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First Home Buyer - PPOR

Discussion in 'General Property Chat' started by Michael V, 19th Sep, 2016.

  1. Michael V

    Michael V Well-Known Member

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    Hey everyone,

    Just want to bounce an idea and get some responses to sort of better understand this for myself.

    My wife and I plan to build our first home in around 24 months time. Essentially we are looking to spend around 350 to 400k as that is what we can afford and will meet what we want to raise our family in. Ideally we want to live in this house for a minimum of 10 years and then turn it into an investment property.

    However I also would like to get an invement property or two, maybe more, during that time. I know it might take a few years to build up money perhaps into an offset account and use that lump sum as a deposit and redraw from our loan. Am I understanding this right?

    Are there any benefits to use living in the house for 10 years then turning it into an investment property or what would be the best approach? I know I should probably delay the gratification but this is just to get some feedback :)

    Thanks in advance! Michael
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    How about this - buy a PPOR you can reno and split, then build a new house on the back - instant IP, or sell the land, in which case you have a smaller PPOR debt which will allow you to get into your IP's much sooner

    You can turn the PPOR into an IP if you want too when the time comes - see what looks ideal at the time.
     
  3. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Ideally you would want to go IO (interest only) on owner occupier property with a linked offset so that you preserve the principal loan amount by making interest only payments each month. When you convert it to an IP you have preserved the original principal there fore maximising your deductions and used your offset to decrease interest repayments on your PPOR. Best of both worlds really.

    As Jess has stated think about buying a PPOR that you can add value to as this will kick start your journey nicely.
     
  4. Michael V

    Michael V Well-Known Member

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    Thanks @Jess Peletier, is certainly something to consider for sure. Have to see what options are available :)

    Hey @Colin Rice, that is the understanding I had so good to know I am getting it right :) how long can you get interest only loans for? Would there be options to maybe split the loan as well or would that be for different purposes?
     
  5. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    IO is available initially for 5 years and depending on the lender can extend another 5 years so 10 in total .Its possible to be IO indefinitely as you can refinance and reset the 5 year term :)

    Yes you can split the loan (variable / fixed and also to separate investment debt v non investment debt) and also use funds in offset to debt recycle which is fancy talk for converting non deductible debt to deductible debt.
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Normally 5 years, sometimes 10 depending on servicing. No need to split the loan until you access equity or similar.

    Oops - didn't realise Colin had already answered!
     
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  7. joel

    joel Well-Known Member

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    The depreciation on that new house will be a lot higher in the first 10 years, it would be a significant chunk of cash flow if it was an IP early on
     
  8. Azazel

    Azazel Well-Known Member

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    Don't be shy about paying LMI (mortgage) insurance for an IP as well, it's deductible over about 5 years.
    Then you can use a smaller deposit and could be ready to get another IP in a shorter time. But be aware of possible issues if you want to refinance within that 5 years.
    I was focused on having 20% early on, would do it slightly differently now.
     
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  9. Michael V

    Michael V Well-Known Member

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    Awesome well that is reassuring for me then :)

    Would that still be fine for PPOR? I will be able to afford 10% deposit, maybe 15% including FHBG.
     
  10. Azazel

    Azazel Well-Known Member

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    Nah, only deductible for IP so doesn't really matter what deposit you use.
    Good to put all of your cash in the PPoR offset later.
     
  11. Michael V

    Michael V Well-Known Member

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    That makes sense then, makes me stress less :) looks like for the house we want to build would cost us around 400k including some landscaping and adding some value to the house with raised ceiling and alfresco area potentially. So far this looks to be around ~$1,900/month for a IO loan with offset.

    We plan to stay in the house for min 10 years and adding on to the house to build up it's value in a promising new land release down south. Still very interested in some more experienced opinions about this :)