Best way to structure my investment strategy/portfolio.

Discussion in 'Investment Strategy' started by PaoloTan, 7th Sep, 2020.

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  1. PaoloTan

    PaoloTan New Member

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    Hi everyone, newbie property investor here in Australia. Just seeking advice on how I can maximise my investments.

    I have 2 properties; one is a PPOR/investment property and my new one is an investment property.

    Property A is a 6 bedroom house which I bought for $551k and had roughly 51% downpayment @ PI 3.14% interest rate fixed for 3 years. I'm currently living in one bedroom and rent the other 5 bedrooms. I make $860/week on the house and a lot of the bills were deducted as a business expense. Weekly mortgage repayment is $271, so I'm very positively geared.

    Property B is an investment property worth $460,000. I've paid roughly 70% downpayment. It's a PI investment loan at 2.34% fixed for 3 years, linked to a 100% offset account. It's tenanted at $450/week. Weekly mortgage repayment at $95. Both properties I privately manage. Both mortgages are from different lenders.

    As you can see, we have a family business which I get a lump sump every year from a family business. I also work as a Registered nurse earning ~$70K per year, depending on my hours, penalty rates, and overtime work. I'm single and without kids.

    How would you structure my investment strategy with my current assets, assuming I won't get anymore lump sump cash in the future? I would want to be able to secure more properties aggressively in the future using my equity and cashflow, and as quickly as possible. Both properties are also under my personal name so would it be advisable to consider making a trust? I want to be as flexible but secure at the same time. I do have a mortgage broker that I trust but I want to get other's insight re: my situation. Thank you!
     
  2. Terry_w

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

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    I would not be paying deposits like that on rental properties generally.
    Probably best to try to borrow further against these properties and use these funds to invest and keep the cash in offsets.

    You would need legal advice on whether a trust is suitable.
     
  3. Gen-Y

    Gen-Y Well-Known Member

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    It really depends on a few scenarios:-
    1) Where you are buying IP - Which states?
    2) Your current borrowing capacity? Serviceability?
    3) Your available deposit for next purchase 20%?
    4) Have you use up your land tax threshold for each state where your IP resides?

    Those are the things that comes off the top of my head.
    If it is self manage - banks aren't iffy about those income that is self declare.
     
    Peter_Tersteeg likes this.
  4. PaoloTan

    PaoloTan New Member

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    Thank you, Terry:

    Is that because of tax incentives. Without the lump sump my serviceability was not desirable so the large downpayment for the 2nd one gave a better chance to secure properties in the future quickly.

    as I have read in your other posts, so obviously I should not cross collateralise my next properties which I’ll be using equity for. Is it smarter to pay off 20% as deposit or stretch out my equity and only use 10% deposit plus LMI until I max out my serviceability?

    Kind regards
     
  5. PaoloTan

    PaoloTan New Member

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    I’m buying in the Gold Coast, possibly Brisbane. Not the best capita growth compared ot other cities but I’m comfortable with it.

    Just settled with the 2nd IP so will be assessed soon by my broker.

    i was thinking of using equity and pay off 10% down plus LMI to stretch out my equity until I max out on my equity.

    will be exceeding the threshold in QLD this financial year. Is there a way around this?

    Thanks!!
     
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    If you've got the option, you'd always go for a 20% or even 30% deposit. Borrowing less today means you've left more borrowing capacity for later. The bottom line is people should always be saving regardless, it's just a question of how best to use those savings.

    Also why pay LMI if you don't have to?

    There's also a of of unknowns here. Do you live in your own home, do you have debt against it? If you have a loan on your own home or expect to in the future, you're probably better off use equity for investing and divert your savings to paying off the loan on your own home (even better to offset it). There's also your future servicing capacity to take into consideration, understanding your limits should also be guiding your future decisions.
     
  7. Lindsay_W

    Lindsay_W Well-Known Member

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    Using a larger deposit doesn't increase your total borrowing capacity so if your serviceability wasn't enough for the 2nd one without such a large deposit - what has changed since buying it? Has your income increased? (not including rental income)
    Has your broker mapped out the finance strategy to show you how many properties you can afford to buy based on today's numbers?
    Generally should avoid cross securing your properties, it's possible to use equity from one property for deposit and costs of another property without cross securing them (subject to serviceability)
     
  8. PaoloTan

    PaoloTan New Member

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    Thank you Lindsay!

    For my second property, my borrowing capacity at the time was ~450K. I had ~15% downpayment but then I got the lump sum. I paid the lump sum thinking that would get me my succeeding properties quicker.
     
  9. Terry_w

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

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    If only you had sought some advice. You could have done this much more effectively. An example might have been to use a trust to hold one of the properties with a related party loan used to acquire it. The trust could have borrowed 100% to buy the property using a loan from the bank and you and later have refinanced that loan to pay you back your money (after serviceability improved).
     

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