Advice for a newbie into purchasing first IP

Discussion in 'Property Finance' started by Mucksy, 8th Jan, 2019.

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  1. Mucksy

    Mucksy Member

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    Hi All,

    Firstly I’d like to introduce myself as this is my first post and have to be honest and say that I have only stumbled across this forum about a week ago as myself and my wife are thinking of puchasing our first investment property in 2019.

    We bought our PPOR in 2015 and believe the time is right and we’re ready to leverage of some equity. Our PPOR is in Brisbane and will be looking to buy our IP in Brisbane.

    Some details –
    2015 purchase price of PPOR - $567k
    2018 valuation on PPOR - $630-650k
    Mortgage Balance - $450k
    Calculated Equity - $70k
    Cash in offset account - $20k

    Were looking to invest into a 3-4 bed house on the Northside of Brisbane (hopefully middle ring) with a budget of approx $600k. Hoping for rental yield of approx 5% to service mortgage repayments. I feel we are comfortable to throw $5k (if needed) at property annually to maintain property (maintenance, agents fees, insurance, etc).

    We have just had our first baby and wife wont be back at work until mid 2019. When we are both working fulltime our combined income is approx $190k before tax, but of course that’s wont be available for a little while (she’s looking at returning to work 3 days to start off with). While this is happening my guess at combined income is approx $150k.

    We’re really not looking for a quick buck, just an investment that will deliver decent growth (hoping approx 5%) over a decade or so to knock off a good chunk of our mortgage on our PPOR. Not sure if this is too optimistic or not. As I stated before, this will be our first IP so there are a few things to get my head around.

    a) Is this plan achievable?
    b) Is $5k enough per year to maintain a typical property described above?
    c) Would bank loan us the required $ (IO loan) to purchase?
    d) I have heard that Commbank will approve loans considering mums earning potential prior to returning to work, if they can gain letter from employer to state return date. Anyone know if this is true?

    Any help would be greatly appreciated as owning an investment property is very new for us and looking to be as educated as possible before taking the plunge! Thanks.
     
  2. Trainee

    Trainee Well-Known Member

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    Good mortgage broker first. Dont do anything else before that.
     
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  3. Mucksy

    Mucksy Member

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    I've got that from the purchase of our PPOR. I'm just wanting to see what people on here think so I can compare with his strategy/plan/advice.
     
  4. Property Twins

    Property Twins Finance Strategists Business Member

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    Are you looking to sell this property down the track to enable paying off your home loan?

    There are a few lenders who allow borrowing during mat leave based on return to work income, you will need to show you have sufficient savings to cover the borrowing capacity shortfall during this time frame. E.g. shortfall of $1,000 per month, assuming your wife returns to work in July, you will need to show $6,000.

    What price point will this North Brisbane property be?
     
  5. Mucksy

    Mucksy Member

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    Yeah, well that’s the plan as I’m under the assumption that it’s a good plan to make paying off PPOR a priority but -
    a) there could be a better plan
    b) if there is substantial growth of IP down the track, it may be worth keeping.

    Budget of North Bris property is approx $600k.
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Hello! Welcome to the forums :)

    $70k isn't quite enough to buy your IP with a decent lender when you consider buying costs like stamp duty and so on, but if you originally paid LMI you might be able to go over 80% and reuse the lmi and only pay an adjustment. This canals you too borrow more and can work quite well BUT it's really important to do a proper budget to make sure the family can cope in the event something comes from left field - specifically, a surprise baby #2 :)

    In terms of costs flow/cost to hold the INV property, I have a calculator that might help - flick me an email and I'll send it through to you.
     
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  7. Mucksy

    Mucksy Member

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  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Will send it Monday when I'm back in the office - I'm banned from my computer until then :)
     
  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Killing off the Non ded debt quickly is a good plan, and can be done in conjunction with an additional IP, but not if your cashflow is stretched and you are relying purely in Projected IP growth and deductions to grow wealth.

    ta
    rolf
     
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  10. Greyghost

    Greyghost Well-Known Member

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    $70k equity $20k offset.
    You need to maintain 6 months salary in offset, or else risk loosing one/both properties Ivan unfortunate event arose. So you need to exclude that amount from your available capital.
     
  11. Mucksy

    Mucksy Member

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    Hi Greyghost,

    Why would you recommend the need for 6 months salary in offset? Is this purely incase of income loss as myself and my wife have very secure jobs. I'm currently paying off a $15k car debt as well as a $10k hecs debt but both should be paid off in approx 12 months. After this we should have $12-$15k thats freed up per year and plan was to build up offset then.
     
  12. Mucksy

    Mucksy Member

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    Not really relying on deductions to grow wealth, however would be relying on IP growth to grow wealth. Appart from adding value to IP (renos, etc), how else to get growth out of the IP?
     
  13. Mucksy

    Mucksy Member

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    In all honestly, we're probably closer to 12 month away from purchasing a property. I've done some loose calculations and should have approx $100k equity in PPOR by 2019. I'm just wanting to be as prepared as I can be leading up to our first IP purchase.
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    perhaps look at an active debt recycling strategy in parallel to IP

    ta
    rolf
     
  15. Mucksy

    Mucksy Member

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    Ok, a little update.

    Since original post I have been talking with our mortgage broker regarding funds available and the first thing he recommended was getting a bank valuation. This was done yesterday and has surprisingly come back higher than the market appraisal from the RE. New figures below -

    2015 purchase price of PPOR - $567k
    2018 BANK valuation on PPOR - $675k
    Mortgage Balance - $450k
    Newly calculated Equity - $90k
    Cash in offset account - $20k

    According to my calculations if I was to buy an IP of $520k ($500k purchase + fees) the overall LVR considering the 2 properties would be 76.7% (under 80%). Is this calculation correct? Am I right in saying that I would be exempt from any LMI?

    As stated in the original post, We're looking to buy in mid north Brisbane ring. Just trying to figure if its a good time to act and jump in with the purchase of our first IP (given now we have a decent bank valuation on our PPOR) or wait until the RC final report is revealed in the next month or two (I know that final point has probably been asked a million times over already on this form).......
     
  16. The Gambler

    The Gambler Well-Known Member

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    Just general advice from my perspective.
    1. No job is 100% secure.
    2. Nobody can predict the future.
    3. You must have a strong Plan B (or rich parents willing to bail you out) if it goes pear shaped.
    4. Budget 10-15% over. Never budget on or under.
    5. Life and IPs are the same - something always comes up.
     
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  17. Archaon

    Archaon Well-Known Member

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    What do you predict will grow the value of the property, will it be above the rate of inflation?

    Make sure you don't "cross-collateralise" your loans to try to achieve under 80% total debt, each property needs to be borrowed and accounted for separately.
     
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  18. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If the LVR is as you say, you won't need to pay LMI. But be careful to ensure that your broker doesn't cross secure your properties - it's a poor way to structure the loans and can end in tears down the track.