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Advice on next investment steps please

Discussion in 'General Property Chat' started by BCR, 18th Jul, 2016.

  1. BCR

    BCR Well-Known Member

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    Hi All,

    Looking for next steps in my property investment phase - I am more than happy to get professional advice but not sure who I should be seeing for expert advice, I would like to increase my portfolio by an additional 2-3 properties within the next 2 years (wedding on the way etc.) Will then let IP's settle for a few years while I add value through reno's and grab some CG hopefully to fund 2 more later on.

    Based on position below would like seasoned investors thoughts on next steps and/or who I should be talking to for an idea on setting myself up to increase portfolio size as per above.

    Thoughts:

    Reno existing IP's:

    IP1 is fairly clean/new - I think spending $10k would net me $20-$30k in reval.
    IP2 $20k reno = $40-50k reval.. Access equity for another IP purchase?

    Also interested in going for an older house on a good block and doing reno to bring up yield & then subdivide & granny flat for further yield and CG as an example, really not sure where or what though?


    Position currently

    Property 1 - Apartment Drummoyne , value $750k

    Property 2 - House - Jamboree Heights QLD, value $550k

    Cash on hand - $150k

    LVR - 76%

    I also thought given Property 1 is neutral/almost positive to setup loan as P&I and have it pay itself off (set and forget)?

    Apologies for the long post, am keen to hear your thoughts and ideas.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    First point should be to work out if you can borrow or not - see a broker for this. If you cannot borrow then you cannot buy (probably!)
     
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  3. Leo2413

    Leo2413 Well-Known Member Premium Member

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    All comes down to your goals and what you want to achieve and timeframe.

    1. Stop, think about where you want your investments to take you and what goals you have.
    2. See a broker to determine exactly how much you can borrow.
    3. Choose a strategy/direction that gets you closer to your goals. Before each purchase you should be asking yourself how does this strategy/property get me closer to my goals. Don't just buy for the sake of buying.
    4. When you know what your looking for and why your looking for it, go after it.

    Just my 2 cents.
     
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    When your why becomes clear, the how becomes "obvious"

    I too am one for the goals definition, and use lots of various coaching resources/tools to help the "lost".

    Half of our new clients come to us with no real "end game".......... while its ok to build wealth because it seems like the right thing to do, one will enjoy it more and get a more specific outcome around life goals.

    ta
    rolf
     
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  5. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    I reckon if its an investment, keep it on interest only, for the reasons that you'll have more tax deductions to claim and you can use your money elsewhere such as in a PPOR. And if you dont have a PPOR to put the money into, then simply keep extra funds available in offset.

    Ps. Terry's tip of "if you cannot borrow, you cannot buy" rings very true though... that's your first thing to find out if you want to build a portfolio. So talk to a good broker.

    I know loans are being assessed by the banks at mid 7% interest rates, even though they are actually in the low/mid 4's. So even if your cashflow from your IPs are fine, on paper it could be much worse than what you think in the eyes of the banks.
     
    Last edited: 19th Jul, 2016
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  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You might find that a good valuation will negate the need to reno your IP's if equity release is the only desired outcome - ie - if it's not needed to increase rent or to make the property more desirable to tenants, gets some valuations done first.

    A good desktop val can save the hassle and give you just as much, if not more equity.

    Your broker will be able to do this for you. Which lenders are you currently with?
     
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  7. BCR

    BCR Well-Known Member

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    Thanks all for your input,
    I'll try to add a little more info based on responses.

    No issues with lending and have a good broker that I work with, have the green light from the lending side, servicing calculating at ~7% however salary wise etc I am fine to cover. As per previous post I would like a higher yielding property though so the lending brakes are not applied for IP 4 purchases down the track due to serviceability questions.

