How to get the second property

Hello everyone, reading this forum has taught me a lot but my current situation required me to create an account!

I have purchased a house and land package for $360k with a 105% guarantor loan. The house is due for completion in 6 months, which I will need to live in for a further 6 months (First Home Owners Grant). I have 80k in my offset and plan on renting the property out ASAP.

Basically, I am unsure of the best strategy for me to get my next investment property. I know a lot of people use equity from there first property to get into the second but it will take me years to have enough equity for that. Therefore it seems I need to save up enough to remove the guarantee (90k) plus enough for a deposit. It seems very odd to me that I was able to get the first property so easily with basically no deposit but the second might require 150k? Would the banks consider lending while my first property is still under a guarantor loan? Am I currently just in huge debt in their eyes until the property is built? or will they consider its potential value?

Any advice would be greatly appreciated!

 

Hi Lazarus,

How's your income and other debt looking? If your overall position is strong, they may not mind the leverage, especially if you've got savings history to show you're not living on the edge completely.

But, do think about your parents and the risk that they are carrying with the guarantee, it may be worth getting rid of that - even if it means copping some LMI - and moving forward from there.

 

Thanks for the quick response Jess!

Income is 80k pa. No other debts. I think my history would be good as the 80k built up consistently over a couple of years and I have credit cards paid off at the end of the month. Yes, I agree regarding the guarantee.

Therefore would you think I save up enough to free my parents and for a deposit with LMI and aim to buy when my first property is complete pending a good valuation? Would it be beneficial to wait until I am renting the first property or would that only be necessary if servicing was an issue? (I assume my main issue is getting enough for a deposit).

 

Presume you're aware that credit card are reducing your borrowing power?

You may be able to buy the IP while PPOR is under construction (presume you're living with your parents until then?). The lender will take into account the new rent.

If the only issue is the deposit (besides the funds in the offset), LMI would be an option and/or talking with your parents, they might be happy to guarantee the missing bit? (Hope they are guaranteeing only 25% of the PPOR, not all of it?)

 

You don't need to remove the guarantor loan before your next purchase. The bank doesn't have an issue with this. However, it may be a discussion between you and your parents as to a timeframe for removing the guarantor. If it pushes out beyond 5 year horizon, it may be worth leaving it as is and using your savings for the next IP, serviceability dependent.

Without knowing your full situation clearly, a draft plan could look like;
1. Build current place
2. Move in for 6 months.
3. Move back in with parents (this will assist serviceability drastically).
4. Save for the next deposit, buy IP. If deposits are the issue, may be worth coming up with a value add property plan. This helps generate the next deposit and keep moving forward (if thats the goal). Map out your finance and serviceability options before moving ahead here, as you want to know whether you can do this, budgets, etc.
5. Revisit the current guarantor home with view to removing the guarantor via equity growth/pay down.