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Looking for some input into my "strategy"

Discussion in 'General Property Chat' started by Glorion, 3rd Jan, 2016.

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  1. Glorion

    Glorion Well-Known Member

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    All this forum talk of strategy, goals, putting pen to paper, etc., has inspired me to want to do the same. Basically, I am currently renting in Sydney with my fiancé, and we have saved 180k for a deposit. Our gross household income is on the lower side (120k pa) as I am fulltime studying and will be until end of 2019. After that, my income will dramatically increase.

    Over the past 8 months, I have been watching the Sydney market, looking for an opportunity to buy in, with the following parameters:

    1. Approximately 70 minutes door-to-door public transport commute for my fiancé (works in Pyrmont).

    2. The weekly outgoings to roughly equate to our current outgoings of $400 / week.


    We are both quite realistic with our expectations on what we can afford – I believe we will have the serviceability for a 600k loan (and if that’s an issue, I’ll have the loan guaranteed by my folks). For a while I was looking at 2/2/1 apartments, with the intention to sublet a room in order to meet parameter 2, but instead I have moved over to looking for houses with either granny flat setups, or potential to derive income from.


    I don’t know if this is the wrong view to express, but we both would rather our money going towards paying mortgage interest, and not rent, and if we can find a place that roughly equals the outgoings of our current situation, then why not? (I mean, on 180k in a saving account you’re looking at ~5k gross pa, but peace of mind in one’s own place is worth that to me).

    Recently I came across a house that I believe meets my parameters. The listing price is around 750k – it is quite hard to price as the block is considerable smaller to all the other sold residences in the area. It is approx. 400 sqm, whereas others in the area that I have seen sold are in the 550-1000 sqm. On the block is a house with two separate entries divided by a common wall with 2 bedrooms in one side, and 3 bedrooms in the other (have their own bathroom and kitchens). The 2 bedder rents for 300 pw, the 3 bedder rents for 350 pw.

    So my idea is, if I purchase this place and live in the 2 bedder side, assuming 5% IR, Ill be looking at annual outgoings of around:

    Interest repayments: 30 000

    Internet: 1000

    Electricity: 2000

    Rates and water: 2000

    Total: 35 000, or 673/week

    Renting the 3 bedder out to get 350 x 48 weeks = 16 800

    New total: 350pw outgoings (very rough figures here)

    Now, with this, I haven’t considered tax for income from renting out the 3 bedder. Just looking for advice on what to do, can I set up the loan to be two split loans, one for the 2 bedder and one for the 3 bedder, pumping all funds into the offset of the loan attached to the part that we are living in? Would that make the interest for the loan attached to the section of the place we rent out deductible and therefore allow for better tax benefits?

    The idea is that over the next 3 years, we pump the offset with our savings (IO loan), we also have 250-300k coming from the sale of a deceased relative’s house. If my career takes me elsewhere, we can pull out the entire offset and dump that into the next PPOR purchase, or use the amassed funds for IP purchases. Would it be best to go for a 90% LVR and incur LMI, if this is the direction I want to go in? Or is 80% LVR and no LMI the right play?

    Ideally, the property would be a long-term hold (i'm 26), and hopefully in the next 3-5 years be cf neutral or +. I also have the opportunity to dramatically reduce renovation costs, building costs etc as my dad is a retired builder, and has quite a few contacts in the industry - aiming for a house feels like I could take advantage of this more than an apartment.

    So I'm not sure what I’m looking for from people, but I've tried to just put it all out (apologies for the long-windedness), and hope that people can critique, offer advice, etc., and answer some of the questions I've asked. I appreciate any and all contributions! Cheers.
     
    Sonamic likes this.
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    I don't think you will be able to get 2 x separate loans for a property that is presumably on one title only. I like the idea of dual rental incomes from the property, but is it council approved as such? (my suspicions are that the owners may just have set it up this way - as only 400m2 and minimum is usually 450m2). The common wall - is it fire rated?
     
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  3. Glorion

    Glorion Well-Known Member

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    Well it's around 440 sqm - how do I go about finding out if it is council approved? I read that you can get it approved, if its under the 450, just takes longer. Do I just contact the council for that? As for fire rating, all sorts of good questions ill put in a list and make sure I check as apart of DD when I have it inspected. Much appreciated.
     
