Financial Planning Question

I really was not sure where to post this so I went with the finance section.
If there is a more appropriate section, please feel free to move it there.


Property value 500k
Equity + offset = 400k
Saving 75k/yr planing to do this for 5 years meaning 1.5 years to pay this off and 3.5 years to save around 240k more for a total asset base of around 750k (not including capital growth)

After that I was thinking of semi-retiring and doing something like contracting a few months a year so that I don't have to dip too much into the rental income, but not actually wanting to be forced to work to pay property debt from income.
I live abroad where cost of living is very very low so I could make this work.

Originally I was thinking I would try get a property for around 320-350k and let the last 80-100k pay itself off from rental income.

Then realised that I will be 20 years short of normal retirement age and will probably want to do some more work from time to time, and if I am able to save some money from that, it is better to have a little more property debt to pay off rather than just sticking the savings in a bank because it will get spent, plus the property will appreciate and also higher income from rent. I hate shares btw so please just assume that is not an option I am willing to consider.
So then I was thinking I could get something for a little more like 400k.

But now I am thinking for that price, you have to go a little far out of the CBD in Melb/Bris (30-35km), and as a general rule, don't want to go "too" far out since there is more land available and therefore less capital growth in the long term.

What I am wondering now, and the reason for posting is, that with so much equity (and income that I can save) - I assume I can borrow quite a bit over 400k and was wondering if borrowing more and getting something closer to the CBD would be a better investment strategy?

The main problem is that selling it later would be a big pain in the ass and I was hoping to avoid selling something to purchase something cheaper when I want to reduce debt (paying CGT and stamp duty meaning lower priced asset and rent also after paying the CGT) - but now I am curious if it would be a better financial decision to do that. With the higher loan, the yield would be higher to offset the loan, plus since I will be paying about 240k of it off and it is positively geared, this would mean paying it off faster to offset some of the extra time taken to pay the higher loan.

If I bought something for say 550 or 600, would it be much more likely to produce a higher return (percentage-wise) making it a better strategy even when considering the cost of selling?

Thanks for any thoughts & comments on this.

 

You will need to make an educated guess as to which area will grow more.

Keep in mind the tax consequences of living abroad. Both income tax and land tax in qld

 

Do you think that a property say 20km out of Melb CBD is likely to appreciate more than something 30km out (relative to the value of the investment)?

Land tax - ok yea I need to find out the rates for that since it will be different to Sydney. Thanks for the tip.
Income tax - I was not aware that living abroad would incur different income tax rates depending which state the IP is.

 

Many ways to skin a cat. If close proximity to cbd is one of your buying rules then you'll have to work how this particular purchase, within 7ks or whatever, is going to move you closer to your financial goal. If your strategy is waiting for organic growth to allow you to buy again, or to pay off other debt then best of luck. Really it depends on your timeframe and ability to access deals with potential to create the yield or equity you want with numbers stacking up regardless of market forces, or your patience. Maybe look at deve sites/dual occ to work on when you return or get a project manager?

 

Oh I didn't consider borrowing more and get a bigger piece of land that I can split later and sell half and keep the other half - so I would't need to deal with needing to re-purchase (after selling) as a way to reduce debt later.

Interesting idea - thanks!

 

In qld non residents are taxed the same as trusts and get a $350k threshold. Applies to citizens too. From memory not living in Australia for 6 months qualifies I as a non resident

 

Yes I am currently classified as a non-resident for tax purposes since I don't spend any time over there. Which means I have no personal income there, but the tax on my rental income has no tax-free threshold and from the first dollar is 32%.

Sorry but what was teh 350k threshold for?
And do you know if it applies outside QLD (Syd/Melb)?

 

You might find it hard getting a loan with foreign currency income in any case. What currency are you paid in?

 

Paid in AUD.

Last time, along with a very big deposit (which I think would work the same with it now being a lot of equity), and a letter from employer who I have been with for many years, was enough.
But yes I do need to talk to a mortgage broker soon though to check how much I could borrow, but I think it will be fine.

Ideally I would talk to a financial advisor but I am worried since they can really steer you in a bad direction, which is why I am trying to find out as much as I can on my own also before making any decisions.