Investment strategy

Hi all

Should I purchase one IP for 950k; or purchase two IPs for 450-500k each. I'm able to borrow enough to service an IP for 1 million.

My goal is capital growth and am intending to hold for as long as possible (30+ years).

About me: I'm in my mid 20s and live at home (please don't look down at me too much haha). My salary is about $100k before tax. I don't have any debt or property. I save the bulk of my salary. Including board, I probably only spend about $250 a week. I don't have my own car and use my parent's car and my own road bike. I do some cash jobs on the side. I'm single, but would appreciate the option of purchasing my own PPOR (550k PPOR is fine) in about 4 years time. If I'm still single then (hopefully not), I'd rent the other rooms out.

I'm only looking at purchasing a house (not units). I've been fixated at buying an IP in Brisbane for around 900k (as close to the CBD as possible). If I were to buy a cheaper IP for about 500k first, I would be looking around the Coopers Plains area but I know the area is already 550k+ on average for a 3 bedroom house. I'm looking at Brisbane only at this stage.

Any advice?

Thanks in advance.

 

Not sure if it's relevant or not, but I've got about 150k saved up thus far.

 

I have written a thread on why it is generally better to buy cheaper properties. See the statehood link in my signature

 

If you plan on buying a PPOR in 4 years, would it make any sense to buy something that you like for that now and just get tenants in to stay there and help you pay it off for the first 4 years and then just move into it later?

Then to help with the new problem of serviceability that we all face, you could buy another IP just before you move in, and after you got the loan, get the tenants out of the one that you want to live in and move in there.

Whichever way you go, don't forget to get 100% offsets and IO on all your loans so that when you get a PPOR, you can use the cash from your offsets to put into the PPOR to pay off the non-deductible debt to maximise your tax deductions.

 

I'm struggling to figure out how you can borrow 1m on 100k gross. Is this assuming rental income and the fact they will be IP's, or 1m borrowing capacity based on a PPOR purchase?

 

Hiya

It's hard to know which would be better (one higher priced or two cheaper) - I've personally had more success with the former.

On a side note - something to consider is that it could be difficult (borrowing capacity wise) to purchase an owner occ down the track when you have a couple of IP loans under your belt. Especially given the recent widespread changes banks have made to their servicing calculators.

Cheers

Jamie

 

I would go with 2x in coopers plains or something similar as it is 10km from cbd and neighbours Sunnybank so money will flow over from there plus the proximity to CBD will also help CG and demand for rentals.

I also see it as less risk compared to one as you have more options e.g. Live in one, sell one plus if one property is vacant then 50% of portfolio is rented compared to the one which means 0%... chances of both properties being vacant is a lot rarer.

Further the 900k you might get 600-700pw rent where as 500k you probably will get 450-500 so the holding costs are also easier for your first property.

 

Me too!

OP have you spoken to a broker? If not, I would suggest you do before wasting cycles looking at property that is indeed outside your affordability range.

 

Yes, I've met with brokers. They've said I can service an investment property worth $1million. I've saved up a bit over 150k, so would need to borrow 900kish. Yes that would be taking into account rental income.

 

Yes, this is based on rental income. I'm not borrowing 1m, probably borrowing about 900k or less. I can also borrow up to 50k from parents to avoid LMI if necessary.

 

And yes, this is based on IP only - not PPOR.

 

Say I purchase an IP in 2017. Then in 2020 I purchase my second property with the intention of being a PPOR. If I experience difficulties with serviceability, are there any issues applying for the 2nd property to be an IP; and then a few months later changing the IP loan to be a PPOR? (the intention is to deal with the issue of serviceability)

 

He already said it is for an IP and he plans to continue living with his folks for 4 more years before buying a PPOR.

100k gross salary + 2x 500k properties @ 5% loan rate and 4% yield + assuming 90% LVR so 100k despot and 900k borrowed

income

after tax: 73k
IP1 of 80% rent = 16k
IP2 of 80% rent = 16k

total incoming = 105k

outgoings

450k loan x 2 @ 7.25% P&I 25 yr loan = 78k pa
min living expenses = 30k

total outgoings = 108k



What am I missing that makes this look like it won't work?

The lenders calculations are at this point, frankly, ridiculous.

In the above calcs, the outgoings are in reality going to be about 60% of what they come out to be.
I agree some leeway is important, but multiplying his outgoings by 1.66 is absurd. If he can get around some of this nonsense - and if he understands the basic numbers to make sure he can actually service it if interest rates rise a couple of percent - I don't see any reason not to do this.

But yes you have a point - he should know these numbers and make sure for himself that he will be able to service his loans if rates rise, as well as have enough money in an offset in case he is jobless for period of time.

 

With every property you buy you learn that bit more so I would spread the risk, buy two. Let one settle first and then go for the other. Also I won't spend all that the bank is lending me, will go below that and make it financially comfortable and not stressful.