Just bought the first property, what should be next?

Discussion in 'Investment Strategy' started by houses, 20th Feb, 2020.

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  1. houses

    houses Member

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    Hi guys,

    Thanks for the previous advices I've bought my first property and now thinking about the next move. I'm in a similar situation to other previous OP but each person has different situation so would like to ask your advice (again) :).

    My current and only property is my PPOR, a 600m2 land with duplex potential, 5 mins to station, there're a number of duplex being built in my area Panania NSW.
    I'm single with an income around 200k and have about 300k cash.

    I think now I have 2 options:
    1. Build a granny flat for 130k (extra costs due to the land), I think I could rent it out for 400-430 pw, it will help my mortgage payment and increase my borrow capacity a bit but maybe devalue the property? Then refinance the whole loan and buy another investment one.
    2. No GF but buy somewhere else for an investment, for now I can borrow about 500k, so I can buy up to $750k property.

    I saw a few people buy a property, add a GF to generate more income and borrow capacity, then refinance to buy another property but not sure if it's feasible for me.
    How do you think about my options and do you have any other strategy suggestion?

    Thanks so much in advance.
     
  2. Archaon

    Archaon Well-Known Member

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    Is the Duplex not viable at this time?

    If you build a GF then you remove your duplex potential.

    Buy another property with development potential maybe?
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Grannys are typically better for income generation than appreciation.

    When we do transition to retirement coaching work in our financial planning practice, a common strategy is to move from accumulation to income phase. Granny's can be one of those, among many many others.

    If you are earning 200 k a year the " last" thing you may need is more income to pay 50 cents income tax on, over longer term cap gain. Obviously everyone has diff needs and goals

    But what is your END game............ think and feel beyond the current transaction perhaps.

    As has already been alluded to by Arch above, a structured guided discovery process can be beneficial to minimise simple but not obvious boo boos.

    ta
    rolf
     
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  4. Trainee

    Trainee Well-Known Member

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    You dont need extra cashflow. You need leverage and capital growth.

    In a way you are on a clock. Get your growth assets in place before the income is eaten up by kids and family. This is not a bad thing, kids are great, but financial drain is the likely reality.

    also learn about shares, and in your case understand trusts. This may not be useful until later on, but you need to learn now.

    that level of property exposure (1m ish?) and that level of cash suggests you are not sure where to put it.
     
    Last edited: 20th Feb, 2020
  5. Trainee

    Trainee Well-Known Member

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    Side note, what sort of loan do you have against that ppor and what form does that cash sit in?
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    Option 2 - that's a mega income. As long as job is stable for foreseeable future or your skills are easily transferable.

    The Y-man
     
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  7. houses

    houses Member

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    Thanks guys so much for the response.

    The reason for option 1 is that I can later rent just a single room to live and let the house+GF pay off itself. It will also increase my borrow capacity and so after a couple of years I could buy another property to live in

    My house is brick veneer and it's in a good condition I guess would be at least 10yrs more to demolish it. Yeah does building a GF devalue the property in my case?

    My end game is to pay off mortgage and have "some" equity (and loan). You're correct abt the tax, it drives my like crazy.

    I'm putting 200k in stock and 100k in the offset. I'm not good at trading (neither RE) but for now I wanna expand my RE portfolio. Building GF will increase my CF, but more important it will increase my borrow capacity which is what I need

    I think my questions right now could be:
    Q1 should I do option 1 right now and option 2 in say 2 year, or immediate to go option 2 and cross of option 1

    Q2. What are advantages and disadvantages of building a GF on a duplex potential brick house
     
  8. Trainee

    Trainee Well-Known Member

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    The thing is gf has very little capital value. You can afford negative cashflow if it means more cg down the road.

    Building the gf gets you say 15k cashflow but uses up 130k cash. Use that 130k as a bigger deposit to buy another place.

    Given your income, an extra 10k doesnt do much for your serviceability, and you dont need the cash.

    Talk to a good mortgage broker about your borrowing capacity in those scenarios.

    you seem to have an issue with negative cf, and very focused on serviceability. Might want to explore that and see if its based on incorrect ideas or being over conservative (your income can overcome pretty much anything).
     
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  9. spludgey

    spludgey Well-Known Member

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    If that's your end game and you're not too old, then don't bother investing. This can easily be achieved by just pumping extra money into your mortgage.

    Either that, or better: Change your goals. It feels to me like you maybe haven't spent that much time thinking about what you really want to achieve?
     
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  10. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Option 2
     
  11. Illusivedreams

    Illusivedreams Well-Known Member

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    I was in the same boat not long ago./
    My position is different to yours in so i went option 1.
    Form limited info provided i think Option 2 is better suited to you.
     
  12. houses

    houses Member

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    Thanks guys. I will speak to a broker to explore and seriously consider option 2

    Please correct me if I'm wrong, if I rent out the GF at $400pw then it's 15% return from 130k. I think it's a promising return. You're correct Im having serviceability issue as I spent almost all my borrow capacity on the first property, that's why I need to explorer the option 1.

    Thats true :), I will consider seriously

    Could you justify please. I do want to listen from everyone"s experience

    Would you mind to share your situation and the driving force to pick option 1 please? How's it going now?
     
  13. Trainee

    Trainee Well-Known Member

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    Gf is great yield. You probably dont need it. And using the cash to aim for cg would be better long term.

    talk to the mortgage broker first about what your borrowing capacity is now, with or without the gf numbers.

    would be surprised if a mil or so is your total limit, as opposed to a limit for one transaction.
     
  14. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Shared my views here a few days ago

    Just bought my FIrst home. Now what?
     
  15. Illusivedreams

    Illusivedreams Well-Known Member

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    I needed cash flow.
    Im not as much as you in accumulation stage. I have more mature portfolio and my issue is cash flow .


    My rent is also $400 PW My main dwelling was $420
    SO its a 100% increase in revenue for a $150,000 build

    Its a long term hold and purely an investment.
     
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