Looking to buy an IP, need help with strategy

Discussion in 'Investment Strategy' started by shrimp42, 4th Jun, 2020.

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  1. shrimp42

    shrimp42 Member

    Joined:
    4th Jun, 2020
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    Location:
    Sydney
    Hi all,

    My wife and I are looking to buy an investment property. We currently have a PPOR in Sydney with a mortgage of $950k. We have savings of $270k in offset, and $40k in ETF's. She isn't working at the moment due COVID(and may not return as we are thinking of having kids). Household income is $230k. We have calculated that we can save $20k-$30k per year, which I want to put towards more ETF's, rather than pay down PPOR.

    She wants to use $250k of our savings, which is her inheritance, to buy an IP. I'm looking for advice on the best way to go about doing this to maximise our wealth long term. We are unsure on what type of property, and where to buy. For instance, would it be more beneficial to buy a 1 bed unit for $400k in an inner city location, or a 2 bed for $800k, or a house in an outer suburb for $800k.

    Is it better to get the IP mortgage as an IO so we can put extra cash into our PPOR offset? Or would it be better to have the IP mortgage as P&I and have it as cost neutral as possible(buy a cheaper IP and use a larger deposit)?

    Ideally, I don't want to have to divert our annual savings targets away from ETF's and into an IP, as I believe there will be stronger growth in diversified share markets long term, more than property.

    Our target is to retire with a fully paid off PPOR and 1 or maybe 2 IP, plus income from shares, and super. Is there anyone who could offer advice as to what the best way to achieve this? I don't want to start off on the wrong foot with buying the wrong property.

    Thanks
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    I'd say look at debt recycling before you use cash directly from offset. Set up finance correctly to enable this.

    Also, IO for investment is preferred especially if you have non tax deductible debt.
     
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  3. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Location:
    Perth WA
    Hi Shrimp :).

    Great to see you already have a good idea about what you’re hoping to achieve - that’s half the battle won. :)

    We’re about to launch Strategy Live, and can answer all those questions as part of the process - if you’d like some more info, there’s a link in my signature below that explains it in a bit more detail.

    We’ll be launching next week! Hit me up if you have questions.
     
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  4. Trainee

    Trainee Well-Known Member

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    20-30k savings on 230k income?

    will ungeared shares outperform geared property?
     
  5. shrimp42

    shrimp42 Member

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    4th Jun, 2020
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    Location:
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    Hi there, obviously no one can tell for sure how investments will perform, especially in the short term, but I'm planning to hold on to my shares long term (10 years+) and I'm expecting between 5-8% growth per annum on average
     
  6. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

    Joined:
    23rd Aug, 2015
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    Location:
    Bella Vista
    Big Shrimp

    Leave your cash in the offset and try to draw out equity in your property so it tax deductible.the cash can be used for a rainy day.

    And yes leave your invest as IO and just have the left over cash in your offset to reduce the interest payable.

    But since you're the sole income earner soon, you gota work out the numbers to see what you're able to afford and how much you can afford to negative gear.

    Any particular suburb in Sydney you looking at ?