VIC IP#3

Thanks to all SS & PC forum members for your valuable contribution.

My serviceability is up to $600k, paid of PPOR and have savings close to $150K. Invested in shares up to $50K

I have 2 units in Geelong, looking for my IP#3 here is the plan. Which one you think is best pick.

#1 Price Range $250k to $300k
Melton, Ballarat, Geelong - Unit / House with sub-division potential

#2 Price Range $300k to $400K
Werribee, Hoppers Crossing, Sunshine West, St Albans, Deer Park (0ld) - House with sub-division potential

#3 Price Range $400k to $600K
Braybrook or Maidstone - Unit / House with sub-division potential

I am thinking of going with option #1 or #2 at the moment to diversify even if I find a block with sub-division potential to build units, I don't think I will develop in a year’s time ideally like to increase my savings and when I saved up to 50% of the development cost I will consider developing.

 

Without knowing a whole lot, I'd suggest a house might be the way to go. Any reason you're set on VIC?

And are you planning to use savings for your deposit, or equity, or a combination?

If you're buying something with subdivision potential and you have enough equity/cash available, you may be able to get cracking on a subdivision straight away.

 

Hi Steven,

Thanks for your suggestion.

I am not planning to use savings for IP's, I will use equity. If required I will re-draw from offset (technically I did not pay-off PPOR, few thousand short of original loan value) I have $200K in offset.

 

Taking money from an offset account to use towards an investment is not the most efficient way to do it as the interest incurred is not tax deductible. Check out the Accounting & Tax section.

 

Option #2, but i would recommend definitely looking into Frankston as well if you haven't done so already, specially in that price bracket.

As for #3, suburbs like Bayswater, Croydon, Mooroolbark are def worth a look into, at that price range.

Other then that, Sunshine West would def be my pick. I don't think the whole stigma surrounding Sunshine presently will last. I am myself looking into this area as well at the moment.

 

Ok, I will look into that. I thought Re-draw for investment purpose is tax-deductible.

 

Thanks for that.

Sunshine West gone up a bit recently, late 2014 to mid 2015 was a better time to enter...

 

Are you the same APK that used to be from Perth on Somersoft?

 

Hi DH, Yes my SS username is apk, but I am from Melbourne.

 

Option#2. I like Deer Park/Ardeer

 

Depends on when you plan to subdivide? If immediately then option 3 by a mile.
If it's long term buy and hold with an option to subdivide in 10 years then option2.

 

Not if your taking it from your offset. You would need to pay down one of your loans and take it as a separate split.

 

I would love to do option #3 with sub-divide, being a IT contractor I prefer to keep good savings just for better SANF if I take option #3 now the savings may reduce significantly.

Maybe, #2 sub-divide in 5 years time.

 

How much of a buffer do you have? Allow say 40k for the subdivision and 2 years holding costs whilst you go through the process. If you can afford that then do it. Maidstone and Brooklyn are being heavily developed so if you could offer up a parcel of land with plans and permits then I think it would attract a good price. Sell that and then use the capital to pay down the existing dwelling which will no doubt make it positively geared OR repeat the process.

5 years is WAY to short an outlook for option2. That is more a 10+ year strategy during which time you will get surly poor growth. A number of the areas you mentioned are surrounded by land and IMO have very little growth drivers. I am a big believer in the ripple effect but only when your in the same realm as drivers. Have you ever been to say Sunshine West?

 

The horse might have bolted on Maidstone and Brooklyn. It will be difficult to line up the numbers, but if something stacks up, it would be the best option amongst the three.

Agree with the excessive land bit in werribee and hoppers crossing . But there are a lot of infrastructure positives here:

• Pacific werribee expansion.
• Aqua Pulse : It is a good mix of recreational and training aquatics
  
• Education precinct and accompanying road developments
• On going weribee mercy hospital expansion
  
• Numbers for subdivision easily stack up. It is in early stages of gentrification.
  
• Wyndham council is pretty easy going on the subdivision. No minimum lot sizes
• Princes highway in the mornings is a car park.
• Good blocks are changing hands very quickly.
  
• Duly recommended by @sash
  
• It is at the same stage where Laverton was 2-3 years back without the infrastructure.

I hope I have not contributed to competition for myself.

 

Hi APK,

I don't understand your strategy from your current holdings and proposed purchases.
Are you primarily a cash flow investor? (Assuming the gross 4.5% yield is why you picked Geelong)
What is the long term plan?
What is your purchasing criterion?
What is your exit strategy?

As others have mentioned the most important thing to consider before your next purchase is financial structure. You need a good, investment savvy broker/ lender who will set up your structure correctly. Using an offset for a deposit is not great as it's muddy waters for the ATO, especially if you're using it the smart way with your salary going into your mortgage and then the offset's card for day to day expenses.


If I had to pick an option from the above (if it were my 1st IP with no strategy) I'd say option 3 on the basis that both suburbs are closer to the CBD, are landlocked, and have sub-div potential. That being sad $600k is barely enough for Braybrook and probably not enough for Maidstone unless you source a great deal. $620k - $650k is about right for Braybrook knockdown houses with 600sqm or more.

I don't like option 2 as Werribee, Hoppers and Deer Park, in my opinion aren't great areas for buy and hold or sub-div as there's plenty of land and big developers in the area that are hard (if not impossible) to compete with.

Option 1 - don't buy a unit in any of those areas. You already have some in Geelong which is probably not bad but Melton and Ballarat are house markets not unit markets. Ballarat is probably a better sub-div area based on your budget and entry price but I'd usually only recommend the area to people with less borrowing power as regional areas usually pale in comparison to metro areas for capital growth.

 

u need a home loan split - say you have 200K split it in half and use one half 100K in redraw for investment property purchases. all the majors do it or charge a small nominal fee bankwest was $79. much cheaper and less hassle than refinancing etc.

 

for #3 most properties in madistone sell quickly ( i was looking at one and got sold on the first day of listing 665K for sub divisional plot. there is a corner site for 630K on sale. That being said, if there is something wrong with the site. they sell for less.

there is one property though 550-575K - 148 Mitchell Street, Maidstone. it is not in the intersection of a T but at the side of it and has a bustop and electrical pole. the block star couple (josh and jenna) did a subdivide on mitchell street a while back and reno the front house and made a record sale. (i did go pass their subdivsion) was done really nicely

 

Its not where you take money from but what you use the money for that counts. So, if the money you are using to purchase your investments incurs interest, then the interest will be tax deductible. Of course, so as to make your accountants life easier and so that you can easily identify the interest, best you dont use the same account for personal and investment spending.

 

You missed one important condition. The money used must be BORROWED

In the OP's case, money is parked in an offset account. It's his money. The loan on the PPOR is NOT paid off, it was simply being offset. When he takes money out of the offset account the additional interest incurred is incurred against his PPOR. He has not borrowed any more money (because the money was his to begin with).

This is why @Tranquilo advocates paying it down then reborrowing it in a separate split.