basic strategy advice

Discussion in 'Investment Strategy' started by Luke957, 26th Jan, 2019.

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  1. Luke957

    Luke957 Member

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    Hi all,
    complete beginner here, but have been trying to learn as much as i can over a short time.

    i purchased a 4 bedroom home on a 850sqm block in outer south east melbourne in 2012, and have since had some growth and is looking to have around 300k in equity.

    i have been wanting to use this equity to purchase my first investment property but the bank is knocking this back on serviceability of the additional mortgage

    my thought i have had, is that i could sell this property, and purchase a 3 bedroom house in the same suburb on a slightly smaller block for around 480k, and put 200-250k of the equity from the sale into this house to reduce loan and hopefully increase serviceabilty in a shorter time frame. the three bedroom i was also thinking would make a better rental later down the track aswell with less maintenance etc.
    downside is that the smaller house/block would have slower capital growth

    just looking for peoples opinions if this seems like a good idea or if im better off keeping the more expensive property and holding off on investing for a while longer.

    thanks
     
  2. kierank

    kierank Well-Known Member

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    You have many options.

    One is rent-investing. That is, you move out, rent out your current property (all of your property expenses become tax-deductible), can even move back any time in the next 6 years and no CGT when/if you ultimately sell, ...

    Some time in the next 6 years, Melbourne property will (probably) hits its bottom, it will (probably) be easier to borrow money again, ...

    I am not a big fan of selling and buying (unless one has very, very goiod reasons) as it destroys so much of one’s Net Worth.

    I am a buy+hold investor - I know that is so last century. With what is happening to Sydney and Melbourne property prices at the moment, I predict B+H strategies will make a comeback ;)
     
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  3. The Y-man

    The Y-man Moderator Staff Member

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    Have you checked with a savvy mortgage broker?



    Transaction costs could kill any money you make - remember it is roughly 5%~7% transaction costs to sell (agent fees, lawyer fees etc) + CGT and 15% costs (on top of purchase price) to buy (stamp duty, conveyancing, loan set up, yaddah yaddah).

    Other ways to look at could be to increase income (worked or investment)

    The Y-man
     
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  4. Luke957

    Luke957 Member

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    thanks for the input, much appreciated!
    rent investing could be an option for me to put some more thought into.
    agreed with the buying and holding, that is what i would prefer to do, was just keen on trying to fast track a little if it worked haha.

    i have not tried savvy, i will get in touch with them, thankyou.
     
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  5. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Savvy is more an adjective in this context not a noun or business name :) There are some good savvy mortgage brokers on this forum. Get an opinion from them.
     
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  6. Luke957

    Luke957 Member

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    appreciate the correction, i read that thinking it was a business name
     
  7. iloveqld

    iloveqld Well-Known Member

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    Not sure about the location but I still thinking 850 is a good size to keep, specially it is proven to gain 300k.
     
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  8. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    one way to leverage when you cannot borrow anymore is to debt recycle. you just pay down your loan and redraw to invest - ideally splitting the loan first.
     
  9. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Some great advice above.

    A couple of thoughts/questions
    1. is your current block subdividable at it's size? Could you carve off a rear block behind the house and sell it?
    2. if it is possible to subdivide it's not always a good idea as it sometimes it's better to sell as a development block if it's a PPOR and keep it CGT free than mess with CGT and GST on selling a rear block
    3. talk with an broker and accountant now to see if it's a good idea to get a LOC on your current equity so that if values drop later you have clear access to it at today's values.
    4. definitely consider renting somewhere and renting out your PPOR. The rent coming in may increase your serviceability to get purchase #2. Again model how the new rent coming in may or may not achieve your outcomes with a broker

    I'd go see @Peter_Tersteeg for broking advice in Melb.
     
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  10. Omnidragon

    Omnidragon Well-Known Member

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    Probably a more useful tip than what any expert will ever tell you. Pile in when no one is buying
     
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  11. Luke957

    Luke957 Member

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    the block is not sub dividable unfortunatly.
    i will investigate line of credit option. i have spoken with a mortgage broker about buying the second property with keeping this current property, but could be a good idea speaking with a different broker who possibly specialises in investment properties..

    thankyou
     
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  12. The Y-man

    The Y-man Moderator Staff Member

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    ....at this point in time,

    Things change (unless there is an overlay).
    Even if it does not, IMHO if the surrounding suburbs become developed, and these are the last remaining bastion of big blocks, there is value there.

    The Y-man
     
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  13. TMNT

    TMNT Well-Known Member

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    Funniest post of the day
     
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  14. Luke957

    Luke957 Member

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    :D haha i knew i would make a dick of myself at some point, too much to learn..... there is actually a (what seems like) large broker firm thats called “savvy” so i made some assumptions
     
  15. kierank

    kierank Well-Known Member

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    To paraphrase someone more famous than me:

    “Let’s someone who hasn’t made a dick of themselves, cast the first stone”.
    We have all made a dick of ourselves at some time on this investment journey. For some it was of no consequence; for others, it wiped them out.

    I would put your incident in the first category :D.

    It is all part of our learning.

    To those who say they haven’t, they are either liars, in denial or have poor memories.
     
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  16. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    Luke,

    I am a Johnny-come-lately to this particular conversation. But for what it's worth, best to hang on to your existing property with the large land value.

    Don't fetishise having an investment property - instead prioritise simply owning good quality assets. It sounds like you already own one on a block of land large enough to give you choices in the future, so don't sell it.

    As many have said: find a good broker and find out what your options are. And if holding on to your current home means waiting a little longer, then best to do that.

    Lastly, I would simply note that when it comes to investing, there is significant "grass is greener'" syndrome. Many people are in the opposite situation that you are in (ie they own investment properties but no PPOR) and many are seeking to unwind this opposite position.

    Hope this makes sense.

    Cheers,
    John
     
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  17. Luke957

    Luke957 Member

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    makes perfect sense, thankyou John
     
  18. Gockie

    Gockie Problem solver Premium Member

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    I’ll use the name “savvy” for whatever business I start. It’s clearly a winner!
     
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  19. Sackie

    Sackie Well-Known Member Premium Member

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    My new favorite word of the week.
     
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