    My end game is to have ~10 IP's (dream big!) hold and add value over 20+ year ownership. Sell down half the portfolio and use CG earned to pay down remaining hold properties and maybe a bit of rainy day money to play with. Use the now positively geared portfolio when I am ~50 to bring in additional income, retire early or perhaps live in a nice rental using the income to pay the rent on my live in property.

    So my goal is more about financial flexibility and creating options for later in life rather than outright freedom/quitting job etc.

    I'll be renting for the next 5-10 years to kep capital free and remain flexible with work etc.

    I have had both IP's reval'd in the last 3 months and values are current. IP1 price ceiling is $800k so dont want to over cap here, rent won increase much either.

    Let me know what you think or if you recommened a professional that may be of benefit for me to sit down with,

    Thanks again
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Assuming your income is pretty average, you may find this difficult to achieve with a buy and hold strategy. Most people will find they need to consistently pay down significant debt to keep accumulating due to the APRA servicing restraints. This means looking at not only ways to add value, but ways to increase cash flow and also reduce debt, through subdividing and selling some for eg.

    Your broker should be able to give you an idea of how much you can buy before you're maxed out - but bear in mind that maxing out means extending IO terms can be tricky, so careful, holistic portfolio planning is needed.
     
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  9. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Totally doable. But your gonna have to learn your stuff and network with the right people. Massive commitment too.


    What net passive yearly income you looking at? This will also determine a lot. The effort to get 100k in 20 years will be different to getting 500k.
     
  10. BCR

    BCR Well-Known Member

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    Hi Jess,

    I agree on the whole reducing debt piece and as per my OP thoughts were around adding value to increase rent and build a little extra equity or look to buy a block and subdivide etc.

    My income is $160k so average wage however will increase over the next few years but nothing too drastic. I will speak to my broker around maxing out figures, I do want a higher yielding property next time round to assist my serviceability numbers for future purchases and balance out the portfolio with CG and cash flow options.

    Leo thanks for you input, I am not in an urgent rush to do any of this although I like to have the wheels turning and have goals to work towards. I would say $200k would be nice round number so am assuming around $4m in cleared/paid property (based on 5% yield) big goals but I do think achievable even if it's 25 years etc.

    Would there be a benefit or are there professionals out there that can look at your situation and brainstorm potential end game scenarios?? Would be keen to know what sort of other options could be looked at.

    Thanks
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A wage of $160k is not average! It is very high compared to most people. I see people earning $40k for a full time job in Sydney.
     
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  12. BCR

    BCR Well-Known Member

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    Seems I am a fair bit off : $ most of Sydney siders average wage is around $80k? Based on colleagues and friends I am earning similar to what they earn (one is train driver clearing $170k per year)

    I should also correct that my salary is $140k with an annual corporate bonus of 10-15%.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You are on a very good income from what I see.
     
  14. BCR

    BCR Well-Known Member

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    HI jess, I am with St George currently, I will be looking at fixing rates after my next IP purchase as well

    I have never heard of desktop valuation, I found out my previous valuation that they marked the second room as a study based on its size - I have a small second room (3.1x2.6m) however big windows on both sides looking out to harbour bridge.. There are quite a few unique aspects of my unit in the block which I thought the valuers at the time did not pay attention too however both came in at around $750k.
     
  15. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    A desk top val is a modelled estimate that can be used in some scenarios - get your broker to run a few and see how they come back. You might find you can save your time and effort and not worry about the reno at all - especially if the full vals come in lower than expected.

    Which St G product are you in? Are your loans crossed?
     
  16. BCR

    BCR Well-Known Member

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    Yes, don't mind the idea of requesting a desktop val, will chase this up.
    I have the following loan config:

    IP1 - interest only loan with 100% offset (advantage package)

    IP2 - Interest only loan with 100% offset (adv package - separate loan)
    IP2 - Equity loan secured by IP1 with 100% offset (adv package - separate loan)
     
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  17. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    St G desk tops are conservative in my experience, so you may find you need to change lenders. Still way cheaper than a reno though!
     
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