Investment help please..

Hello all, first post so go easy! I hope this is not too complex a question..

We have purchased a property in Warrandyte in Melb eastern suburbs as our family home. We payed $950K 18 months ago and have just had a 1.2 mil bank valuation, and we currently owe around $730k on it. The house needs about $170k in renovations to finish it, including kitchen, bathrooms, yard works, and so I need some advice. We want to invest in property and help pay down the mortgage faster, so should I look to borrow some money now and invest it before the renovations? Or renovate first and then use the increased equity to borrow and invest after that? Bank will lend around $175k to us now and if we spent it on renovations, we would easily add $400-$500k value to the house. Then we would have a $900k mortgage on a house worth around 1.6mil.

Any advice much appreciated
Thanks, Ivan.

 

Well done that's some good growth.

$170k to increase value by $400k-$500k seems like a pretty good return and as you are living there you get to enjoy it.

Taking the $175k and leveraging it into investment properties would need too offer a similar or better return than the renovations to make it worth while IMO - keeping in mind that leverage is a double edged sword.

The second option does spread your investments and offer more diversity in your properties.

Good options to have, only you can make the decision based on your specific circumstances.

 

Hi Ivan,

It will be important to get your borrowing capacity checked by a broker so you can be sure you can still buy your investments after the reno's - a large PPOR debt is a bit of a serviceability killer for many people, no matter how much equity they have.

Also make sure your current lender is good with large cash-outs for investment purposes, not all are created equal in that regard.

 

Quick question - if the PPOR is used for security but the loan purpose was investment - does it still kill serviceability (assuming the investment cashflow covers the mortgage repayments)?

 

Yeah I'd love to know this so I'll ask my Broker for some advice and report back.

Thanks for the tips so far. I am in my late 40s and am determined to get some investments going over the next couple of years to setup my retirement better..

 

@IvyG No it doesn't - well, not more than any other investment debt. At least it's deductible.

At the end of the day, ALL debt kills servicibility.

 

Thanks Hodor, can you explain what you mean by double edged sword? I'm assuming you're talking about the risks associated with buying any investment yeah?

 

Leverage is a magnifier (which you pay for) of investment performance. Any investment has risks in the hope of rewards, both are increased when using leverage.