Bought an apartment at great price a few months, have some equity... now need a place to live!

Hello guys, I have been lurking on this forum for a little while and I'm loving all the knowledgeable posts and what I've learned just from reading the experiences of others. Really inspiring!

Anyway, I am in a bit of a pickle right now, because I am a 28 year old guy... living at home with my parents.

This might not seem like relevant information to most of you, but I am really starting to feel the squeeze. I love my folks, but I really need my own space now. I feel that it's holding me back in my personal life as it relates to confidence, dating, that sort of thing. I feel like a bit of a loser having to tell friends and my dates that I'm living with my parents...

Anyway, any advice or tips to get a place would be well appreciated - thanks in advance!

Let's get on with it - about 6 months ago, I decided to purchase a very nice apartment, which was priced well for its area. I researched other properties in the area, but all had varying issues (high body corp fees, old and dated buildings, poor facilities, no view of ocean or hinterland which are abundant in Broadbeach area)...

.. however, the one I bought was fairly priced, on a decent level, low body corp, very good building, great view etc. Similar properties were at over the 400k level.

I know I have some way to go before I can buy another property, but here are my current stats:

- Got an investment loan to be able to meet serviceability criteria on a 300k loan, the purchase price was 340k (had around 60k in savings - 10k went to stamp duty and because of that, an additional couple thousand for LMI).

- The apartment is furnished, and was rented out for $500 p/w with tenant covering water and electricity.

- The tenant recently left, and has been listed on AirBNB which now earns on average $700-$800 a week.

- My repayments are around $350 weekly, with a few additional payments occasionally as I am using a redraw account.

- I was recently told by my lender that the property has increased in value by about 40k, which has given me some ideas on how to secure my own personal property... which puts my property value at around $380,000.

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The current plan: I believe I now have some equity in the property, as I understand it most banks will allow you to use about 80% of the value - what's owing on the loan.

So as far as I know, $380,000 - $300,000 = $80,000
80% of 80,000 = 64k in equity...

Unless I am totally missing something here, I have about 64k available to use as a deposit on another property.

The problem however, is that my serviceability criteria only lends me around 260-280k on most calculators, so that would put the max price on a property that I can afford to live in at the rough 300k mark. I need to go a little higher to be able to afford something I'll be happy in (looking at 350-380k).

I believe my main option at this point, is to get another investment loan to buy a house. That way, I'll meet the serviceability criteria (as they will take a rental appraisal into account as your income)... however I have a few questions about this strategy:

• Does the bank care if you purchase it as an investment property, but choose to live in it yourself? I realize there will be a higher interest rate with this.

• I am considering being an owner occupier, and having live in tenants. Is this advisable, and what are the drawbacks?

My other option - I've read all about increasing my serviceability, but as I mentioned they all hit roughly the same ballpark. I know I can afford it, but banks are being very strict these days with what they'll lend. I am going to talk to a broker about creative strategies to get them to include my rental income from AirBNB, but it seems they'll require tax returns for 2 years to be able to consider it.

If there are any recommended brokers, or any advice anyone has... please let me know!

Thanks again!

 

You can't decive the bank by calling it a IP then making it a ppor
Your serviability won't be able to cover it and then you issues with insurance and capital gains, land tax etc

 

You could always move onto a house or apartment share.

That would be quite normal for a 28 year old. And possibly more appealing to potential dates than living with parents.

 

That sounds like a good little investment property. Maybe don't change that set up. As you say see if you can buy something with low expenses that you could, dare i say tell the bank is an investment so they assess the rental but you move into.

Anyway think of the money you save by not having a girlfriend ha ha

 

Can you move into the apartment you own?

If two bedrooms, continue to rent out the spare room, either on lease or Airbnb?

Or simply move out and rent?

At age 28 it is certainly time to become independent of your parents!
Marg

 

Some information you have provided Michael and lot more needs to be asked.

I think starting point for you will be to define what your end goal is and what sort of time frame you looking at?

It's sort of reverse engineering.

And I don't think it's right to say all lenders will hit same ballpark. Lot of factors come into play and this is where broker will utilise it's network hard.

A good broker will also help you not only define your strategy but act more like a coach all along the way to make sure we hit the goal..

More than happy to have further chat over the phone or email...

Cheers,

 

So, let's do the math.

You think the property is worth $380k, you have a $300k loan.

80% of $380k = $304k.

So you're only just under an 80% LVR.

It would seem like to me you're not in the position to be further gearing. Hard to know without knowing your income etc, but you'd be flying by the seat of your pants.

 

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Hi Michael,

What do you mean you are using a redraw account? Are you redrawing directly out of your investment loan for other expenses? I believe you will have a mixed purpose loan by doing this. See Terry’s tips on this.