  4. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    ......ah ring the council :)
     
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  5. teetotal

    teetotal Well-Known Member

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    Unless your fiance is planning to stay at her current job for next 20years, i would take #1 out of the selection criteria as it will only limit the market for you :)
    What is within 70min commuting today may be different if she gets another well paying job which is in a totally different direction.
    Think like an investor, if you are just beginning and are in it for the long run.
    Don't let emotions get in the way, something this forum has taught me but was a little bit late for me until I realised that.
    Cheers,
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    Well done! Most would struggle to save that.

    That's pretty high in my books!! :)

    The Y-man
     
  7. Glorion

    Glorion Well-Known Member

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    Heh, mostly attributed to my fiancé to be frank. She's incredible and is able to budget, and is extremely good with money-retention (not so wise in investing though, neither of us are at this stage, just doing as much research as possible).

    I think I'm used to whirlpool forum folk - where the grad starting salary is 120k ;)
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In a situation like this it can be possible to split the loan into the relevant portions. You will need your own valuation to apportion the purchase price over the 2 dwellings and their land, even though both are on the same title, a portion relates to each part. once you know the relevant portions the loan can be split in the same portions.

    Tax advice is essential to set this up.

    You won't be able to get a parent to guarantee the loan from a serviceability point of view, but you could use the parents property as security. (you still need to show you can afford to pay the loan on your own - without parents income). If you do this it should allow you to borrow 105% of the property value. This will maximise you deductibility of interest and avoid LMI.

    I have written a 2nd ideal loan structure post on this exact situation and will post it tomorrow.
     
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  9. Glorion

    Glorion Well-Known Member

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    Cheers Terry, look forward to reading it!
     
  10. Eugene82

    Eugene82 Active Member

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    Hi Glorion,
    Well done for saving a nice deposit. Just a few points for you to think:
    1) I'd speak with a good mortgage broker as to what you can borrow. What you think you can afford is not necessarily how the bank calculates it.
    2) You estimate you might borrow up to 600k and yet ask how to structure loans on a 750k property. Where is the shortfall plus the stamp duty and fees will come from?
    3) Sydney market might be cooling a bit. Especially in areas that are 70minutes from Pyrmont.
    4) Buying an IP and continuing to rent where you like to live might be more convenient and financially viable. Certainly if you would want to buy another property soon your borrowing power will be better that way.

    Cheers
    E.
     
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  11. Glorion

    Glorion Well-Known Member

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    Property worth 750k, 20% deposit of 150k (so 80 LVR), means a 600k loan. So that leaves me 30k for stamp duty, etc. Have I messed up my understanding?
     
  12. Eugene82

    Eugene82 Active Member

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    My bad I misread your initial post. I'd still speak with a broker though to see how much you might be able to borrow due to servicing the loan
     
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  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  14. the world is your oyster

    the world is your oyster Well-Known Member

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    mate congratulations to you and partner to have saved that much that is just awesome and a very bright future . how did you go did you end up buying that property?
     
  15. Glorion

    Glorion Well-Known Member

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    Not yet, spoke with a lady at the council who said the dual occupancy wasn't legal. So I'm going to speak to my solicitor mate, see if there's a go ahead option available. Also trying to work out finance options - it's been on the market for a while, so I dont want to rush into buying a potentially costly lemon ha!
     
  16. Tenex

    Tenex Well-Known Member

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    @Glorion very good job on saving that deposit.

    With regards to finance, talk to @Shahin_Afarin He can offer good feedback on how to do your loan to get decent tax benefits.

    With regards to the property you mentioned. I recently turned an existing property into a dual occupancy to create double rental income. These types of properties can be very bad or very good, depending on many aspects.

    Just going by the site you mentioned above, I guessed (before you mentioned anything) it would have been illegal. Here is what you should do, research the council LEP and find out if there is a way to turn it into a dual occupancy. Sometimes it is as simple as paying them a contribution fee (which they gladly accept) and putting some floor to ceiling fyrecheck gyprock between the two properties. Other times it can be more complicated or impossible.

    If you find you can (and are willing to spend the time & money) to turn it into a dual occupancy, then use this to bargain with the vendor. Tell them their dual occupancy is not registered by the local government but you will be willing to buy it at a reduced price and go from there.

    Now that you have tipped off local government, they probably are going to receive a few love letters from them any way.
     
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