that to carry on for at least until the end of 2015. I am earning around $9k per month take home.

We have a house in the UK which we have been renting out since we left there a few years ago. It currently is cash flow +ve giving us about $250 in our pocket before tax per month.

I would ideally like to take the oppertunity we have with the money we have and buy a PPOR at around $430k (to stay under the FHOG and avoid paying stamp duty. I live in WA) and also buy a cheap investment property around the $220k mark.

To achieve both of these I would have to buy both at 5% deposit and have spoken to my mortgage broker (also a property investor) about this who tells me that if I want to do this, the outlay for the PPOR will be $27600 buying a house at $430k and the outlay for an IP at $250k would be $29k.

In the UK I have equity of about $75k if I sold up and I believe I could remortgage this property to release a further $35k if I needed to. I added that point in case it is something that would help you advise.

My wife is keen to use the deposit we have solely into the PPOR and buy something nicer and bigger. I am more concerned about expanding a portfolio and learning the ropes of investing. The house in the UK was not bought solely as an IP and is now rented to my brother with no manager so I do not really see that I am learning many skills here and investing is something I want to master so I can achieve my goal of having the option to retire from work in 9 years (aged 45)

A short term goal is to own our own home in our favorite holiday destination of Florida and spend xmas 2018 there. This house would also be an IP but aimed at holiday makers rather than long term lets.

I am asking for advice as my wife and I are clashing heads here a little and I do not want to do the wrong thing by my family. We have two boys who are 8 and 12.

My wife also works and is earning around $500 per week take home and often even more. Sometimes $1000 per week. If I were to leave the FIFO role and work in Perth I would be earning about $5300 per month after tax.

I do not have to spend as much as that in the IP, I simply want to buy something I can make some money from and learn the basics and actually take the plunge. I would like something near to where I live so I can add sweat equity if I need to or want to and will be looking for a +ve cash flow property or at least neutrally geared. I know that because my UK property is nicely +ve I can afford a few mistakes with the IP.

I strongly feel that if we do not make this move now to invest it will be something that we will never do and I will enter into a life of averageness working in a job for the rest of my life.

Am I looking to over stretch us? I know lots of people advise about not stretching too much and do not get over leveraged. I have listened to easily over 200 hours of podcasts about property from Everyday Property Investing and Rich Dad Poor Dad and others and I have them on repeat over and over in the car as I drive for sometimes 6 hours a day 19 days in a row so I do feel very very educated and very ready to make the move.

What would you do?
 
Not sure what the exact question is but LMI will be expensive and if it is for a PPOR then it won't be deductible. So ideally aim for a big deposit on the PPOR. Then use the equity to buy the investment.

A cheaper PPOR will be better from a investing point of view as you can pay it off quicker etc, but you have to factor in personal wishes. spouse, kids etc.
 
Would you buy a $430k ppor do that you don't hit stamp duty and then also buy the ip or would you simply spend more on the ppor using most of the deposit, pay stamp duty and leave the ip for a later date.

My wife wants to spend $500k odd on ppor. If we do this the the ip will not happen for about a year.
 
I would suggest you focus on one thing at a time.

Start with your PPOR. As a FIFO worker your family will be there much more than you will be, so it is important that they are happy with it. If not, it will be a constant source of friction as it will affect them much more than you as you are away so much.

My daughter's partner is FIFO. So I am aware of the pressures on the family left alone for weeks at a time.

Once you are all settled you can then explore IP options either here or overseas.

Delaying investing a year or two will not make too much difference in the long run.

Due to different times and finance regulations we did not begin investing till we were much older than you are now.
Marg.
 
Would you buy a $430k ppor do that you don't hit stamp duty and then also buy the ip or would you simply spend more on the ppor using most of the deposit, pay stamp duty and leave the ip for a later date.

My wife wants to spend $500k odd on ppor. If we do this the the ip will not happen for about a year.
 
It depends on your priorities. Assuming you want to buy in Mandurah, $430k can get you a reasonable house in a normal suburb OR $500k can get you a reasonable house near the beach. It's s lifestyle question - why does your wife want to spend $500k? How is her life going to change on a day to day basis by spending the extra?

These questions need to be answered before the investment comes into it, cos it seems the IP is your baby rather than hers. If you need to wait an extra year for the IP it might pay for itself in other, non-monetary areas.
(Ps - we chose $500k by the beach)
 
Well my priorities are to get a portfolio on the go and learn the ropes of investing hands on so I can eventually leave fifo and have a good life with my family.

My wife does not necessarily want to spend the full $500k but fairly close to it as I think she sees that at $430k you are buying an older house if we buy in the area we want to. (Halls Head, close to beach and lovely area, safe for the kids to ride bikes all the way to town center without crossing he busy roads and near the beach so they can go play) Older house will have less features and not be so close to the beach etc.

