Advice please. Stragety to buy 2 IP within 2 years for low income.

Discussion in 'Investment Strategy' started by lylia_autumn, 3rd Aug, 2018.

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  1. lylia_autumn

    lylia_autumn Member

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    Our combined income is 100k. Expected next year will be 120k. We have a PPOR in VIC under 100% my name that paid in full, no IP. We will need to borrow 150k to do reno (for sharing rooms with others people, rental income?). Our aim is 2 purchased within 2 years.

    Q1. Is that possible with our income? And how?

    Q2. At the moment we have 2 options to choose from: a place for sale 2/1/1 that fits our budget ~ 300-400k. 10 mins walk to a station that will be a huge station which connects to the airport, but in a very long time. Rent 350pw, very low capital growth 2%. Or a H&L in Ballarat ~400k
    Which one is better for the long term?
    As the second one won't give us any income until 12-18 months, would it be smarter and possible to purchase the first one, rent it, and use that one for security to purchase the H&L within a year? Will the bank service our loan?

    Thank you in advance guys, all new to this. We will go to an accountant, broker.. but at the moment we haven't found any one that good but not too expensive for us yet. Any suggestion will be appreciated too.
     
  2. astonma

    astonma Well-Known Member

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    Hiya @lylia_autumn To buy two in quick succession you would need to buy one in your name and one in your partners, really roughly if you are on 50k p.a before tax then the bank may allow you around $300k of borrowing individually assuming you have no debts or available credit card facilities. If i was you i would be asking myself, 'what can we do that will create the most equity over the next two years" rather than "how can we buy two in two years" . I don't know whether you are chasing growth or income or a mix though but that is what i would be asking myself. One well located good quality asset is better than two poorly located assets also in my view.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    most brokers wont charge most clients most of the time.

    Too expensive is a loose term ...... what is too expensive for great advice is much better value than poor advice that is cheap.

    ta
    rolf
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Q1 Impossible to say based on the income provided.

    Sounds like you might be able to service a loan of that size though. But it will depend what the money will be used for – fixed price building contracts etc. A bank would not want to see their security being converted into a rooming house though.


    How? You borrow from a bank using the property as security.


    Q2

    Subjective question, impossible to answer without knowing your definition of ‘better’ and a crystal ball.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I don't see why this would be the case.
     
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  6. spludgey

    spludgey Well-Known Member

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    Sorry, but to me this is definitely a "want", but a "need".
    Is there demand for shared accommodation where you live?
    Is it definitely something you're happy to do (I shared for 12 years, it's not always fun)?
    Have you considered possible CGT implications?

    As for the property, where is the first one located? I wouldn't really buy in Sydney or Melbourne right now.
     
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  7. purplecat

    purplecat Well-Known Member

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    I’m guessing Sunshine, plans to connect the airport railway. If it is, it’s in Melbourne
     
  8. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Hi @lylia_autumn

    I see you're quite new to the forums - welcome, hope you learn lots. :)

    There probably isn't much point pondering which suburb is "better" to buy in over another, or which name to buy in is better, before first speaking to a mortgage broker. Once they've told you how much you are going to be able to borrow, things will be a lot clearer. It may rule out some suburbs due to affordability, thereby making your decisions more efficient. I am confused as to why you feel you have only these two properties available to you as options to buy property. Sounds to me like you may have been to a seminar with a "wealth" company of some description, who are advising you that these properties are what you need. There are often kick-backs paid to such folks by developers, so tread carefully. Also remember with new property your ability to force value growth is limited because it's already shiny and new. New properties can have their place in a portfolio depending on the situation, but tread carefully.
     
  9. Sackie

    Sackie Well-Known Member

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    Imho your 'strategy' and places you are looking at buying at best wont have you creating much wealth for a veeeery long time and at worst may see you end up with negative equity.

    And the whole 150k reno to me seems like a waste of money, effort and borrowing power.

    I'd start from scratch . 100k income . Meet with broker and determine borrowing power . Then if it were me, I'd choose older home, middle ring Brisbane with add value potential in good OO area . Maybe 2 if serviceability permits .

    Stay away from that 400k HnL in Ballarat . Disaster.

    Not specific advice, dyor.
     
  10. Jaxon Avery

    Jaxon Avery Well-Known Member

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    Q1. Is that possible with our income? And how?
    Yes,
    by structuring a clear understanding of how to keep serviceability but still buying more properties (cash flow positive, equity built)

    Q2. At the moment we have 2 options to choose from: a place for sale 2/1/1 that fits our budget ~ 300-400k. 10 mins walk to a station that will be a huge station which connects to the airport, but in a very long time. Rent 350pw, very low capital growth 2%. Or a H&L in Ballarat ~400k
    Which one is better for the long term? To wide a question to answer for you, so many variables. so either.

    As the second one won't give us any income until 12-18 months, would it be smarter and possible to purchase the first one, rent it, and use that one for security to purchase the H&L within a year? Will the bank service our loan? once again there are way more options than just that, but your right with the serviceability but it depends how they assess the IP
     
  11. astonma

    astonma Well-Known Member

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    Logic here was that if they buy the first one in both names then bank will work out serviceability for the second purchase based on whether they each have the ability to service 100% of the first loan which will make another $300k purchase in short succession difficult, are there ways around this? My understanding is that generally it's best to buy in individual names for as long as you can
     
  12. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    If you have two people on title (person A and person B) and two people on the loan (person A and person B), then if one person (person A) defaults on their part of the loan, the obligation for the entire loan repayment obligation falls to the other person (person B). The difficulty is that for either person, when attempting to buy their next property either alone or with another person, the bank will take the view that on property number 1, the person has the responsibility for the ENTIRE loan but only owns HALF of the property and HALF of the rental income. As such, person A and person B might strike trouble on property number 2 if number 1 is not done correctly. Speak to a broker that is strong in investment loans.
     
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  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think you must distinguish between ownership and borrower.
    It all depends on who the borrowers would be and their serviceability.
     
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  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This may be true in some instances but not true in others.
     
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  15. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Yup indeed @Terry_w . Thus my use of the word "might" to indicate it isn't the case in all circumstances :)
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I was referring to the first bit.
    There are 3 aspects to consider
    a) borrower
    b) mortgagor
    c) owner

    All 3 could be different! Often the borrower is the mortgagor but not always.
     
  17. astonma

    astonma Well-Known Member

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    Could you give an example where mortgagor and borrower are different?
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sure
    Owner is A
    B borrows against other property and uses this, without loan, to pay the property.

    Normally this would be onlending, but not always.
     
  19. astonma

    astonma Well-Known Member

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    Thanks!
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That was probably not a good example, here is another

    Company owns property
    Company mortgages property
    Individual borrows

    Common with unit trust schemes