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1 IP looking to buy PPOR

Discussion in 'Property Finance' started by Jimma, 3rd Mar, 2016.

  1. Jimma

    Jimma New Member

    Joined:
    15th Jul, 2015
    Posts:
    4
    Location:
    VIC
    Hello a few details about me, I work as a full time employee on a salary of $61k including super and have 30k in savings at this time. I own a one bedroom apartment in Brunswick East that was bought off the plan for $454,000 and rents out for $1739 a month was settled 3 months ago. Information regarding the loan:

    Loan Term: 30 years
    Interest Only Term: 5 yrs.
    Indicative Interest Rate: 4.90%
    Indicative Repayments: $1597.75
    Repayment Type: Monthly
    Loan amount: $391,286

    I live at home currently being only 24yo but am looking to move out into my own place and from other advice I have been given I may have to sell my apartment to be able to afford it. I thought thought I would get on here and just see what other people recommend and try and get a plan in place moving forward.

    James
     
  2. York

    York Finance Broker Business Member

    Joined:
    24th Jun, 2015
    Posts:
    1,621
    Location:
    Sydney
    Hi James, based on the information you have provided it is possible to move into your own property. Though, things might be tight from a cash flow perspective. Your current net salary weekly is about $850. If you move into your property obviously you will lose the rental income and will have to pay the $400 interest directly from your salary income. This will leave you with about $550 per week. You also need to keep in mind living expenses. If you believe you can manage to live on that then should be OK. Your property seems to be cash flow positive therefore it is putting money in your pocket. Being a fairly new property, I'm sure the depreciation is also very good (assuming you have a depreciation schedule). It comes down to deciding what's more important to you at this stage in your life. Living in the property - which will hit your pocket quite a bit, compared with staying at home and continuing to save money and grow further. Alternatively you can sell the property but this will have associated costs and having settled only a few months ago i can't see a sizeable benefit especially if the value has dropped/val comes in short as can be common with OTP.
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,152
    Location:
    Canberra and Sydney
    Hi James

    Welcome aboard.

    $60k inclusive of super would prob get you a loan amount of circa $280k if you had no other liabilities (just done the numbers for someone on a similar wage yesterday afternoon).

    However - you still need to come up with enough savings/equity and $30k is unlikely to be enough (unless you qualify for govt. grants and concessions).

    I'm not sure how the numbers would look once you add in your IP - I assume your capacity would drop as the yield isn't too high on the current IP.

    Personally - if it were me, I'd milk the current situation and stick it out with the folks and save more cash/invest whilst having low living costs. Having said that though - there's more than just money to consider in these situations!

    Cheers

    Jamie
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,152
    Location:
    Canberra and Sydney
    Hi James

    Welcome aboard.

    $60k inclusive of super would prob get you a loan amount of circa $300k if you had no other liabilities (just done the numbers for someone on a similar wage yesterday afternoon).

    However - you still need to come up with enough savings/equity and $30k is unlikely to be enough (unless you qualify for govt. grants and concessions).

    I'm not sure how the numbers would look once you add in your IP - I assume your capacity would drop as the yield isn't too high on the current IP.

    Personally - if it were me, I'd milk the current situation and stick it out with the folks and save more cash/invest whilst having low living costs. Having said that though - there's more than just money to consider in these situations!

    Cheers

    Jamie
     
  5. Jake Milne

    Jake Milne #1 Buyers Agent, Vic. Business Member

    Joined:
    1st Jul, 2015
    Posts:
    159
    Location:
    Melbourne
    I'm not sure what you bought but if you settled only 3 months ago and you sell now you're likely to lose a sum of money.

    Did you apply for any grants with this property?
    Are you required to live in the property for 6 months of this year?

    If you didn't apply for the grant when you've bought you may have had to pay:
    - Stamp Duty (~$24,750)
    - Lenders Mortgage Insurance
    - Deposit (~$60,000)
    - Legal fees ($1,000)
    - New property premium (New properties are like cars, you pay more for something shiny)

    Then when you sell you'll have to pay:
    - 100% Capital Gains Tax (It's only reduced to 50% after 12 months)
    - Agents commission (~$9,000)
    - Advertising ($3,000)
    - Legal ($1,000)

    So that's at least $39,000 in entry/ exit costs not including LMI and CGT.
    If you sell for $455,000 you'll get your deposit back minus your costs...
    Basically you'll be left with little to no money.

    After working through that, why on earth would you consider selling to buy a PPOR?

    The way I see it is you have three options:
    1. Stay at your parents house. < Smartest financial decision.
    2. Live in your own property. < Don't think this is a good option due to serviceability.
    3. Rent somewhere you want to live in and can afford. < Best lifestyle decision.

    TLDR; Selling a property 3 months after purchasing it is madness. Cool your jets and play the long game. You're 24, time is on your side.