So, I'm fine at the moment with looking for a good rental property. That's available in this forum and magazines.
But, what I'm trying to understand is how to leverage my current PPOR to purchase an investment property. So, how do I find out how much I can borrow from the bank? And, if it isn't enough, how can I increase that amount?
Then, how do I need to structure my loan for my investment property and my current PPOR to maximise tax deductibility.
Also, how do I make sure that my investment property, and future investment properties won't take up all of my salary just to hold them.
Stuff like that.
How to leverage.
The strategy I used to build my portfolio was as follows.
Approach existing lender to "top up" my existing loan to 80% of current valuation. (80% is the loan to value ratio if you want to avoid paying mortgage insurance). You can go above this ratio but will most likely pay mortgage insurance if you do.
Lets look at a basic example. Lets say your current property is valued by the bank at 500k and you owe 250k on it. (Your LVR, loan to value ratio would be 50% of the valuation/property value). You could borrow up to 80% without paying LMI (lenders mortgage insurance).
80% of 500k is 400k so your maximum loan amount without paying LMI is 400k
If your mortgage is currently 250k you could potentially "top up" your loan to 400k in this example. (without paying LMI)
This leaves you will 150k to buy your second property.
You could approach bank "B" and take a new loan to 80% of the value of the second property and use 20% from your 150k "top up loan" to make up 100% of the purchase price.
All of this is assuming that you meet the banks servicability criteria and they believe you can pay the additional borrowed amount.
You could even ask your existing lender to do a loan split for the 150k to keep your investing loan and personal loan seperate. Many lenders can provide a seperate loan ID for the investment portion. Just make sure you don't spend these funds on personal items. This makes it easier for accounting purposes.
Now to make sure your investment properties don't take income from your salary you really need to target positive cashflow properties. Remember to factor in all expenses not just the mortgage when calculating cashflow, insurance , strata fees, council rates , property management fees etc.
There are some good authors who write about investing in positive cashflow properties. I would recommend books by Steve McNight and Robert Kiyosaki. Rich Dad poor dad, is one of my favourites.