If you don’t already have one, set up an offset account. Pay your extra repayments into this and use the offset account as a transactional account. If you decide to later purchase a PPOR down the track, then you won’t have paid down your IP loan and can maximise on your tax benefit and can shift your surplus money in your offset account to your non-deductible PPOR loan.

As for the second part of your question, I was in a similar situation to you 6 years ago (27yo, living at home, just purchased my first IP).

I couldn’t afford a second loan either, so I moved into a share house. Rent was only $150/week and bills were split 3 ways (worked out to be $50/month).
I was really able to save, plus have the independence I needed to do my own thing without my parents watching my every move!

A year later, I moved into my IP, and rented out one of the rooms. Needless to say, it was very effective financially!

 

Also, share houses are a great way to meet people!

 

And, @Michael R , it’s not just about you.

After at least 28 years of child/adult raising, high time for your parents to have time on their own again, or, if younger siblings, a bit of relief!
Marg

 

Your sums are a little skewed. You can reborrow up to 80% of the value of the house or if you have already paid LMI then you might be able to get credit for some of it and reborrow higher.
At 80% you don't have anything to play with, at 88% you have more.
Serviceability varies from bank to bank and your situation. Whilst at home you may be able to borrow more as your living expenses are less.
In terms of your emotional needs a sharehouse might be a good step to enter the non parental world. Alternatively if there is enough money for another deposit then buy a 2 bedder and rent out the second bedroom.

 

As @AnDy62 has pointed out, this calculation is incorrect as it's valuation at 80% LVR minus your current loan so you won't have much to top up here with only $380K valuation. Depends on your income and profession some lenders will consider letting you top up to 90% LVR, for example professionals in the medical industry.

Assuming your IP is a 2 bedder then it seems logical for you to just move into the IP and rent out one room to supplement paying down the loan. That's probably the most hassle-free way to move out from parents and not having to worry about having to extend your serviceability.

If you do want to purchase another place to live though, and wanting to use the rental income from IP for servicing then yes it'll be a problem as Airbnb rental income is not deemed as consistent in bank's eyes. One way to overcome that is you can revert back to renting the place out with a 6-12 months lease, or as you said wait for 2 years to show that it is producing consistent rental income on tax return in order for banks to consider.

Either way, definitely recommend you to get in touch with a broker to discuss the options available for you. Given you're at GC, @Rolf Latham would be the perfect person to help

Cheers,
David

 

Hi Shazz, I mean that I make direct deposits occasionally to pay down my loan faster. I am with CBA, and there was some kind of issue with having an offset tied to my loan. However, as I understand it, offsets and redraw accounts work similar and additional repayments help towards reducing interest on the loan. I don't use the redraw facility unless I am in a real emergency and have not had to do so yet.

Moving into a share house seems like a great idea - it's something I'll consider if I exhaust all my solutions and am unable to secure a loan for a PPOR or liveable investment.

Thanks!

 

I see now - it seemed "too easy", so I thought there was something I am missing. I can have a deposit saved up within a few months for another property.

As far as moving into my IP, I think that would make things difficult as its making a positive ROI which gives me some leeway with another loan. Banks won't consider it at the moment since it was only purchased earlier this year anyway. Since it effectively zeroes itself out, I am thinking I may be better off securing another cheaper apartment at a great price.

 

Hey Michael, I feel you esp with your parents as I did the

same. I went for that 2nd IP, using 1st IP equity - in Sydney. My plan was max out lending capability, get the 2 IPs, rent vest and pay down.

A year or 2 down the line, I realised its not cracked up to what they say - renting is not cheap, to keep this down for refinancing/serviceability and save money faster, you end up in pretty meh rentals, changing housemates, cheap furniture, sub par bathrooms/kitchens etc. Its fine if its for a few years, but reality is this is actually going to drag for a while before you either save enough turn one into PPOR with minimal non deductible debt or buy a 3rd place (cycle continues). Or you sell an IP to help pay the other off - but that will require 5-10 years wait for CG/time in market.


some won’t like this, but I decided to bite the bullet and went home for 2.5 years. Parents were happy, paid good board, helped around the place. Aim was to turbocharge savings. The justification was that this was the sacrifice needed for investing as there wasn't that 2nd income that others did have.


In my early 20s, keen to get with property, I thought it was a great idea - the maths stacked up. And it still does. But your 30s come much faster then you think and soon you want your 'space', where you decide colour of your walls, have a pet, invite your friends whenever you want, buy that comfy expensive couch you’ll never move.


So if i were to do it again, I would not go for that 2nd IP. Prioritize to pay down IP1 loan significantly first, debt recycle with the equity in shares. Keep it flexible so you aren’t 'trapped' into cycle of renting for a long time or stay at home longer then needed.

I would choose "living" a bit more over making money