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Advice on Strategy please, starting with IP 1 . . .

Discussion in 'General Property Chat' started by CountryNSW, 19th Jul, 2015.

  1. CountryNSW

    CountryNSW Member

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    19th Jul, 2015
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    Location:
    NSW
    We have some capital (say $200k) which we wish to grow to purchase future property (might need $400k? more? ha, always need more!) but no income to service a loan as we own a business which supports our family with no surplus. Nearby is a house for $120k which currently rents for $235 pw, which we could buy outright, but it has limited potential for growth or resale (council zoning issue). Then, using income from this IP 1, we could get a mortgage for IP 2, with a better growth prospect in better location, say using remaining $80k for deposit and borrow approx. $140-180k, and use rental from 1+2 to service debt, pay it down in about 10 years, and then have greater equity to purchase further property or borrow against income of 2 rentals to buy said future property?
    What are the flaws in this plan, risks, problems? Could it be improved? I think there's enough buffer in there for interest rate rises? We're in the country so houses sell for low $$, rentals are fairly reliable but growth may be less than capital cities? Any other ideas? Thanks.
     
  2. Hodor

    Hodor Well-Known Member

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    If you have an asset producing $235pw and no loan against it it will certainly add to your serviceability for future purchases.

    I like that you have a plan, ie. buy a cashflow property to support a capital growth property. Where to from there? Why do you want $400k? - This is important for structuring now.

    You could do things a lot better in terms of making your investments more tax effective, saving you thousands.
    Firstly do you currently have a home loan?
    Where is this $200k coming from? equity release from your home? Cash savings/other cash injection?

    You will have more flexibility and options down the track borrowing 80% on the first IP and 80% on the second. The rest of your money should be placed into an offset account, you will have the same interest repayments.
     
  3. Hodor

    Hodor Well-Known Member

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    If you have an asset producing $235pw and no loan against it it will certainly add to your serviceability for future purchases.

    I like that you have a plan, ie. buy a cashflow property to support a capital growth property. Where to from there? Why do you want $400k? - This is important for structuring now.

    You could do things a lot better in terms of making your investments more tax effective, saving you thousands.
    Firstly do you currently have a home loan?
    Where is this $200k coming from? equity release from your home? Cash savings/other cash injection?

    You will have more flexibility and options down the track borrowing 80% on the first IP and 80% on the second. The rest of your money should be placed into an offset account, you will have the same interest repayments.
     
  4. monalisa

    monalisa Well-Known Member Premium Member

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    Location:
    Sydney
    Brokers here can advise on serviceability.

    What are the vacancy rates in the area? Is $235 per week per comparable rentals?
     
  5. CountryNSW

    CountryNSW Member

    Joined:
    19th Jul, 2015
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    Location:
    NSW
    Hi, thanks for replies. We don't have a home loan and at this stage wouldn't qualify for one based on our business income, so cash is from other savings. This plan is to create a cash flow that we can then borrow against to build up property holdings. Thanks for the advice re tax, yes that could be an issue, so we could take remaining cash in an offset and reduce tax whilst increasing pay down rates. Yes, those are the current rentals in that area, other houses in adjoining streets $220-$250pw.
     
  6. jpcashflow

    jpcashflow Well-Known Member Business Member

    Joined:
    21st Jun, 2015
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    Location:
    Melbourne
    Hi,

    Firstly most banks will only take 80% of the rent into consideration. But banks will also take into account living expenses. If you need a hand please fill free to contact me.
     
  7. CountryNSW

    CountryNSW Member

    Joined:
    19th Jul, 2015
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    Location:
    NSW
    Thanks, taking the plunge and going ahead with IP1, subject to inspections, this week . . .
    From reading PC conversations (thank you! a wonderful informative forum) it looks like I would benefit from using a mortgage broker for IP2, are there any out there who would be familiar with country areas of NSW? We'd have about 80k and looking to borrow about 160k, using rent from both houses to service loan, conservatively (thanks, jpcashflow, I usually use 60% in my calculations so that should be a good margin) should give approx. $1200 per month to service loan. That should work do you think?
    (Hodor, Goal is to buy a personal property in 5-10 years time, value approx. $4-500k, and either be able to pay for it or to be able to service a mortgage on it. Some long term rentals for retirement would be handy too ;))
     
  8. jpcashflow

    jpcashflow Well-Known Member Business Member

    Joined:
    21st Jun, 2015
    Posts:
    371
    Location:
    Melbourne
    Hi Country NSW,

    I am from Melbourne and I still assist clients from every state. If you need a hand I am more than happy to assist.