I don't see us moving from this house for 10 years most likely so I can see the sense in buying a nicer home but as I said, my main fear is that if we do that, we will not buy the IP at all as any extra money will then go into "dressing the house just the way we want it" Big tv, new sofa, nice new bedroom furniture etc etc

Can't see an easy win win situation here and being FIFO does not make it easy to have the essential conversation either what with bad reception and busy lifestyles, kids clubs etc.
 
My wife does not necessarily want to spend the full $500k but fairly close to it as I think she sees that at $430k you are buying an older house if we buy in the area we want to. (Halls Head, close to beach and lovely area, safe for the kids to ride bikes all the way to town center without crossing he busy roads and near the beach so they can go play) Older house will have less features and not be so close to the beach etc.

Uh you can get a pretty nice selection of properties in halls head for $430k last time I checked. I don't think you would need to compromise on much at that price. (300m from beach instead of 200m?)
 
Telling the wrong person there my friend.

If your wife is pretty keen on living in a somewhat premium (for down there) house, then why not rent one down there? The yields are really low so it would probably cost you half the price to rent the equivalent house.

Everyone wins?
 
I see that point but a massive reason for getting out of rentals is that we are both sick of inspections, not being able to do anything to it, paint or renovate etc. I would rather drop the IP than rent again.

We have been out of our own home in the UK for nearly three years now and do not feel settled as we have been unfortunate with the rentals that we been in. The owners keep selling them from under us or wanting to move back into them so three rental homes in less than three years. Tired of moving and want to settle into a normal life again and create a home of our own.
 
You must realise that a ppor is a lifestyle and emotional choice and if you want to get ahead, tying capital up in a ppor is going to hamper the timeframe.

If i was in your position (which i am) then this is what i would do (which i did).

Look for the best ip i could find and afford, one that will be the leveraging stepping stone for the next purchases. Live in it for 6 months to get the stamp duty and fho grants and then rent it out. Then pick the best rental on the market that suits your dreams and rent is half the cost as owning it.

I would negotiate a long lease 2 or 3 years with only 2 or 3 inspections pa.

I would then save the difference in the rent and would be mortgage and put that towards the next purchase.

Then as soon as you can say 6 months buy another well located ip, maybe with value add potential ie development or reno and use that manufactured equity to leapfrog into the next ip. Rinse and repeat. If you did well on the first there maybe equity there to purchase another and the compounding keeps on going.

Plan it right and you should succeed with ease.

Hope this provides another perspective.
 
I see that sense too and like the method all apart from the renting part.

If we rent a nice house in the area we want we will be paying about $450 - $470 per week. I know this to be true as those are the prices we were paying in two of the houses we rented in exactly that area. That works out to be $2036 per month based on $470 x 52/12. For a mortgage on $430k at 5% we will pay $2192 and reap all of the benefits of not having to move on and be able to renovate and add sweat equity in our own home as well as an IP so not not a lot in it.

Also if we spend $430k we will pay no stamp duty at all and only the LMI as we would be at 95% LTV to allow us to buy the IP

I want to live in a house where I can put up a shelf if the room needs a shelf etc etc. Renting in my opinion (and experience) is not too far away from prison. We may have simply had horrible agents but they come through with such a fine tooth comb that you certainly do not feel like you are even welcome in the house. We failed our last inspection for example because of a few hairs left in the sink of the bathroom and some finger prints on the glass.. that's not living in my opinion.
 
Spend some time chatting with Jess who posted above.

She is local to you.

I except Jess will be able to clarify your family goals with you, and to make sure that your family owns those goals, thence set up a finance structure to work with those personalised goals.

Ta

Rolf
 
Renting in my opinion (and experience) is not too far away from prison. We may have simply had horrible agents but they come through with such a fine tooth comb that you certainly do not feel like you are even welcome in the house. We failed our last inspection for example because of a few hairs left in the sink of the bathroom and some finger prints on the glass.. that's not living in my opinion.

That's not really how renting works.

If an agent tried to breach me on that stuff I would have laughed at them and told them to get out of house.
 
I think if we were more knowledgeable about how it should be we probably would be too but I am only at home a short while each month, we have a dog (and that seems to be a HUGE turn off to most land lords) and my wife runs her own full time business as well as being effectively a single mum as I am away so much. I think that, coupled with our lack of knowledge of the system (as we are immigrants) has led us to believe that this was the norm. Even if it had been plane sailing I would have wanted out because I want to own my own home.

Rolf I already have a broker who I have committed to go with and who I am happy with at the moment and on that basis I would not want to waste Jess's time without reward. I have already had my broker carry out a lot of work for me without pay so I feel I owe her a fair chunk of loyalty. I never expected a broker to go through and work with you for your life plans as a family so will consider that for the next time.
 
That's not really how renting works.
My neighbours who rent got a written breach notice for toothpaste on one bathroom mirror.
If an agent tried to breach me on that stuff I would have laughed at them and told them to get out of house.
I'm like you, I would have told the agent to go jump but they don't know the rules so they let the agent bully them. I told them to call consumer protection every time something like that happened and they ended up being on a first name basis with a number of staff there.
 
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