Hoping to get some thoughts...

Morning everyone!

I've read through many threads but probably still not enough! Hoping to gather some thoughts on this situation for me to do a bit more targeted research, thanks

• Age: late 30s
• Gross income: $220k pa
• 1 IP (Apartment): Estimated equity $450k
• Savings: $480k
• No PPOR, no shares, limited super (just moved back from overseas last year)
• Borrowing limit (per a big bank): $1.9m

I've been looking to buy a second IP, with the potential to turn it into a PPOR in the next 2-3 years. Hence, I've been looking for a house/semi at areas within approx. 10km radius from Sydney CBD, mainly along train/metro lines with good schools. But given the current market, this has been quite tough even if I max out the borrowing limit plus use up my savings for the deposit/stamp duty etc. The properties I've looked into so far have approx. 2.5% return.

Hoping to get some thoughts on the below:

• Should I be maxing out the borrowing limit + using all savings for an IP/potential future PPOR purchase? I can't use the 1st IP equity for the deposit/stamp duty as I've maxed out in terms of serviceability right? Unless I x-collateralise and I've read I should avoid it where possible. Any positives to do it just to get into the market? Or anything else I could do with the 1st IP to tap into that equity?
• Or should I be looking for something cheaper, where my first IP equity can cover the deposit/stamp duty etc as it will be within my serviceability, and keep my savings as contingency funds/continue to save in case I keep the 2nd property as IP/do renos, and buy a 3rd property as PPOR?
• compared to overseas, I'm surprised when I received my max borrowing limit given by the bank. I know I might be able to get more from non-banks, but haven't looked into that yet. Is it worth it?
  
• What other investment strategies should I try getting into? I'm generally risk adverse, Commercial property funds/ETFs? I'm thinking this will be better than just having cash sitting in the bank?

I don't think I have an ambitious goal but do hope to have 1-2 IPs as passive income (plus mortgage interest as deductions) and have a PPOR in the areas mentioned above. I also hope that all my assets/liabilities are structured in a way to help my tax position, apart from relying on a tax accountant, any tips would be very appreciated!

 

I’d probably get in contact with a broker who can put together a borrowing plan and run through your options.

There are a number of ways to move ahead. You can purchase multiple properties over time and either set them to pay down or sell some to reduce debt on others and produce an income stream.

In terms of your ppor, you could initially buy it as an investment property and then pay it down by selling other properties or even with part of your super when you reach preservation age.

 

Could you move into the current IP, buy what you want as your future PPOR, but use it as an IP at this point in time, and put all savings into an offset account attached to the little unit? This will give you minimum non-deductible debt, while maximising deductible debt.

 

There are varying degrees of non-bank lenders that can provide better servicing but I'm not sure if you'd need to go down this path at this stage. That said the borrowing capacity that you've been given there seems a little high for the income, was this an online calculator or a proper assessment by a banker/broker?

Logically if the new purchase is an IP then drawing equity from the unit for the deposit would help as you'd be able to account for the interest cost/use. This will however only be temporary if you convert to PPOR in future.

 

If you do buy the new IP that will become a PPOR could you move into it for a while first?
That way you could move back out, rent it until you make it permanent home and still class it as a PPOR thus saving on CGT using the 6yr rule.

 

I did have a broker but have since realised they’re not financial savvy enough to help me plan ahead. I’ve now reached out to another broker so hopefully they will give me more clarify!

Unfortunately I can’t - got pets and it’s against strata rules

It was through my bank and I did receive a preapproval letter, but it seems they don’t do a proper assessment until I actually purchase a property…

Thanks for this! I’ll definitely consider it - so many different rules / ways in property buying and hard to understand and consider it all!

I’ve also read more on this forum and I think I’ll stick with my original plan to buy an IP that will be converted into my PPOR, rather than a pure IP

 

Why dont you start with a big picture idea of how you would like your portfolio to look in 20 years time?
That may be 1/3 AU property, 1/3 AU Shares, 1/3 International Shares and own your PPOR outright owned - Not the ideal portfolio (or may be for some), but something to get you thinking longer term, and planning for that outcome.

 

Thanks @Gav - I’ve always find these questions hard, e.g. when you get those ‘Where do you see yourself in 10 years?’ questions during interviews.

Do you have any tips on how to create that long term/big picture goal? I’ve actually invested in AU shares during the GFC and did pretty well. More recently (in the last 2years) I invested in international shares which lost 1/3 of its value… feels like shares are just too unpredictable but I know I shouldn’t get too emotionally attached to past experiences. Harder said than done though!

 

Thats a tough one, but I have a couple tips that may help:-
1 - What do you like investing in - for myself I am a shares guy, but I still have 25% of my investments in property - above all I believe in diversification.
2 - If you like property, think you can add value, dont mind the hassle, give it a higher weighting.
3 - If you are prone to over reaction, shares might not be the best - you dont want to be in and out according to your daily moods.
4 - When thinking about diversification, think geography as well - do you really want to live in Australia, have your job in Aus, all your investment properties and PPOR in AUS?? This is a biggie, most people suffer from home country bias.
5 - The reality is that over time most risk assets have very similar returns.

Try talk about it with as many people as possible - often even if they cant really add anything, just talking about it can help crystallise your ideas.

And sorry about your 33% loss - there are some excellent resources/contributors in the shares section here who have an abundance of common sense and good ideas!!