3rd Property - where and why?

Discussion in 'Where to Buy' started by househuntn, 5th Feb, 2021.

Join Australia's most dynamic and respected property investment community
Tags:
  1. househuntn

    househuntn Well-Known Member

    Joined:
    26th Apr, 2016
    Posts:
    161
    Location:
    Melbourne
    Jumping on the property train again and trying to decide where to buy...again. A bit of background

    1st property - Outer East Melbourne 2016 - in hindsight, not the best investment choice, but it was a combination of being priced out of closer suburbs, fomo, and wanting to buy in Melbourne.
    2nd property - Ballarat 2018 - Ideally I was to purchase in Geelong but Ballarat has/had better price/yield.

    3rd - My broker said I can get a loan of 400k-450k (~500-550k purchase price). That would basically max borrowing capacity, unless I go to Liberty for the 4th (I most likely won't so would leave it at 3, and work on debt reduction). The other option is 300-350k purchase price leaving more room for a 4th purchase without going to Liberty.

    Option A - 400-450k purchase in regional VIC
    Advantages - Vic population, jobs and (historically) better CG in the larger regional towns compared to my other options
    Disadvantages - (a) Maxing borrowing capacity (b) having 3 CG properties (c) LAND TAX (d) being greedy with CG purchases
    Option B - 400-450k purchase in Moreton Bay
    Advantages - Petrie Uni
    Disadvantages - Price. FOMO. Being greedy with CG potential. Lower yield compared to below options. Probably going to be relying on land banking. I don't see renos adding value from looking at past sales
    Option C - low 300's value purchase in Adelaide Salisbury/Okaparinga
    Advantages - Low price, higher yield, potential value add = instant equity
    Disadvantages - I've factored in less CG compared to the above options, but this is a safer option that can provide both CG and gross yield (5.5-5.8%)
    Option D - low 300's Logan
    Similar to C but I see less CG potential. Also rates $$$

    My thinking - (1) If I'm about to be maxed out I might as well go aggro and go for Moreton Bay. Disadvantage - what if interest rates rise or some other stress factor that affects ability to service the loans (2) Option C+D could provide value buy and reno potential = instant equity (3) If higher yield properties don't increase your borrowing capacity like they used to, why not go for a 3rd CG property
     
  2. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    4,982
    Location:
    QLD/Australia Wide
    I'll just respond to this piece and leave the rest to more knowledgeable people here.
    In lender servicing calculators there is a buffer built in for future rate rises already. Borrowing capacity is currently based on at least 2.5% more than the actual rate you receive, your first and second purchases likely had a rate of 7.25% on the servicing calculator as well.
    So you should be able to service the debt even if rates increase assuming your income remains at the same level.
     
    househuntn likes this.
  3. Dishala

    Dishala Well-Known Member

    Joined:
    1st Feb, 2021
    Posts:
    56
    Location:
    Sydney
    So if interest rates are sitting around 3% presently then the servicing calculator will provide your borrowing capacity based on 5.5% interest rate? Is that what you mean? But the calculator actually asks you to input the interest rate so I'm quite confused what you are saying
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    4,982
    Location:
    QLD/Australia Wide
    Sounds like you're using one of those publicly available online calculators and not an actual serviceability calculator, they are inaccurate.
    I suggest engaging a mortgage broker if you want to know your actual borrowing capacity.